Frequent Bitcoin Myths vs. Reality
Firstly, what are Bitcoin's main attributes?
- Scarce - The supply of Bitcoin is fixed, unlike fiat currencies that can be printed at government's own discretion. There will be a total of 21 million Bitcoin ever created and there is no way to "print" additional units. The exact number of Bitcoin in circulation at any time can be verified here. New Bitcoin is generated every 10 minutes through a process called mining and, until 2020, there are 12.5 BTC generated with each 10-minutes block. Starting 2020, this amount will drop to 6.25 BTC. Consequently, the last Bitcoin will be mined in the year 2140. Through this algorithm, we can know exactly how many Bitcoin will be in circulation tomorrow, next year or in 2058. Try that with any fiat currency.
- Neutral - Bitcoin is not tied to any political party, central authority, régime, king, queen, president, dictator, military or religious leader, country, alliance, union, social media or online community, company, corporate group or anything of the sort.
- Decentralized - Bitcoin does not abide to any central management, nor does it have a central point of failure. It has no headquarters, no board of directors, no employees, no buildings, no call center, no press center. This doesn't mean it has no rules. However, these rules are agreed upon by the vast majority of network participants and transactions are undeniably validated through a consensus algorithm called Proof-of-Work, which involves processing power, electrical energy and also human resources and logistics, distributed across many geographical regions, to keep the network functional, trustworthy and highly secured.
- Censorship-resistant - Because of its decentralized nature, Bitcoin cannot and will not be censored in any way, shape or form. Nor will it be shutdown. Indeed, governments like China, India and others have tried to ban, outlaw or forbid any operations involving cryptocurrencies like Bitcoin, but soon came to the conclusion that a paper decree has nothing to do with the ability to technically deny access to the Bitcoin network for its citizens. That's why, one by one, countries like Singapore, Switzerland, Malta and many others decided it's wiser to profit from the innovation and emerging markets surrounding Bitcoin and its underlying technology, the Blockchain.
- Deflationary - Since one of the key attributes of Bitcoin is its scarcity and limited supply, with no central bank to hit Ctrl+P and flood the market with new money once in a while, this incurs the exact opposite of inflation, that's deflation. Given the fixed supply and a growing demand for a currency with such characteristics, the price and purchasing power of Bitcoin have no way to go but up. Of course, here the assumption is that the demand and interest in Bitcoin is indeed growing. There are a handful of indicators clearly suggesting that, although variable, Bitcoin's recognition and popularity have been on a general uptrend over the past years: the number of Bitcoin wallets (chart here), the Bitcoin network's hash rate / processing power (chart here), the number of confirmed daily transactions (chart here), the price for 1 BTC (chart here) and the market capitalization (chart here). These stats provide enough reasons to believe that, once the fears, lies and manipulation about Bitcoin have faded away, the masses will pay more attention to this emerging technology and market.
- Divisible - Each Bitcoin is divisible up to the 8th decimal place, meaning it can be broken down into 100,000,000 sub-units, called Satoshis, from the anonymous creator of Bitcoin, Satoshi Nakamoto.
- Fungible - Fungibility is the property of a good or a commodity whose individual units are essentially interchangeable. So, just like a $20 bill is equally valuable to another $20 bill, Bitcoin is fungible, meaning that 1 BTC is of equal value to another 1 BTC. If this still sounds a bit weird, think of other goods that are not fungible. Like beef, for instance. 1 pound of beef may have a different value than another pound of beef, based on breed, origin or dietary.
- Peer-to-peer - In order for a Bitcoin transaction to be settled there is no need for a third party like a bank or an alternative payment system like PayPal to approve, process and complete the transaction. This way, especially with cross-border payments, you're avoiding three drawbacks that traditional payment systems possess: high fees (sometimes up to 10% of the amount you send), disadvantageous payment processing times (3 to 5 business days, for instance) and no privacy (all your transactions are stored somewhere in a centralized database server that is prone to prying eyes and hackers). Instead, with Bitcoin as soon as you sign your transaction with the correct private key (think of it as your own secret password or unique fingerprint) it will be automatically validated by including it in a block of transactions and added to the immutable, highly secured blockchain. This too will incur a fee that the miners take for mining the blocks, but this is way lower than what you're used to when using a bank. Recent scaling upgrades of Bitcoin (Lightning Network) are optimizing this process in terms of speed, cost and efficiency, making transactions much faster and cheaper than ever before, but that's a discussion for another time.
