As Bitcoin’s price increases and more attention is focused on the digital currency during this next bull run, a lot of the same misconceptions are brought up, but never fully addressed. We hope to inform our readers on a few of the more popular myths surrounding Bitcoin.
Bitcoin is too expensive
There are generally two misconceptions that occur when looking at the price of Bitcoin. The first assumption is that an individual is required to buy one whole bitcoin like they would do with shares in a company. On the contrary, with most exchanges bitcoin may be purchased in fractions (services are beginning to provide this for company shares as well) and at whatever dollar amount the buyer chooses. This is possible because of how divisible bitcoin is programmed to be. A bitcoin may be divided into one hundred million pieces. You may think of them to be the comparable of cents to the dollar. Each bitcoin cent or satoshi, named after the pseudonymous creator Satoshi Nakamoto, allows everyone to invest any amount of fiat they wish.
1 BTC = 100,000,000 sats
1 sat = 0.00000001 BTC
The second misconception related to Bitcoin’s price is about how we justify its current value. If Bitcoin is truly expensive, we need to ask ourselves what metrics we should use to appropriately price Bitcoin. At face value, without any prior knowledge of what Bitcoin is, the asset may appear to be very expensive when compared to the price of things we are generally familiar with. Most traditional and retail investors will compare Bitcoin to a stock, when it is actually more akin to a commodity like gold. Bitcoin is the first asset in history to introduce true scarcity that can be verified by anyone with a computer.
If we are to compare Bitcoin to gold, we must understand the properties of both Bitcoin and gold. Both have similar qualities when used as a store of value but the main difference between the two is that Bitcoin has a verifiable total that can never be increased. There will only ever be 21 million bitcoin in existence while gold has an inflation rate of 2% - 3% (some years it is more). Bitcoin essentially improves upon gold’s use case as a store of value. To value Bitcoin as a replacement for gold would mean that the price of Bitcoin, at the time of this writing, is incredibly undervalued. It will take more time, more development in the space, and more institutional ownership to occur before the general public considers this narrative to be true for Bitcoin.
Bitcoin can be hacked
There is currently no evidence of Bitcoin’s network ever being hacked. Many mainstream news articles will claim that the network was hacked, but in every instance it was a Bitcoin exchange that was hacked and not the network itself.
In order to steal one’s bitcoin from an exchange, an exchange account would have to be compromised. Once a bad actor has all of the necessary credentials to a user’s exchange account, they are able to withdraw all funds onto a public address that they control. Many exchanges offer users the necessary security measures to safeguard their accounts but not everyone will take advantage of these features.
A prime example of these features include two-factor authentication that must be initiated for signing into an account or to execute a withdrawal. This is when a user’s phone is required to receive a code or a confirmation within an authenticator app. A code may also be sent via SMS (text message), but there are methods to simswap a user’s number that would make their account prone to being compromised. Simswapping is a way for a bad actor to port a user’s phone number to another device. By doing so, this enables the bad actor to retrieve the temporary security code needed to sign into an exchange. There are exchanges that will notify a user if their account is signed into a different device from the ones they normally use, but it is always best to use an authenticator app rather than receiving codes via SMS.
Exchanges are always integrating new security methods like having each withdrawal address go through a verification process before any transactions can be executed. If a bad actor were to retrieve the username, password, and verification code, they would not be able to immediately withdraw the user’s bitcoin and would have to wait for the verification process to be completed. This method of security would notify the user of all approved addresses and give ample time to change the password or two-factor authentication method to prevent funds from being withdrawn to an address that they do not control.
Once a user enables all available security measures, it is then the responsibility of the user to protect their funds from the exchange itself. All bitcoin that are promised to the user are still subject to being lost. There are instances where exchanges lose their customers bitcoin and are unable to reimburse them, like in the case of Mt. Gox. It is best practice to withdraw all bitcoin onto a device that allows you to control the private keys to your Bitcoin wallets.
Satoshi can steal your bitcoin
A lot of the same arguments made above may be applied to this claim. Satoshi Nakamoto is the pseudonym for the person or group of people who created Bitcoin. The choice to stay anonymous has strategically helped Bitcoin continue to avoid issues that many altcoins have faced with regulations and public scrutiny. Satoshi allowed for all of Bitcoin’s source code to be publicly available for anyone to audit. There is nothing in the source code that currently supports a way for any user to take another user’s bitcoin without their consent. A bad actor, or Satoshi himself, would need to obtain the private keys to a user’s public keys in order to withdraw the bitcoin held on the user’s wallet. It is nearly impossible to obtain a private key from a public key because of asymmetrical encryption (also known as public-key cryptography). In order for this to happen, one would need an exorbitant amount of time and CPU power.
