Learn about bitcoin
Bitcoin’s biggest myths
What is the truth about bitcoin? Learn about bitcoin use cases and misconceptions.
As a relatively new addition to our world, misinformation about bitcoin still taints the landscape. While some myths, like the idea that elephants live in fear of mice climbing up their trunks, are harmless, others have a significant impact on how we perceive the world around us. Many of these myths arrived alongside bitcoin’s first transaction back in 2009 and have persisted to this day.
At Trezor, we believe that educating individuals about the bitcoin movement is the best way to ensure their empowerment, so let’s address the elephant in the room and debunk some of the biggest myths in bitcoin.
Contents
- Bitcoin is useless in the real world
- Bitcoin is for criminals
- Bitcoin is illegal or likely to be criminalized
- Bitcoin is a pyramid or Ponzi scheme
- Bitcoin is safe when stored by a company
Myth: Bitcoin is not useful in the real world
One of the longest-running critiques leveled against bitcoin is the idea that it has no real-world use cases. At the beginning, people said that bitcoin would never be used to buy goods in the real world. This idea was of course first officially challenged back in 2010 when a programmer named Laszlo Hanyecz became the first person to buy a real product with cryptocurrency. On May 22nd, a day now celebrated as Bitcoin Pizza Day, he bought two pizzas for 10,000 bitcoin (valued at around just $40 USD at the time).
When people hear about the price of bitcoin today, it is understandable that they might be curious about the source of the currency’s value. Here, it is important to consider that the value of bitcoin is actually considered to be a use case in and of itself.
Much like gold, bitcoin is a store of value that stands apart from stocks and other investments. When bitcoin was first outlined in its 2008 whitepaper, it was introduced alongside criticism of the financial intermediaries that contributed to the 2008 financial crisis. Unlike with fiat currencies, there is only a fixed number of bitcoins that will ever exist in circulation. This gives it a use case as a quantifiable store of value that is deflationary in the long term.
Second, a major use for bitcoin that often gets left out of these discussions is remittance. For context, 200 million migrant workers send money home every year in order to support their loved ones, according to the International Fund for Agricultural Development (IFAD). IFAD further states that 800 million people benefit from this practice every year.
Prior to the advent of cryptocurrencies, only a few money transfer providers like Western Union and MoneyGram made up the overwhelming majority of remittances. Yet using these types of services often incurs fees that are calculated as a percentage cost of the transaction. This can quickly add up. In situations where every dollar counts, it can put significant strain on people and families.
Bitcoin, on the other hand, is often seen as a great way to carry out international remittances. With bitcoin, you pay a transaction fee that is independent of the amount sent. Regardless of how much money you send, you will still pay roughly the same fee to miners based on how busy the network is at the time. This means that, even when bitcoin’s transaction fees are too high to justify small on-chain transactions like paying for a cup of coffee, it can still be a very cost effective way to send larger payments.
In addition, as many as 1.4 billion adults remain unbanked and are locked out of many essential financial services as a consequence. For these people, bitcoin can be a way to spend and receive money and access services that are otherwise unavailable to them.
Across the world, there are many countries where bitcoin is used everyday by a significant population. For instance, people in Nigeria and Venezuela have used cryptocurrencies as a supplement to their drastically inflation-stricken currencies. Meanwhile, El Salvador made news in 2021 for being the first country to consider bitcoin as its second legal tender.
Finally, it is important to consider that bitcoin is still in its infancy relevant to other technological advancements. We are frequently seeing updates to bitcoin such as the lightning network which address its scalability and make transaction fees consistently low enough to justify everyday spending. At the same time, new use cases are continually emerging.
Myth: Bitcoin is for criminals
One of the oldest myths related to bitcoin is that it is, in some way, associated with criminal activity. While criminals making use of bitcoin is certainly an issue that regulators are tasked with tackling, as is the case with every form of currency, this represents only a small fraction of the totality of bitcoin transactions.
Largely, this myth was born out of the misconception that bitcoin is untraceable. In fact, during the early days of the cryptocurrency movement, it was not uncommon to hear bitcoin praised by some for features like its “anonymity” and “privacy.”
Yet, in reality, bitcoin is incredibly transparent. Core to bitcoin’s underlying blockchain technology, is the fact that anyone can view a public ledger of every bitcoin transaction that has occurred since the first bitcoin transaction took place back in 2009. Using one of the many publicly available bitcoin explorers, such as the one hosted by Mempool Space, it takes just a few seconds to look up a wallet address and explore all of its associated activity.
In addition, many regulators across the world have tightened up the requirements on how bitcoin can be purchased from centralized exchanges. Depending on your jurisdiction, exchanges will likely have to complete a Know Your Customer (KYC) process in order to identify their customers before selling them crypto. This is the same process that banks have to carry out in order to combat the financing of illicit activity and terrorism with fiat currencies as well.
While KYC procedures are antithetical to bitcoin’s peer-to-peer intentions, they have become almost ubiquitous. The good news is that, alongside bitcoin’s increased public recognition and adoption, the idea that bitcoin is a currency for criminals has greatly diminished. There still exist several ways to buy bitcoin without KYC, including directly to your Trezor using Trezor Suite’s Buy P2P feature or choosing a Buy provider with a non-KYC policy for smaller amounts.
Myth: Bitcoin is illegal or likely to be criminalized
Bitcoin was first introduced as a form of ideological opposition to the governments and central financial authorities that dominate our lives. This has led to the persistent idea that governments are ready to criminalize bitcoin at any moment.