- Portable - Bitcoin is easily portable, as opposed to cash or gold, whether you're going out to grab lunch or crossing the border to a neighbouring country. No matter if you store your Bitcoin on a smartphone app, online service or hardware wallet, it's pretty effortless to have access to your funds. Moreover, in case you have your own wallet instead of storing Bitcoin on a third party online service, you will be granted a seed (list of 12, 18 or 24 random words that represents your private key) at the time you create the wallet. You can use the seed at any time to re-create your wallet and recover your coins in case your smartphone, laptop or hardware wallet breaks or gets lost. Remembering those words in the specific order they were generated by your wallet is yet another method of carrying your Bitcoin stash wherever you go. Your brain is the safest wallet. Just be careful not to trip and hit your head.
- Pseudonymous - Each Bitcoin wallet has its own address, namely a string of letters and numbers like 13r93kYzNpbY36icJpUeTCd5K2GkBiznFh. Think of this string as your own bank account number or IBAN. This is the address you share with others to receive Bitcoin (NOT your private key, which is used to access your funds and sign transactions in order to send Bitcoin). Your wallet address is all you need in order to ask someone to send you some Bitcoin - no name, address, ID, nothing of the sort. On the other hand, if you buy Bitcoin from an exchange like Binance you will be asked for your personal details, including a scan of your National ID Card or Passport, in order to comply with AML (Anti-Money Laundering) and ATF (Anti-Terrorist Financing) requirements, as part of a KYC (Know Your Customer) procedure. Next, should you decide to move your Bitcoin to another wallet or to send it to a friend, then any subsequent transactions can be easily traced back to your address and your identity. That's because of another feature of Bitcoin and the Blockchain technology, transparency, which we're going to discuss below. All in all, this is the main reason why Bitcoin transactions are not considered anonymous, but pseudonymous and engaging in illegal activities using Bitcoin is, most of the time, not the smartest idea. Moreover, modern tools like Chainalysis are great means of investigating Blockchain-related crimes and the authorities know and use them.
- Durable - That's kind of an obvious one. Being an electronic record and unit of account in a distributed, decentralized, immutable ledger, Bitcoin cannot be physically broken, burnt, stained, wetted, bent, oxidized, like cash is, or melted and contaminated with other substances like gold, silver or platinum. It has no weight, volume, texture or density. Bitcoin is as durable as the blockchain technology and the supporting distributed network it relies on.
- Secure - The Bitcoin ledger is maintained, verified and stored on a global network of computers where each computer is called a node. Quoting Andreas Antonopoulos' book, Mastering Bitcoin: "A bitcoin node is a collection of functions: routing, the blockchain database, mining, and wallet services.[...] All nodes include the routing function to participate in the network and might include other functionality. All nodes validate and propagate transactions and blocks, and discover and maintain connections to peers.[...] Some nodes, called full nodes, also maintain a complete and up-to-date copy of the blockchain. Full nodes can autonomously and authoritatively verify any transaction without external reference. Some nodes maintain only a subset of the blockchain and verify transactions using a method called simplified payment verification, or SPV. These nodes are known as SPV or lightweight nodes.[...] Mining nodes compete to create new blocks by running specialized hardware to solve the proof-of-work algorithm.". There are currently thousands of Bitcoin nodes all around the world (see map here) and they all contribute to the verification, consensus and decentralization of the Bitcoin blockchain. Attacking, disrupting or destroying a network so distributed, so global, so computationally robust, backed by a huge amount of processing power (orders of magnitude higher than the power of the fastest supercomputer on Earth) would be a daunting task for anyone. This is the reason why Bitcoin continues to be unhackable since 2009 and, the more nodes get spawned, the harder it gets for any entity to threaten Bitcoin's security and stability.
- Unforgeable - Unlike cash or precious metals, Bitcoin cannot be forged, thus there's no notion of fake Bitcoin. Basically, the Blockchain is actually a distributed ledger containing all the Bitcoin transactions that ever took place since its inception in 2009. Transactions are grouped into blocks and upon validation each block is added to the chain and linked to the previous block through the result of a cryptographic function called hash. This way, the validity of each block of transactions can be traced back to even the first block ever created, which is called the genesis block (Bitcoin blocks in real time here). In order for an attacker to forge Bitcoin, he or she would have to a) have 51% of Bitcoin's total network processing power (can actually be attempted with less than 51% of the hashing power, but this would increase the chances of a failed attack), which would be extremely hard to fund and build even by the most sophisticated nation-state and b) alter the history of the Blockchain, meaning he or she would have to alter a block already mined and validated in the past and re-mine all subsequent blocks (because, remember, they are linked to one another), thus reverting all the transactions inside the chosen block as well as all subsequent transactions to date, which, again, would imply massive amounts of resources as well as the "old, honest" part of the network to just stand still with their arms crossed. Both those scenarios are highly impractical as Bitcoin's network continues to grow. In contrast to Bitcoin, forging pieces of paper, coins and metals is way more easier (although not easy) and less resource-demanding. Here's what Andreas thinks about a 51% attack.
