6 Myths About Bitcoin And How To Crush Them: An Expert Assessment

Given all the negative news that Bitcoin has to fight against, the arguments in favor of it sometimes go unnoticed against the background of general noise. So let’s look at what these typical attacks are and how the community can respond to them.

The price of bitcoin is too high

Despite falling more than 60% from an all-time high, the price of one Bitcoin – $ 7,000 at the time of writing ($ 9,300 at the time of publication) – keeps many out of the market. Although Bitcoin has been around since 2017. Since the middle of the year on the front page of many online newspapers, many people still do not know that they can buy only a part of Bitcoin. Let’s make it clear: 1 Bitcoin is divided into 100 million satos (ie the smallest unit of Bitcoin). Just because everyone can’t buy one gold bar (12.5 kg) at $ 543,866 doesn’t mean they can’t buy one gold coin or invest just $ 126 in gold fund units. The same can be done with Bitcoin.

Assuming a world population of 7 billion, this means that everyone will receive 300,000 satoshi, or 0.003 Bitcoins. As several studies estimate that 3-4 million Bitcoins have been lost in the early years of Bitcoin, the actual number is 220,000-250,000 satos per person.

This led to a crazy rally at the end of 2017, when all crypts under $ 1 started to rise rapidly because they were thought to be “cheap”. Since each cryptocurrency is created differently, the price of that one unit does not matter, what matters is the market capitalization of the cryptocurrency in circulation and whether or not a particular cryptocurrency has a future. Since the rally, the majority have fallen by 80%, because there was no reasonable basis for their rise anyway.

It must be taken into account that there are more millionaires in the world than Bitcoine will ever be, so soon the unit of account will not be 1 BTC, but rather 1 mBTC (a thousandth of Bitcoin) or even 1 satoshi. Bitcoin currently has a market capitalization of $ 120 billion, $ 14,000 billion in circulation and $ 8,000 billion in total gold mining, so Bitcoin has plenty of room for growth. $ 7,000 for one bitcoin costs 0.007 cents per satoshi. At this price, anyone can invest.

The price of Bitcoin is too volatile to invest in

No one disputes that the price of Bitcoin is too volatile, but for good reason. For the first time in human history, there is a currency that is cryptographically secure, decentralized, not controlled by any central bank, and not backed by any physical asset. It would even be surprising if Bitcoin were a stable currency today. High volatility is likely to resolve over time when Bitcoin’s market capitalization becomes equal to that of other competing assets – common currency or gold – or when Bitcoin loses its value altogether!

Cryptographic money is the most volatile and speculative asset class in the world, so when investing in Bitcoin or other cryptocurrencies, you should know what the risks are and how much you are willing to lose from the investment. Investing only as much as you are willing to lose will give you something valuable – time. If you have the time, you will not be forced to sell at a low price and you may miss market fluctuations or even sharp declines.

Bitcoin is bad for the environment

When Satoshi Nakamoto started mining Bitcoin in 2009, it could be done with a regular laptop, and validating one block took an average of 10 minutes, as it does today. The algorithm of Bitcoin is such that the cryptographic task that miners have to solve in order to obtain a fee adjusts the level of complexity accordingly, so that validation of the block always takes an average of 10 minutes. The more resources are added to the Bitcoin network, the higher the level of complexity, which makes it the most powerful and thus the most secure network in the world.

Miners have invested billions of dollars to buy special mining machines because Bitcoin is so valuable – it is not due to an increase in the number of users or transactions. As long as Bitcoin has value, companies will continue to acquire mining machinery to generate revenue from the mining fee. These miners consume large amounts of electricity, which is heavily criticized. As the price of electricity is the main cost to the miner, cheap electricity providers are being sought around the world. Electricity is cheap where it is in surplus, and it is usually in countries with large renewable energy sources, so the real impact of mining in a country with, for example, an abundance of hydroelectric power is not as bad as it is written.

At $ 7,000, Bitcoin has an annual cost of $ 4.6 billion, most of it for electricity. But what the Bitcoin network provides for this cost is a blockchain that no computer or technology in the world can break.

Although Bitcoin has been targeted by environmentalists, the traditional currency system is also not flawless. A lot of resources are spent on maintaining data centers, building and supplying the banking network and printing paper money, and so on. For example, the US Federal Reserve spends $ 700 million a year on printing. What makes Bitcoin an easy target is that its electricity consumption is easy to calculate.

