5 Myths About Bitcoin That Need To Die
One of Bitcoin’s best and worst traits is that it’s surrounded by misinformation. All right, so that’s mainly “worst” and not “best” but it does add an air of mystery and intrigue into the mix.
The reality is that most people don’t know what bitcoin is or what the blockchain does. For instance, an acquaintance of mine recently announced that he had decided to “get in on bitcoin.”
What he actually meant was, he had chosen to buy some cryptocurrencies, because he wants to be rich without having to do anything. That’s a motivation I can understand, if not respect.
But guess what he said when I asked him which cryptocurrency he had chosen, and why. For the life of him, he couldn’t tell me. What he did say, though, is that, “you have to get started sometime, right?”
That is, in fact, a myth.
So with that spirit in mind, and in honor of fiscally illiterate people the world over, let us expose and bust the 5 worst myths about bitcoin.
Myth #1: Bitcoin is dead.
Let’s get this out of the way right now. Yes, bitcoin has seen some serious loss in value over the last several months. In fact, the price of bitcoin reached a high of almost $20,000 by Mid-December, but then plunged to $6,900 by February.
That’s enough of a drop to make any investor cringe, and it leads to a whole bunch of bitcoin eulogies.
But as we pointed out last week, bitcoin has actually been here before. In 2011 and 2013 bitcoin crashed by 60% or more and eventually recovered. Of course, the past is no real indication of future performance, but it is unlikely that we’ve seen the end of bitcoin just yet.
(Things change quickly, but at the time of writing, bitcoin had recovered to just over $11,000.)
Myth #2: Bitcoin is secure.
Now that we’ve complimented bitcoin on its durability, let’s take it down a peg. It’s not nearly as secure as some would have you believe.
After all, hackers have stolen millions of dollars in Bitcoin. Sometimes these attacks are sophisticated and professional, like when hackers broke into the bitcoin mining marketplace NiceHash and stole $64 million dollars worth of Bitcoins.
… and sometimes a guy breaks into your house and steals your stash, along with a sandwich from your fridge. Or at least that’s the fear that’s prompted Xapo to store their bitcoins in a concrete bunker in Switzerland.
Myth #3: Bitcoin is bad for the environment.
This one is a bit contentious. Recently, a number of prominent media organizations came out with reports on the environmental impact of Bitcoin mining. CNN asked if the bitcoin boom “may be a disaster for the environment.” That's because this widely cited website shows that Bitcoin's current estimated annual electricity consumption (51.09 TWh at the time of writing) is roughly equal to all the energy used by the entire nation of Ireland… twice over.
It's a huge amount of energy and it's being used to power the computers that are “mining” bitcoin. To give a bit more context here, processing every VISA transaction each year (combined) takes about 1.5% of the energy. One bitcoin transaction consumes 4.5 times the amount of energy used by 100,000 VISA transactions.
Yes, it's a lot of wasted energy. And then there's the question of where the mining takes place, and how that region's electricity is being produced. Most bitcoin miners are in China, where coal and other fossil fuel use is prevalent.
But there are a few arguments to suggest it's not as bad as all that. Think about the amount of energy required to print bills or stamp coins – never mind the realities of mining gold. This website estimates that mining gold uses a total annual energy consumption equivalent to 123 million barrels of oil – against bitcoin's 6.6 million barrels. That's because the gold mining industry is much larger than bitcoin mining, but as long as bitcoin use remains niche so too will its total energy consumption.
On top of that, there are a number of people who don't buy the bitcoin mining figures I used above. Wired notes that others calculate bitcoin's mining uses only 4 TWh per year, about a third of the energy used for Christmas lights every year in the United States.
Myth #4: Bitcoin is anonymous.
One of the reasons why libertarians, drug dealers, and privacy wonks love bitcoin is its supposed anonymity. Don’t get me wrong, I am a fervent believer in privacy and our right to it. And I’m not even a libertarian or a drug dealer.
But the reality is that bitcoin is no longer the most anonymous crypto on the blockchain. It’s not even much more anonymous than those performance reviews you were supposed to give teachers at the end of every school year, after they’d spent the last 8 months learning what your handwriting looked like.
Bitcoin is not actually anonymous at all. It’s what is called pseudonymous. The blockchain upon which bitcoin is built is transparent. That means that each transaction is publicly recorded and visible to anyone around the world.
So although your identity is hidden, your transactions are not. And they’re all linked. So if anybody traces one of your transactions, they can link it to anything else you might have bought. Great, now both your wife and your girlfriend know you bought them flowers for Valentine’s Day.
There are ways around this. You can use multiple wallets. You can employ a mixing service. But the best solution might be to just use a cryptocurrency that was developed with privacy at its heart, like Monero.
Monero uses something called a ring signature to help hide the sender and receiver as well as transaction amounts by default. Basically, a ring signature means a group of users could be responsible, but there’s no way to know which key was used.
Myth #5: It’s beyond the reach of the government.
This is another major plus for bitcoin fans, many of whom are inherently skeptical of government control over, well, just about anything.
Bitcoin is decentralized. Which some argue makes it untouchable by governments. Of course, governments can always just ban it. But as the war on drugs has shown, banning something and getting rid of it are two very different things.
Does any government have the power to actually destroy or control bitcoin?
Well, the answer is.. maybe. Back in September, Chinese regulators shut down all exchanges on the mainland. The price tanked but, as we said already, eventually climbed back higher than before.
Nobody really knows what governments are capable of. They like to keep things secret (like Bigfoot, or MKUltra). And governments have often gone to extremes to maintain their control.
So whether or not governments have the power to completely kill bitcoin, they surely have the power to make using it difficult and dangerous. So the question is, does the government have the motivation to try?
Given that one of the main perceived advantages of a cryptocurrency is that it keeps your money out of the hands of the government, then the government may have little choice but to act, eventually.
Whatever bitcoin’s fate, which nobody really knows anyway, the blockchain is likely here to stay. Just don’t get fooled into believing the myths floating around out there, especially if you’ve got money riding on it (even if, like my friend, you’re not sure which one you bought).