- Transparent - The Blockchain is an open, public ledger of transactions. Each and every transaction ever made with Bitcoin (also applies to other cryptocurrencies, like Ethereum) is public and free for anyone to see with no effort at all. As soon as a transaction has been confirmed and added to a block, and that block appended to the Blockchain, it's part of the permanent record and cannot be reverted. All you have to do to access the history of Bitcoin transactions is to visit blockchain.com and use the search bar in order to browse for a specific block or even individual transactions by hash (similar to a transaction identifier) or wallet address. Of course, this characteristic of the Blockchain could immediately raise privacy concerns but, as I previously mentioned, wallet addresses are not directly linked to names, addresses or any other kind of identity data. Actually, from my point of view, this actually raises less privacy concerns than the case of a bank being hacked (and we all know it happens once in a while) and all my personal transactions being leaked on the Internet. Unlike the bank scenario, in which an attacker gets hold of specific names and personal information of both the sender and the receiver, with Bitcoin the attacker would have to a) maybe hack an exchange or other service where my wallet address could be associated with my identity and b) also trace the other party's Bitcoin address in order to find out his or her identity. Not impossible, but quite difficult to achieve. Another reason why Bitcoin is considered as transparent as it can be is because its code is 100% open-source and talented developers are constantly contributing to its development on GitHub.
- Borderless - Bitcoin is a global currency and store of value, regardless of hemisphere, continent, country, state or region. The Bitcoin network is distributed across a wide range of countries and all continents and the exchange of Bitcoin cannot be restricted neither between the borders of a state nor cross-border. As Andreas Antonopoulos says, "You can regulate your country out of Bitcoin, but you cannot regulate Bitcoin out of your country".
- Open - Needless to say, Bitcoin is open for use and exchange for any human being on Earth, regardless of ethnicity, skin colour, religion, gender, age, sexual preference, background, occupation, education, location, political belief, look or language.
- 24/7 - Last, but not least, the Bitcoin network is continuously up and running, validating and recording transactions, generating new Bitcoin and constantly improving the software and its performance with the help of a huge community of developers all over the world. Moreover, you can buy and sell Bitcoin and other cryptocurrencies 24 hours a day, 7 days a week, 365 days a year, since cryptocurrency exchanges never sleep or go on a break, unlike traditional banks and stock market exchanges do.
Should you want go deeper into what the Blockchain and Bitcoin represent from a technical, financial and social point of view, I strongly recommend the work of Andreas Antonopoulos: books, videos and updates.
Bitcoin is nothing more than "magic Internet money"
First of all, using the term "magic" for something you don't truly understand is pretty superficial. On the same note, you can refer to credit cards, online banking, ATMs, POS terminals, SWIFT and PayPal as tools used to "magically" handle money, but that would also be fairly naive.
Bitcoin represents a complex technological environment, comprising of thousands of advanced computers and users around the world, a secure and immutable public ledger, a mechanism to implement decentralization and achieve consensus based on vast computer resources dedicated to validating and recording transactions and a clear set of rules agreed by the overwhelming majority of users in the network, not by a central entity. Bitcoin is a peer-to-peer electronic payment system that uses the Internet as its transport layer, that excludes third parties and eliminates transaction delays and unreasonably high fees. Unlike traditional currencies, Bitcoin is deflationary, unforgeable, borderless, open to everyone and censorship-resistant. There is no entity that can print more Bitcoin at will like central banks do, no forger can falsify Bitcoin, no government can ban its citizens from using Bitcoin, no hacker has been able to disrupt or destroy the Bitcoin network.
Bitcoin is way more than a form of electronic cash. It's an ecosystem of millions of developers, engineers and users. It's a network of computers outperforming the world's largest supercomputers by several orders of magnitude. It's a tool for financial and social inclusion for several billion people not having access to any kind of financial services, people who are paying up to 10% fees to send money back to their families in less fortunate countries. It's an emerging market with a capitalization of hundreds of billions of US dollars, estimated to grow into the trillions. There's your magic.
