Bitcoin Myths: Busting The Popular Misconceptions!
Created on 01 Mar 2021
Wraps up in 5 Min
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Updated on 26 Mar 2021
The meteoric rise and subsequent crash in bitcoin prices have been the mainstay of news headlines for a while now. Bitcoin has become the buzzword, and everyone wants to know what it is and how to get ahold of it.
For those still unaware of bitcoins, read our previous articles on bitcoins and the process of mining bitcoins.
Amid all the chatter about cryptocurrency and bitcoins, there are a lot of myths around them. Despite its popularity, cryptocurrency is grossly misunderstood.
In today's article, we will discuss some of the myths around cryptocurrency, bitcoin, and blockchain technology
Let's get started!
Myth 1 – Cryptocurrencies are illegal:
Now, this is something you would usually hear once in a conversation about cryptocurrency and bitcoins. The statement that cryptocurrencies are illegal forms of money is not entirely true. It's not entirely false either.
Cryptocurrency is banned in countries like Algeria, Bolivia, Ecuador, Russia, and Trinidad. On the other hand, the USA, the European Union (EU) nations, and the G7 countries have endowed cryptocurrency a legal tender status.
In his budget of 2018-19, former Indian Finance Minister Arun Jaitley emphasized that blockchain technology will be explored to promote and ensure safe digital transactions. India has not formally banned cryptocurrency transactions; yet! Cryptocurrencies are thriving in India.
Myth 2 – Cryptocurrencies are used for criminal activities:
Now here's the thing – cryptocurrencies are making their way in the world as forms of money. If someone were to carry out some criminal or illegal activity and used bitcoins, that does not mean bitcoins are just for illicit activities. Bitcoins can be used as a form of payment for legitimate activities, too (as we will discuss later in this article).
The illegality debate stems from the fact that cryptocurrencies are not regulated. So yes, the Silk Road Raid incident of 2013 was an example of millions of dollars in bitcoins being used for drug and human trafficking. But let that not tarnish the entire system of blockchain and cryptocurrency as illegal. If bitcoins were never invented, real money would have been involved.
India imposes a mandatory Know Your Customer (KYC) system to check on trading in cryptocurrencies and lessen the chances of unwise digital money use.
Myth 3 – Cryptocurrency does not have real value:
Cryptocurrency not having any real value is perhaps the biggest myth you'll hear. It also brings to light an error in our understanding of value. People think fiat currencies have value because they are backed by the governments and goods of a country. But the value depends on the demand and supply of the citizens of the country.
So, cryptocurrencies are said to have no real value because there is no tangible asset backing them. It is a digital and intangible currency with no physical existence. The value of cryptocurrency depends on its use as a medium of exchange – that is, the supply and demand form the basis of the value of cryptocurrency. Therefore, as long as people are willing to buy and sell a cryptocurrency, it will have value.
Myth 4 – Cryptocurrencies are prone to hacks:
Cryptocurrencies are traded on platforms, just like other regular trading platforms. Since its launch in 2009, bitcoins have never suffered an attack on their network or blockchain. Protocol and cryptography rules have worked flawlessly over the years, and the system has shown no record of money theft or weakness in the system.
However, websites, wallets, and exchanges dealing in cryptocurrency might stand a chance to be attacked. But the security systems have advanced significantly (encryption of private keys, 2-factor authentication, cold offline wallets) in recent years, so an attack possibility becomes meagre.
Myth 5 – Cryptocurrencies are subject to taxes:
Cryptocurrencies are decentralized – there is no central regulatory authority, and no banks are involved. But that does not mean that cryptocurrencies can evade taxation. Any transaction in cryptocurrency, be it buying or selling, has tax implications.
Under the Income Tax Act, cryptocurrencies are taxed under the head capital gains if held as investments and taxed under the head profits, and gains from business and profession are held as stock-in-trade. The treatment of cryptocurrency as stock-in-trade, i.e., as goods/properties, implies that the supply of cryptocurrency is a taxable supply and therefore subject to GST.
Myth 6 – Cryptocurrencies are anonymous and untraceable:
Know this; the cryptocurrency bitcoin blockchain is a public ledger that maintains a record of everything. Anonymity exists, but identifying user and user-details is not that much of a difficult task in extreme cases. The cryptocurrency system provides user anonymity just like any other system or platform, but it is not absolute anonymity.
Myth 7 – There is only one huge blockchain:
The bitcoin white paper was published in 2008, and it introduced the world to the first peer-to-peer (P2P) electronic cash system. Bitcoin was the first cryptocurrency, and that is why people just assume that there is only one blockchain. However, there are about 1,500 more cryptocurrencies (listed on coinmarketcap.com), and all of them have their own blockchains. These blockchains are known as public blockchain because anyone from the public can interact with them.
Myth 8 – Blockchain tech is free:
Well, theoretically, what is bitcoin mining? Solving complex mathematical problems to generate new blocks for the blockchain and getting bitcoins. So, you must think that getting hold of bitcoins and blockchain is free. No! there are heavy costs involved. Solving complex problems requires sophisticated and high-powered computers that consume large amounts of electricity, which sure pumps up the cost.
Myth 9 – Bitcoin is blockchain, and blockchain is bitcoin:
It sounds like a tongue twister, right? Bitcoins are globally known as blockchain technology, and because of that, both are used interchangeably. In layman's terms, blockchain technology supports bitcoins, and bitcoin is the cryptocurrency that makes peer-to-peer transactions possible. As the bitcoins gain notoriety, you could be forgiven for thinking that blockchain technology is critically essential for all cryptocurrencies. IOTA is a cryptocurrency that is blockchain-less and uses directed acyclic graphs to provide security.
Myth 10 – Only leading developers can make blockchains:
The original bitcoin protocol is open source, and anyone can access and modify it. This is known as forking the bitcoin blockchain. All the different cryptocurrencies are different variations of bitcoins in some shape or form. For a long time, there was a myth that only leading developers could create blockchains. But with websites like forkgen.tech, anyone can fork the bitcoin blockchain and make their own cryptocurrency.
Cryptocurrencies remain mostly uncharted territory in India. The information is sparse, and the regulations are ambiguous, making it difficult for investors to decide whether to invest in bitcoins.
If you plan to buy bitcoin or any other cryptocurrency, carefully weigh in the pros and cons of holding them, their use, and the tax implications they attract before you make an investment decision.
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