Updated: May 5
To fully grasp the power behind cryptocurrency, we want to take a look at four common cryptocurrency myths - and why they simply are not true.
Myth 1: Regulation Will Kill Crypto
The crypto winter only intensified the buzz about the popular myth that the U.S. government will regulate crypto out of existence (therefore, there’s no point in investing in it). We strongly disagree. We’ve already seen signals that policymakers want crypto to thrive. To do that, they want to curb excesses and ensure more transparency.
Part of the difficulty with regulating crypto assets is that they can evolve. There are times in the lifecycle of a crypto asset when it acts more like a security and others when it acts more like a commodity or even something else altogether. Because of this, there is confusion about what body has the jurisdiction to regulate it.
Another complicating factor: many people are under the impression that crypto assets are all the same, but this is incorrect. Several distinct classes and models range from cryptocurrencies to utility tokens to governance tokens. Each comes with unique risks, governance, purpose of use, ways of accruing value, and roles in the larger ecosystem.
We’d like to wave a little bit of caution here. Regulation too fast, too hard can kill innovation.
But insofar as regulation provides clarity, that clarity will promote adoption!
Myth 2: Crypto Is a Bubble
While 2022 reminded us that crypto hype and volatility can be excessive, that doesn’t mean crypto is, by default, a bubble. It’s a new technology that will be valuable for endless purposes. Our philosophy is based on our belief in that technology and the norms of functioning markets – that they experience cycles.
Carlotta Perez offers essential insights in her book, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. Going back hundreds of years, she shows how any technological revolution will go through a bubble or mania phase.
We’re way past the fad point with blockchain and crypto. Companies will come, and companies will go. Not every business is going to succeed. In fact, most don’t. Any new technology adoption is rife with challenges. So, when we talk about crypto, we’re talking about technology. From an investor standpoint, it is a technology investment.
Myth 3: Crypto Is Bad for the Environment
Yes, Bitcoin mining eats up a lot of electricity – comparable to the consumption of the entire nation of Finland. But even that is a fraction of the energy required to run the world’s traditional banking infrastructure. No one barks about the energy the gold industry uses, but it’s double that of Bitcoin. Double.
Drilling down a bit more, electricity use is not the same as measuring carbon emissions. So far, there’s not a precise way to measure the source of energy bitcoin miners use – was it generated by coal plants? Or was it clean energy, like hydroelectric dams? The simple fact is that bitcoin miners can be located anywhere, which puts them in a good position to use so-called stranded renewables (sources of energy that otherwise go untapped).
In addition, it is relevant to note that all cryptocurrencies and platforms are not the same. They differ in many ways, including a consensus mechanism – the technology used on a blockchain to settle transactions and secure the network. Bitcoin runs on a proof-of-work (PoW) consensus mechanism that requires using many powerful computers (bitcoin miners) running around the clock. There’s a new generation of apps that uses a proof-of-stake (PoS) consensus mechanism, which does not require an energy-intensive mining task.
As crypto enthusiasts, we would encourage you to apply critical thinking and look at the entire landscape, not just the click-bait or generally perceived reality.
Myth 4: Crypto Empowers Crime
“Crypto is only used for illegal activity,” is something people love to say at cocktail parties and boardrooms. Just like a camera or hammer, crypto is a tool, and a tool serves the agenda of the one who wields it.
Like many areas of crime, crypto crime shot up during the pandemic and there have been several high-profile crypto crimes – exchanges getting hacked, kidnappers demanding to be paid in crypto, the fraud cases. These disturbing stories distort the overall public understanding of crypto.
However, if you look at the numbers, it’s clear that most crypto is not used for criminal activity. There is far more crime involved in the use of dollars; it’s just not new or sexy. We would argue that a hundred-dollar bill is more dangerous simply because it is used so much more often.
Another layer: despite everyone’s attempt to say Bitcoin is anonymous, as we have discovered, it is really pseudonymous. Transactions are masked and the transactor’s identity is generally not visible. Ultimately, however, if you onboard and offboard at any exchange or any system that requires a know your customer (KYC) process, your data can be tracked to you. Crypto is about empowering individuals to have freedom and flexibility without central control. That does not mean that it’s immune to observation, laws, and common sense.
This blog is comprised of abridged excerpts from Chapters 6 to 9 of our new book, Crypto Decrypted, out May 23, 2023.
Want to know more? Be sure to read up on the complete dismantling of these crypto myths by pre-ordering here.