Bitcoin is created out of thin air
Actually, that is incorrect. Bitcoin is generated once every (approximately) 10 minutes through a process called mining. Quoting from Mastering Bitcoin by Andreas Antonopoulos: "In the simplest terms, mining is the process of hashing the block header repeatedly, changing one parameter, until the resulting hash matches a specific target. The hash function’s result cannot be determined in advance, nor can a pattern be created that will produce a specific hash value. This feature of hash functions means that the only way to produce a hash result matching a specific target is to try again and again, randomly modifying the input until the desired hash result appears by chance.", where hashing refers to the SHA256 hash function (more details here). According to Bitcoin's algorithm, "The maximum amount of newly created bitcoin a miner can add to a block decreases approximately every four years (or precisely every 210,000 blocks). It started at 50 bitcoin per block in January of 2009 and halved to 25 bitcoin per block in November of 2012. It halved again to 12.5 bitcoin in July 2016. Based on this formula, bitcoin mining rewards decrease exponentially until approximately the year 2140, when all bitcoin (20.99999998 million) will have been issued. After 2140, no new bitcoin will be issued." (Mastering Bitcoin by Andreas Antonopoulos).
We should emphasize the fact that the mining process itself does not have Bitcoin creation as its primary purpose. Instead, the main roles of mining are securing the blockchain and reaching network-wide consensus without the need of a central authority. The miners are incentivized to participate in this process by earning two types of rewards: new Bitcoin created with each new block of transactions and transaction fees associated with all the transactions inside that block.
Again quoting Mr. Antonopoulos: "To earn this reward, miners compete to solve a difficult mathematical problem based on a cryptographic hash algorithm. The solution to the problem, called the Proof-of-Work, is included in the new block and acts as proof that the miner expended significant computer efforts". Since the difficulty of the mathematical problem continues to increase over time, miners are required to constantly supplement their hashing power (hardware equipment) and also the electrical energy consumption to power this hardware. Bitcoin mining is performed in specialized buildings with immense cooling capabilities, significant maintenance costs and human resources to operate, monitor and fix the devices on a 24/7 work schedule. So, not quite out of thin air, I'd say.
Bitcoin has no real utility
Before diving into whether Bitcoin has any utility or not, let's think about the utility of money, in general. Basically, in order to be considered a functional currency, money has to have three main functions: means of exchange, store of value and unit of account. In short, means of exchange refers to the ability of exchanging money for goods and services; store of value means that the money you put aside maintain their value over time and are not perishable (you can't store value in apples for the next 20 years); finally, using money as a unit of account means that you are able to use it to quantify goods or services (1 coffee in exchange for 3 USD).
Ok, now let's transpose these properties to Bitcoin. First of all, is Bitcoin a means of exchange? Yes it is. Although not yet widely adopted, Bitcoin payments are already accepted in thousands of venues and on websites across the world (map here). Moreover, as already mentioned above, the utility of Bitcoin is massively enhanced by the fact that it is a peer-to-peer payment method, meaning no one else, besides you and the business accepting your payment, is involved in the transaction, which leads to much lower fees, a higher level of privacy and faster confirmation times for your payment (although speed and fees proved to be problematic when the number of transactions spiked in December of 2017; however, the Lightning Network scaling solution is getting implemented and adopted at a vary fast pace and it will reduce friction to an absolute minimum).
Is Bitcoin a store of value, like cash or gold is? Well, the answer to that question requires a bit more detail and we will strive to provide a reasonable argument in a separate question below. But the short answer is yes, Bitcoin can act as a store of value.
Thirdly, yes, Bitcoin is definitely a unit of account, since you can price goods and services in BTC. Without any further explanation, let's have a look at a beautiful 2 bedroom apartment in Dubai priced in BTC.
To make my final point here, let's get our asses off our comfy couch and take an imaginary trip to one of the many places on Earth where people have no access to financial services or are not allowed to trade with one another or with foreign entities or are simply under an incompetent régime who drove their currency to hyperinflation and led everyone to poverty. What are we going to say to those people? That a decentralized, censorship-resistant, government-independent, peer-to-peer, open, secure and deflationary currency has no real utility?
Bitcoin is slow
That is/was partially true and is soon to become "Bitcoin is not slow anymore". Let me expand on that. Visa is processing, on average, about 150M transactions per day, according to a company official (here). That's a statement made in 2016, but nevertheless we can take it as a reference value. This figure would equate to about 1700 transactions per second or tps, in short. On the other hand, Bitcoin is able to process anywhere between 3 and 7 tps (although we have seen spikes of 8 or 9 tps; check out the data here), with a median confirmation time of about 7 to 10 minutes (chart here) and a required number of 6 confirmations for the transfer to be considered complete, so a total of about 45 minutes to an hour to settle everything. This is indeed light-years away from Visa, considering Bitcoin as an aspiring alternative payment method.