This misconception is not fundamentally wrong, as there have been certain movements by lawmakers in some countries to restrict the usage of cryptocurrencies like bitcoin in some specific ways. For the most part, though, these efforts have involved regulating cryptocurrency mining. Mining, in this context, is the process in which network participants dedicate computing resources to verifying transactions, in exchange for the chance to earn bitcoin.
News of China’s on-again-off-again relationship with bitcoin, for instance, has meant that people are constantly reading words like “ban” and “bitcoin” within the same headlines. But considering China’s actual regulatory actions provides a much clearer picture. In 2021, they moved to ban bitcoin mining. As one of the most popular destinations in the world for crypto miners, the media hysteria was not unfounded. However, this played out in a way that is widely considered to have had favorable long-term results for bitcoin’s decentralization. As no country is in control of bitcoin’s global network of users, miners simply continued their operations elsewhere and became more dispersed across a range of other countries around the world.
Even if a large collection of national regulators did wish to take an outwardly oppositional stance, an idea that very few countries on Earth have flirted with, bitcoin’s decentralization and global reach means that governments cannot “shut down” or “ban” the network. By viewing bitcoin’s currently reachable nodes through a tool like Bitnodes, you can see how bitcoin is spread out across the world. As long as just one of these nodes is operational, the entire network will continue to function.
Myth: Bitcoin is a pyramid or Ponzi scheme
The idea that bitcoin might be some kind of scheme to defraud users is an understandable one, as people have a right to think critically about new developments in the financial space and there are many historical precedents to point to. Nonetheless, this is a myth rooted in insufficient public education about cryptocurrency.
A decentralized cryptocurrency, such as bitcoin, is a peer-to-peer network made of individual users. Within this network, both bitcoin’s source code and all of the transaction activity conducted on the network are publicly viewable at all times. Decisions to support certain changes or add features are made by the community as a whole and the currency’s value is determined by how people choose to value it.
Decentralized networks are fundamentally designed to be trustless. You do not need to, at any point, trust that someone is acting in good faith when using bitcoin. Rather, you can merely check the code and the transactions for yourself in order to determine that no one is behaving fraudulently.
The supply of bitcoin has been distributed fairly to anyone who participates in mining, since the beginning, so there is no central authority that stands to profit disproportionally from bitcoin, as would be the case with a multi-level marketing scheme.
You can assess the overall health of the network at any time by viewing its hash rate distribution which documents the total hash power provided by each mining pool and can be used to estimate how much power would need to be controlled by a single entity to control the network: around 130 exahash per second, or over a million of the most powerful mining computers.
No one is promised any return on their investment for buying bitcoin. However, it is important to note that there are cryptocurrencies on the market today that are not decentralized and have tried to capitalize on bitcoin’s popularity in order to defraud investors. In one particularly famous example, the founder of a cryptocurrency known as BitConnect was incited by the US Department of Justice for his role in allegedly orchestrating a Ponzi scheme.
BitConnect, unlike bitcoin, was centralized, not transparent or open source, and guaranteed investors up to a 40% return on their investment per month. For these reasons, it was no surprise to crypto proponents that BitConnect was not what it claimed to be. Many people were impacted by this case, but it did not stop billions more dollars being lost to other lending schemes such as Celsius and BlockFi in the years that followed. This is another reason why delivering education about the cryptocurrency space and clearing up misconceptions is so important.
Myth: Bitcoin is safe when stored by a company
One of the core themes that we have explored in this article is the various reasons why bitcoin is a lot more resilient than some people might think. Yet, the caveat to all of this is that bitcoin is only as secure as you make it.
One of the most popular sayings to emerge among cryptocurrency experts is the phrase “not your keys, not your coins.” As you may know by now, storing Bitcoin means sending them to an address created by your cryptocurrency wallet. This wallet’s main job is to store a piece of data known as a private key, which is needed to freely spend and trade the bitcoin at a certain address.
If you buy bitcoin from a custodial exchange, you leave your coins under the exchange’s control. While this may be convenient, it is important to consider the fact that centralized exchanges are frequently hacked or mishandle their clients’ money. In addition, while many exchanges operate in good faith, there are bad actors out there that look to steal from unsuspecting clients, and will often promise unbelievable percentage returns.
Luckily, it’s easy to avoid being at the mercy of a custodial exchange. One of the truly revolutionary features of the cryptocurrency movement is the fact that currencies like Bitcoin enable a trustless financial system. If you are the sole person in control of your private key, you never have to place trust in anyone other than yourself to keep your Bitcoin secure.
Consumer products like Trezor have made cryptocurrency incredibly accessible and easy. Anyone can store crypto in a secure hardware wallet and independently control their bitcoin, meaning there is little excuse to leave your coins in someone else’s control.
If you are someone who has their crypto in a custodial wallet, your best course of action is to transfer your coins to a wallet that is exclusively managed by you. There are many software and hardware wallet options out there, but the ‘cold storage’ of a hardware wallet ensures your keys only exist in your control, rather than on a hackable network.
Alternatively, if you are looking to buy bitcoin for the first time, it would be a better idea to purchase your crypto from a non-custodial exchange, where the exchange will send your crypto directly to your Trezor or other wallet address you provide. Your bitcoin will be sent to you directly and will remain safe in your hands until you choose to spend it.
We all have a part to play in addressing misconceptions and clear up harmful myths by promoting educational content related to bitcoin and the broader cryptocurrency movement. Bitcoin is ultimately a lot more secure than many members of the public may believe, but it is up to individual holders to make sure that their coins are safe by using proven security methods and taking full responsibility. It’s easier than you think!
