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If you've been following investment news over the past few years, you have undoubtedly covered a lot about cryptocurrencies. Every time Bitcoin sees a dramatic rise or fall in value, news organizations make headlines announcing either the death of the cryptocurrency or a new future in finance.
Needless to say, such dramatic proclamations helped spread a wide variety of myths about cryptocurrencies and their uses. Separating fact and fiction is essential to truly understanding the implications of cryptocurrency – both now and in the future.
Myth # 1: Cryptocurrency is only used for illegal activities
Cryptocurrency has earned a reputation for being used for illegal activities, in part because of the anonymity associated with cryptocurrency platforms. This anonymity stems from blockchain technology, which, ironically, is the same technology that makes all transactions on the platform transparent and public.
In reality, criminal activity makes up only a tiny fraction of the transactions made with cryptocurrency. Research by Chainanalysis suggests that only 0.34% of cryptocurrency activity was used for illegal activities in 2020. A similar analysis by CipherTrace found that criminal activity accounted for less than 0.5% of cryptocurrency activity.
While these analyzes are hardly perfect (critics note that such an analysis is not completely correct until years later), they serve as a clear indicator that the majority of digital token users are actually using them for legitimate purposes.
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Myth # 2: You need technical expertise to use or invest in cryptocurrencies
Many potential cryptocurrency investors are deterred by its inherently technological nature. Since cryptocurrencies generally operate outside of traditional exchanges, consumers may feel that they need to understand programming or coding in order to conduct any type of transaction.
Leif Ferreira, Founder and CEO of Bit2Me, debunked this myth in a recent conversation and stated: "Cryptocurrency is like so many other technological products we use today. You don't have to know how smartphone programming works to get an app Similarly, the availability of crypto wallets and exchanges makes it possible for anyone to buy or sell cryptocurrency. In reality, it's not much different from how you would manage traditional financial assets. You need financial expertise to be smart To make investments, but the coding is all managed in the backend. "
The reality is that anyone can invest in cryptocurrency – they just need to understand the potential risks and benefits so they can make an informed decision about which digital tokens to invest in.
Myth # 3: Blockchain and cryptocurrency are the same
Cryptocurrency and blockchain are closely intertwined, but that doesn't mean they are the same. Blockchain is the technology that cryptocurrencies are based on and is also used for many other applications, such as: B. for sharing medical data, tracking music licenses and monitoring logistics. The transparency and security of the blockchain make it very attractive for these and other functions.
Cryptocurrency uses the blockchain's encryption techniques to check when funds are being transferred. When a transaction takes place, a network of nodes uses algorithms to verify the transaction and create a permanent block that is added to the blockchain. This serves as an immutable record of the transaction.
In other words, blockchain helps power cryptocurrencies – without it, cryptocurrency as we know it would not exist. Every transaction that is carried out with a digital token is also permanently recorded in the blockchain. This transparency and stability can actually be a great boon to those who need to review previous transactions.
Related: 10 Entrepreneurs Showing Why Blockchain Will Stay
The Ultimate Truth: Cryptocurrency is here to stay
Despite all the ups and downs, one thing has become clear in recent years: More people and companies are relying on cryptocurrencies than ever before. Although it still has many critics (Warren Buffet famously compared it to the 17th-century Dutch tulip craze), this view seems to be in the minority.
Inspired by cryptocurrencies like Bitcoin, countries like China and the Bahamas are introducing their own digital currencies that are supposed to function similarly to cryptocurrencies, but with greater institutional control.
Many big brands are also starting to accept cryptocurrency payments, although the way they use cryptocurrency can vary. For example, Home Depot uses digital scanners that instantly convert received Bitcoin payments into dollars. Starbucks uses a similar system to enable cryptocurrency payments through its app. On the other hand, Microsoft has been accepting Bitcoin payments for digital products since 2014.
The capabilities of blockchain to enable so-called “smart contracts” also accelerate the acceptance of cryptocurrency. Analysts expect digital tokens and cryptocurrency platforms to help buyers with larger purchases like homes or cars.
How will you use cryptocurrency?
While many of the myths I have described turn out to be quite persistent, it cannot be denied that cryptocurrencies are becoming more widely used and accepted for a wide variety of transactions. Both investors and business owners should take cryptocurrency seriously and consider how it could affect their future financial activities.
As with any other type of investment, there is some risk due to the volatility of these digital tokens. At the same time, the ever-increasing adoption and use of cryptocurrencies suggests that the rewards are likely to far outweigh the risks.