However, the most recent development in Bitcoin is the Lightning Network, which has begun to get a lot of traction recently (see map here). The Lightning Network is a layer 2 scaling solution on top of Bitcoin, that enables the creation of off-chain bidirectional payment channels between two parties, resulting in the ability to easily perform thousands of micropayments with extremely low fees and instantly. What does this actually mean, in plain language? It simply means that your transaction when buying a cup of coffee doesn't need to be mined and added to the blockchain. Instead, the Lightning Network enables you to open a payment channel with your favourite coffee shop and settle your microtransactions with this particular merchant off-chain. Later on when you decide to close the channel, the virtual balance sheet between you and the coffee shop is settled (who owes who and how much) and the final result is the one to be recorded as a transaction on the Bitcoin blockchain. Quoting the Lightning Network Summary paper: "The Lightning Network does not require cooperation from the counterparty to exit the channel. Both parties have the option to unilaterally close the channel, ending their relationship. Since all parties have multiple multisignature channels with many different users on this network, one can send a payment to any other party across this network.". This will greatly reduce the amount of on-chain activity (number of transactions) and therefore decrease transaction times, thus massively improving Bitcoin's performance.
A couple of things worth mentioning here, since they may give birth to a couple of questions. First of all, you don't have to worry about manually opening and closing payment channels when using the Lightning Network. This will be accomplished automatically by the software/client/wallet you're going to use to make payments with. Secondly, the Lightning Network does not only enable payments between person A and person B using a direct A - B connection. Additionally, there can be any number of intermediary channels along the route from source to destination, for instance A - X - Y - B. Now that may raise the question of "Isn't this a new kind of banking or PayPal, with 3rd parties between peers?". Without going into too much technical depth, the answer is no because a) routing nodes along the path are source and destination agnostic, thus eliminating privacy and censorship concerns, b) transactions benefit from security by encryption and onion routing, thus enhancing anonymity and c) custodial risk is scientifically eliminated through mathematics and code. The final point to be made here is that you're not required to close the payment channel in order to use the funds, but you can keep them inside the Lightning Network and use them for further transactions.
Should you want to learn more about the Lightning Network, please refer to the following links: Introduction on Lightning Network, Scaling Bitcoin to Billions of Transactions Per Day, Lightning Network Summary and Lightning Network Paper.
Bitcoin is expensive to use for micropayments
Quoting straight from the Bitcoin Lightning Network summary paper: "The Lightning Network fees will likely be significantly lower than blockchain transaction fees. The fees are largely derived from the time-value of locking up funds for a particular route, as well as paying for the chance of channel close on the blockchain. These should be significantly lower than on-chain transactions, as many transactions on a Lightning Network channel can be settled into one single blockchain transaction. With a sufficiently robust and interconnected network, the fees should asymptotically approach negligibility for many types of transactions. With cheap fees and fast transactions, it will be possible to build scalable micropayments, even amongst high-frequency systems such as Internet of Things applications or per-unit micro-billing.
It would enable, for example, paying per-megabyte for internet service or per-article to read a newspaper."
You, as a Lightning Network user, won't have to worry about which path in the network will incur the lowest fees to get your payment through. This is going to be automatically handled by the client software, namely your wallet, that will analyze the options and select the most cost-effective one on your behalf. As this technology matures at an exponential rate, soon you won't have to deal with nothing more than choosing Dave or Carol in your wallet contact list and pressing the Send button to instantly pay the $5 you owe with minimal fees, even on a Sunday afternoon.
As for micropayments, here's an example that Andreas Antonopoulos gave in one of his videos: imagine you rent a car for a week and you get an insurance for this period of time. Instead of paying the insurer for the entire week, of which you spend most of the time sleeping, walking or working, you are able to pay per second spent actually driving. As soon as you get out of the car, your insurance is paused and you're not charged. As soon as you get back into the car, the timer is un-paused and you're getting charged again. Of course, micropayments this size would not be possible with an on-chain solution because the fee you would need to pay for each microtransaction to be validated by miners would surpass the transaction value itself. But with the Lightning Network such micropayments are not an issue anymore, since, according to the documentation "Lightning enables one to send funds down to 0.00000001 bitcoin".
Bitcoin price is too volatile and prone to speculation
Too volatile compared to what? Indeed, the price of Bitcoin has fluctuated quite significantly since its inception, with more than 12 bull/bear cycles. Of course, most people tend to look only at the recent bear market which started in January 2018, because that's when most people got burned. But let's make this very clear, although the truth might be painful to hear - it's not Bitcoin's price evolution that made people lose money in recent times, but greed and lack of any financial knowledge and common sense. In December of 2017, people were buying Bitcoin and other cryptocurrencies like crazy just because the next person was doing the same thing and mainstream media was pumping this mania to extreme levels. Very few recognized that the spectacular rise in price was just speculative and had nothing to do with any major technological improvement of Bitcoin, mass adoption or huge institutional investors coming into the space. Moreover, few people warned that the huge spike in price is unhealthy and buying at new all-time-high levels is the worst idea ever. The vast majority got blinded by fomo (fear of missing out) and bought Bitcoin at $15-18-20k thinking it's going to the moon and forgetting that every stellar bull run is inevitably followed by an abrupt correction.