40% of all Bitcoins are owned by only 1,000 people

It is estimated that 40% of Bitcoins are owned by only 1,000 people. In reality, this is just speculation. What we know for sure is that there are 24 million Bitcoin wallets. However, one person can have hundreds of wallets and one wallet can contain hundreds or millions of people’s Bitcoins, making any analysis of the distribution of Bitcoins impossible.

The largest amount of Bitcoine is held by two “cold wallets” (Bitfinex and Bittrex). Based on this raw information, it could be assumed that the owners of these wallets are billionaires, but in reality, the Bitcoins in these wallets belong to the thousands and millions of people who are customers of these two cryptocurrencies. Coinbase alone has over 10 million users. If you entrust the management of your Bitcoins to the stock exchange – which you should not – the stock exchange will not create a wallet in the blockchain just for you, but will allocate some of the Bitcoins stored in their wallets from one person to another.

On the other hand, most wallets create a new address each time an incoming transaction takes place. This means that if someone has received 0.2 times Bitcoin in their hardware wallet, they will have one Bitcoin from five different addresses. Thus, it is not possible to know that these 5 addresses actually belong to the same person. The concentration of wealth in the world of Bitcoin may or may not be true, but it requires gathering convincing evidence to find a definite answer to this issue.

Bitcoin is used to buy drugs and launder money

Every transaction at Bitcoin is public, which is not suitable for illegal business. Two reports were recently published, according to which only 1% of all Bitcoin transactions were used for money laundering and 44% for illegal transactions. Needless to say, there is no consensus on this issue.

The problem with using Bitcoin or any other cryptocurrency for illegal transactions is that you can’t do much with them if they have been illegally acquired. If you run a large illegal business and suddenly decide to start collecting Bitcoine instead of cash, how do you pay for it? Probably through an exchange to get a good old currency for Bitcoins (US dollars or euros) and this cannot be done anonymously, as many exchanges follow the Know-Your-Customer and Anti-Money Laundering procedures when registering users. It is there that criminals who use cryptocurrencies are caught because law enforcement is monitoring these exchanges. Thus, cash will remain the preferred means of payment for criminals for the forthcoming indefinite period.

Bitcoin transactions are slow and expensive

Since the application of the SegWit software change 6 months ago, the theoretical maximum of transactions per second has risen from 5-7 transactions to 20 transactions per second, or 1.7 million transactions per day. This number is, of course, far from what it should be to compete with the conventional payment system. However, the approval of every single transaction has never been the goal of the Bitcoin blockchain. Many smaller transactions can be confirmed outside the chain, and this is exactly what the incoming Lightning network makes possible.

The entire Bitcoin network is built at extra costs. Charges are necessary to prevent spam attacks on the network. Without fees, every malicious attacker could send millions of small transactions at once, which would degrade the entire system. The fee ensures that the most important transactions – for which a high fee has been paid – are processed first. And even if it takes a few blocks to validate a transaction, it’s still faster than a standard bank transfer, which can sometimes take up to 10 days (for international transfers).

The long road to the future

For many, it is still unclear what Bitcoin is and how it works, and it will take time for them to understand. Twenty years ago, when the internet became ubiquitous, many saw no point in worrying about having an email address because they didn’t know anyone who had it. In general, Bitcoin and other cryptocurrencies are in the same place. Bitcoin implementation is still ongoing – even in the midst of a bear market where 1mBTC fell from $ 20 to $ 6 – and that’s all that matters. Bitcoin has played a part in the formation of bubbles and crashes during its 9-year history, but what makes it different from other bubbles is that although the price has fallen many times over, it has always recovered, at least to this day.

The opinions and interpretations in this article are those of the author only and do not express the views of Cointelegraph.com and the World Bank.

Vincent Launay is a finance specialist at the World Bank in Washington DC. He holds a Master’s degree in Finance from the HEC Paris Business School in Paris and holds a Certificate in Financial Analyst.

In the Expert Assessment, opinion leaders in the field of cryptocurrency and beyond present their views, share experiences and provide professional advice. The Expert Assessment covers all topics from the bloc chain and ICO funding to taxation, regulation and the use of cryptocurrencies in various sectors of the economy.

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This article has been translated from Cointelegraph.com.
Read the English article here by Vuncent Launay