Bitcoin is a Ponzi, pyramid scheme, or scam
A ponzi scheme allows early investors to be paid by funds from the new investors. Many are lured in with the promise that there is a product or service that is generating profit for all investors. To claim that Bitcoin is a ponzi scheme would mean that there are people liable for any loss of funds and that there is an obligation for profits. Bitcoin is not controlled by any one entity and all developments for the network are volunteer based.
A pyramid scheme is a business model that requires new members to be recruited and fund the earlier members. This may also involve requiring later investors to sell products or services. A percentage of any sales are then distributed to those above each member and in some cases require members to pay fees in order to continue participating in the pyramid scheme. Bitcoin does not require anyone to be recruited or pay fees to participate in the network. Only miner fees are required for transactions and this is determined by how busy the network is and how fast a user wants their transaction to be executed. There are many examples where hundreds of millions of dollars worth of bitcoin were being transferred from one wallet to another with fees as low as $5. Bitcoin also does not promise returns while pyramid schemes do. Bitcoin is valued at what the global market agrees for it to be valued.
The only way for Bitcoin holders to be paid is to hold onto their bitcoin and not sell for a certain period of time. The earlier adopters will certainly see more profits than later adopters. However, the coins are released on a predictable schedule (every 10 minutes), so the majority of Bitcoin can never be owned or controlled by a single entity. Once an early adopter sells a portion or all of their bitcoin, the price may drop for a period of time. But then it can be bought back by entities with a longer time horizon. If there are no new entities interested in purchasing the circulating bitcoin on exchanges, then the price will continue to fall or stagnate. However, with more and more interest coming into the space, the price of Bitcoin continues to rise.
Bitcoin is only used by criminals for laundering money
It is estimated that about 614,000 bitcoin [elliptic.co] were exchanged on the Silk Road during its heyday. From the 11.77 million that were in circulation during the third quarter of 2013, that would mean about 5.3% of the total circulating supply was being used for questionable products and services. This may seem like a large portion at first glance, but let’s compare that percentage with the amount of US dollars that are laundered and used for criminal activities.
It is estimated that 800 billion - 2 trillion US dollars are laundered a year [Wikipedia]. If we take the lower end of that estimate and multiply that by the number of years Bitcoin has existed, we would get 9.6 trillion dollars that have been laundered. In contrast, the dollar value that has been laundered with Cryptocurrencies (including Bitcoin) is estimated to be anywhere from 1 - 2.8 billion per year. This is not meant to be an argument that justifies money laundering through Bitcoin or another cryptocurrency. It is meant to put this claim into perspective. Unfortunately money laundering will always occur and authorities will continue to pursue bad actors. But the percentage of people doing this with Bitcoin is miniscule in the grand scheme of things.
One of the main differences between Bitcoin and the US dollar is that every transaction on the Bitcoin network is traceable. It isn’t entirely obvious which identities are behind each transaction, but once they are known, the process of finding related bitcoin to an identity is fairly straightforward. In contrast, physical US dollar bills are much harder to trace when distributed around the world. Smarter criminals will avoid laundering funds through the Bitcoin network. We must keep in mind that the dollar is neither bad nor good. It is a tool to be used just as Bitcoin is. Some people will use it for illegal activity, while the majority will use it for productive endeavors.
Bitcoin is bad for the environment
There are very little complaints from major news outlets about the environmental impact that Apple (2.4 TWh), Google (10.6 TWh), Facebook (5.1 TWh), and banking networks (~100 TWh) have, but the energy required for Bitcoin to operate has been brought up on numerous occasions. All of these networks have the right to operate, but this is important to consider when articles or news outlets avoid comparing Bitcoin’s energy usage to other networks.
Bitcoin requires about 62 terawatt hours per year (TWh), while the internet uses 1,982 terawatt hours per year. This is the equivalent to 3.2% of the internet’s total energy consumption and the amount of power that Switzerland uses for the entire country. With an increase in security and users, Bitcoin’s energy consumption will inevitably increase. This may seem concerning, but miners (machines that solve complex puzzles to earn bitcoin) are constantly looking for stranded and renewable energy sources to power the network. There are many conflicting articles that will claim that Bitcoin relies on 76% renewables, while others will state a number closer to 39%. Keep in mind that the cheapest sources of energy will be used by miners in order to keep as much profit as they can for their efforts. With cheaper energy that would have gone to waste if Bitcoin did not exist, miners are net positive on the environment because they are incentivized to innovate and develop better methods for harnessing energy.