Bitcoin had been this volatile many times in the past (chart here) so, for anyone being in the cryptocurrency space before the November-December 2017 rally this is no surprise whatsoever. The only thing that stands out this time is the all-time-high price level of $20k. Actually, if you pay attention to the chart I mentioned you'll see that each time we had a significant correction it started at higher highs, which is kind of an optimistic trend when zooming out and looking at the bigger picture.
Of course, needless to say that such volatility attracts speculators, traders, whales and pump-and-dump groups trying to make profits in a yet unregulated and small market. As the market grows over time from hundreds of billions to trillions or tens of trillions, speculators will still be around (as in any other market), being a whale will definitely become harder and harder as prices increase dramatically and pump-and-dump groups will have less and less influence on short-term price evolution.
Finally, let's have a look at the history of gold and silver, WTI and Brent crude oil and the S&P 500 stock index. It's very easy to notice that every market goes through bull and bear cycles and great volatility, when speculators are either shorting or going long on the price of the asset, whatever that asset may be. Stating that Bitcoin is way more volatile and unstable than gold or oil is pretty unfair because you're ignoring an important factor: time. Comparing decades-old commodities and index market fluctuations with a 9-year-old asset like Bitcoin is not the wisest approach. Of course 12 significant price corrections of Bitcoin during its 9-year history is going to sound much worse than the same number of price drops over several decades with oil. However, keep in mind that recent corrections in price tend to flatten over time and become nothing more than just a wrinkle on the overall chart as decades pass and bigger crashes occur. No matter the market, the asset or the index, volatility and speculation are going to be there. Otherwise, if you don't have the stomach to bear volatility, then bonds may be a better and safer option for your portfolio.
Bitcoin cannot be used as a store of value (digital gold)
Bitcoin's (rather short) history proves otherwise. Let's have a look at the charts and figures. Open the Gold price chart and the Bitcoin price chart and let's start comparing the two.
Let's imagine we invested equal sums of money, say $1000, in each of these two assets, and see which one returned the best results (stored the most value) until the time of this writing (August 2018). Since gold is traded for decades and Bitcoin is only 9 years old, we have to take two different time scales into consideration. For instance, we shall consider only the last two thirds of each asset's trading lifetime. We'll take 1973 as a reference year for gold trading, so 45 years in total and 2009 being the birth year of Bitcoin, so only 9 years here. Two thirds (2/3) of each of these time intervals would equate to the last 30 years of trading for gold and the last 6 years of trading for Bitcoin. Therefore, we will imagine putting $1000 in gold 30 years ago (1988) and $1000 into Bitcoin 6 years ago (2012). Looking at the charts, we shall take into account the highest price of gold in 1988 (around $452/oz) and similarly the highest price of Bitcoin during 2012 (around $13/BTC). The price of one ounce of gold today (August 1st 2018) is $1222/oz and Bitcoin is sitting at about $7590. Conclusion: over the past two thirds of its recent trading lifetime, the price of one ounce of gold appreciated 270%, so the value we invested initially would grow to $2700, which is not bad; on the other hand, over the past two thirds of its recent trading lifetime, Bitcoin's price appreciated 58384%; that would lead us to a current valuation of $583,840. Who's the better store of value? At least statistically, over a proportionally similar time period, Bitcoin drastically outperformed gold as a store of value / investment.
Invoking volatility as a reason why Bitcoin is not a suitable store of value is simply incorrect. Considering the lifetime of each of these assets and taking a quick look at both charts, side by side, the degree of volatility is actually quite similar. However, again assuming proportional time scales, Bitcoin definitely stores considerably more value than its shiny counterpart. Vires in Numeris!
Bitcoin mining is too centralized
For starters, let's have a look at the chart showing the largest Bitcoin mining pools. There are currently 6 pools with at least 8% of the hashing power, meaning they are validating the majority of blocks and getting the largest number of rewards and fees. Also, there are 7 mining pools with 1% to 2.5% of the overall hashing power. Note that a mining pool is not a single miner with tens of thousands of devices, but a large group of miners pooling their computing resources together and splitting the rewards according to the amount of work they contributed to finding a block of transactions.
