Top five cryptocurrency myths

Their early mystique has given rise to many a cryptocurrency myth or misunderstanding which can be easily dispelled

 01 Criminals use cryptos because they are anonymous

Cryptocurrencies are often viewed with suspicion because of alleged links to criminal activity. Many believe, wrongly, that bitcoin and other cryptos attract dark-web lurkers because of their anonymity. While users can be pseudo-anonymous, every translation on the underlying blockchain is traceable, by design. Kerim Derhalli, chief executive of Invstr, says: “The single most-outdated misconception is that bitcoin and other ‘shady’ cryptos are the preserve of drug dealers, child abusers and weapons merchants. The association of bitcoin with criminality is a throwback to its earliest days and has been deeply unhelpful.” George Morris, partner at global law firm Simmons & Simmons, adds: “The majority of cryptocurrencies are not entirely anonymous; in fact they have a layer of transparency that sets them apart from physical commodities and cash. The physical US dollar remains the number-one instrument worldwide for nefarious transactions and that is not going to change soon. Cash remains king as it provides a level of anonymisation that cannot be replicated by any cryptocurrency.” 

02 Cryptos have no value

Sceptics question the value of cryptocurrencies and ridicule investors for backing speculative, unregulated assets. However, the fact is cryptos are global, borderless currencies that fluctuate based on supply and demand. Indeed, that it is cashless is why numerous supporters believe it is the future of finance. Siam Kidd, founder of TheRealisticTrader.com, says: “Over 90 per cent of the money people hold dear, like the dollar, euro or pound, is already in digital format. There is a very small supply of actual hard money these days. The general trend around the world is a move towards cashless societies. Also cryptos like bitcoin can’t just be inflated away via quantitative easing like fiat currencies, and as bitcoin is a scarce and deflationary currency, it’s easily argued that it is a far better store of wealth.” 

03 Crypto transactions take too long to complete

In December, blockchain.com calculated that one bitcoin transaction takes on average 78 minutes. This can be frustratingly slow and, worse, unreliable – two of the main reasons financial institutions have not adopted the original cryptocurrency. However, countless other cryptos have learnt from bitcoin’s sluggishness and boast near-instant transaction speeds. XRP, the token of Ripple, has a processing speed of just four seconds, according to the blockchain.com research. Further, Ripple is able to complete 1,500 transactions a second. It is still some way of Visa’s 24,000 transactions per second, but the technology is being improved upon all the time. For instance, at BlockShow 2018 Europe, hosted in Berlin in late-May, David Schwartz, the chief cryptographer at Ripple hailed the recent introduction of the Lightning Network, calling it a game-changer. 

04 Coins and tokens are the same thing

Belief that cryptocurrency coins and tokens are one and the same thing is a common mistake, so don’t worry if this comes as a shock. As Brian Donegan, head of operations for fintech and digital development at the Isle of Man Department of Economic Development, explains: “Coins such as bitcoin have a tangible value that may go up or down and can be wildly volatile in the markets – just look at the period from June to December last year when one bitcoin rose from around $2,500 to just under $20,000. Tokens on the other hand, if designed as a utility, as opposed to a security, facilitate access to online goods and services.” 

05 Bitcoin is the best long-term investment

“Bitcoin’s investment performance depends on the entry and exit time, just like any other financial asset,” says Julian Zegelman, cryptocurrency lawyer and co-founder of TMT Blockchain Fund. But there is more to it than that. It is estimated there are now around 1,600 cryptocurrencies and, although they can all be traced back to bitcoin, many are far superior in technological terms. Other crypto projects have improved upon bitcoin’s sluggish transaction speed and solved its scalability concerns. Consequently, if (or when) cryptos are widely accepted by financial institutions, bitcoin is likely to be left behind. Investors are aware of this. Consider how in 2017 bitcoin’s annual return was 1,289 per cent – impressive, but way below the 19,830 per cent the other top five cryptos gained.