Now I won't argue whether or not the current distribution or concentration of mining pools is too centralized. Instead, what everyone must understand is that decentralization is not a binary concept, a matter of 'yes or no', nor 'black or white'. Instead, decentralization should be regarded as a scale, where a particular system or network is more centralized than another entity with a similar role. Agreeing that there is no such thing as perfectly centralized or perfectly decentralized, we must view this topic from a sligthly different, more flexible angle. That being said, when comparing the Bitcoin network, having a relatively small number of mining pools but a high degree of neutrality, privacy, security and resistance to censorship, with another system like a central bank (dictating the monetary supply), a private bank (owning all of your money and playing around with it to generate profit) or payment processing company (holding records of all your transaction history), claiming that Bitcoin is somehow "too centralized" is kind of a stretch.
Bitcoin consumes way too much energy
Again, let's start with some facts about the Bitcoin network's power consumption, keeping in mind that with scaling solutions such as the Lightning Network, Bitcoin can act as a global payment system, without the need for banks, Western Union or PayPal. However, looking at the stats over here we can learn some interesting data about the current estimated annual electricity consumption, the number of U.S. households that could be powered by the Bitcoin network and the annual carbon footprint, which are definitely factors worth considering and analyzing.
However, let's imagine for a moment that Bitcoin takes over all other (traditional) payment systems and becomes a worldwide currency. Bear with me here. This would mean that all (or most) private banks and payment processors go out of business. I know this seems like a far-fetched example, but hold on for one more second. What would that mean in terms of energy consumption and carbon footprint? Well, there wouldn't be any more 50-storey bank headquarters all around the world. No fancy, flashy, electricity-hungry office buildings in every major city across 6 continents, no bank branch office at every street corner, no thousands of other payment processing companies and intermediaries with subsidiaries all over the world, all together consuming way more than Bitcoin's miners, I think. How many U.S. households could be powered by this overwhelmingly demanding industry? Anyone dares to do the math?
Let's not forget about the carbon footprint. In addition to this immense consumption of energy by the current banking and payment processing systems, what about the millions of employees using their cars each and every day to get to work, back and forth, spending hours in heavy traffic? Isn't that a gigantic CO2 generator, when combined? Take a moment and think about Visa, for instance, having offices all around the world, judging from their Careers at Visa page: India (multiple cities), China (multiple cities), USA (multiple cities), Ukraine, Sri Lanka, Singapore, UK (multiple cities), France, Malaysia, Morocco, Vietnam, Brazil, Mexico, Panama, UAE, Canada, The Phillipines, Côte d'Ivoire, South Africa, Saudi Arabia, Kenya, Hong Kong, Pakistan, Serbia, Australia (multiple cities), Costa Rica, Colombia, Russia, Indonesia, Argentina, Peru, Dominican Republic, Japan, Thailand, South Korea and Taiwan. Had enough? Now multiply that by the number of large banks and related financial corporations. Are you still positive that the Bitcoin network is the most environmentally-unfriendly payment system and it consumes way too much energy? Whenever you see "too much" ask yourself "Compared to what?".
Bitcoin is just a bubble
First of all, as always, let's get our facts straight and get on the same page by knowing what is a bubble and what were some of the biggest bubbles in history. So, Investopedia defines a bubble as "an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive sell-off occurs, causing the bubble to deflate.". Now, history tells us that Bitcoin had quite a lot of bubbles over the years (chart here), so people grumbling that "Bitcoin is a bubble" and acting like Christopher Columbus discovering the Americas doesn't make them look smart or visionary, it only makes everyone else bored to death.
Now, going back to the definition of a bubble and analyzing recent history we can firmly agree that the Bitcoin market is not only a bubble, but a collection of bubbles starting in 2012 and peaking in 2017-2018. However, comparing the cryptocurrency market crash of 2018 with the Dot-Com bubble in the 1990s and early 2000s is only partially accurate, since at the time the Dot-Com bubble was inflating and preparing to burst the companies inside the NASDAQ index were being traded on a fully regulated and supervised market, mostly by large investment funds and banks and so-called trading professionals and brokers, while cryptocurrencies are being traded mostly by inexperienced, 18 to 34 years old "investors" who never bought a stock or commodity before, with minimal or no financial education, seeking profits, involvement in an innovative field or freedom from traditional, corrupt systems like governments and banks. Why is this distinction so important? Because having such a huge crash in early 2000s in the stock market, with a load of stocks and IPOs being heavily backed and pumped by professional, institutional investors is light-years more disappointing and blamable than a cryptocurrency market bubble led mostly by the greed and fear of young, enthusiastic, inexperienced investors. Moreover, the effect that the Dot-Com bubble had on the U.S. economy due to its scale is many orders of magnitude greater than a huge cryptocurrency market crash could have at the moment, hence why the comparison between the two is quite inaccurate.
However, as already suggested, a more realistic approach would be to consider the cryptocurrency market as a whole in a bubble, and not Bitcoin alone. Almost everyone agrees that about 80-90% of the cryptocurrencies in existence are worthless, soon-to-be-failed projects or plain scams and frauds. The percent may prove to be even higher with ICOs (Initial Coin Offerings), similar to IPOs on the stock market, given that there hasn't been any regulatory oversight whatsoever during the 2017-2018 ICO-mania. Needless to say that the cryptocurrency landscape needs a deep cleansing, which will occur naturally over time, as weak and useless coins will disappear, but also through the emergence of more legit and high quality projects, regulation and education.
In conclusion, Bitcoin is not just a bubble, Bitcoin is a revolutionary technology and payment system whose currency (BTC) market valuation was / is / will be part of a cryptocurrency market bubble, similar in nature and principles to, but so different in scale and effect from the Dot-Com bubble. However, as more and more governments, banks, venture capitalists and institutional investors are getting preoccupied and increasingly involved in the cryptocurrency space, this may indeed lead to regulation and a huge influx of capital pumping the market over the next years to an unprecedented level, a point wherefrom a drift would be imminent. And that would definitely be the perfect time to say Hi to the Dot-Com bubble version 2.0.
Bitcoin has no intrisic value
Before stating the obvious arguments why Bitcoin does have value, let's zoom out a bit and think about the concept of "value" or "intrinsic value". Also, let's ask ourselves a couple of questions, like "What's the intrinsic value of a $100 bill?", "What's the intrinsic value of gold?" or "What's the intrinsic value of oil?". Intrinsic value is not an attribute or a virtue that Mother Nature or the Universe or God assigns to a particular asset by default, thus classifying every thing on the face of the Earth as having or not having value. The value of a certain asset is given by a community of people agreeing upon whether to use that asset to get something in return or fulfill a need, in a particular environment and over a period of time.
The US dollar was decoupled from gold by Richard Nixon in 1971 during what is now known as the Nixon shock. So, from decades ago, the US dollar bill is nothing more than a fancy piece of paper with various symbols of trust: the face of Benjamin Franklin, the seals of the US Federal Reserve and Treasury, signatures of both the Secretary of the Treasury and the US Treasurer and various other images and security elements. With the possibility of being printed at will, thus increasing the money supply overnight and creating inflation, the market value of the US dollar decreases over time leading to less purchasing power, but its actual intrinsic value is physically equal to that of the paper it's being printed on.
Going back in time, before 1971, you could say "Well, at least back then the USD had intrinsic value because it was being backed by gold". This leads to one of the aforementioned questions, namely "What's the intrinsic value of gold?". Using the same logic as before, why would gold have any intrinsic value by itself? Even if it's used for thousands of years as a symbol of wealth and social status and for building electronic components in recent times, gold does not have an universal intrinsic value. Notice I mentioned the word "used". Millions of years ago, Homo Habilis and Homo Erectus would not have been too excited about a bar of gold lying around next to a tree. Why? Because it would've been of no use to him - he didn't care about social status too much, nor did he had a smartphone with gold circuits inside. Again, it's all about community and usability. The same logic can be further extended to oil, for instance - in there wouldn't be any industry or automobiles no one would need oil, hence its universal intrinsic value is zero. However, since in today's world oil is needed by various communities and industries, oil does have a market value. What about water? If the Earth would've been uninhabited who would need water to quench their thirst? Is there an intrinsic value to water? No, it isn't, instead its value is objectified by our presence. Again, community and use case.
Now, there's a new community in town. A community of people who value decentralization, censorship-resistance, independence from banks and abusive régimes, peer-to-peer value exchange, non-discrimination, security and deflationary currencies. And they decided that Bitcoin is the vehicle to use for this ride, the ride to freedom. Even though I may sound like a broken record, we have the same ingredients needed in order for value to exist: community and a use case. So, before claiming that Bitcoin has no intrinsic value, make sure you truly understand a) what Bitcoin really is, past its price and market cap and b) what (intrinsic) value really means.
What does Bitcoin have that fiat currencies don't?
This is going to be a rather short answer, since I already outlined most of the aspects that differentiate Bitcoin from fiat currencies throughout this page.
- Scarcity and deflation - There are 21,000,000 BTC ever to be created, with an easily verifiable and mathematically predictible generation rate. The exact number of Bitcoin in circulation at any time can be verified here. On the other hand, no one knows how many USD or EUR are there in circulation at any moment and the creation of new money is highly impredictable and alarmingly opaque for the general public. As a result of its scarcity and growing demand, Bitcoin's deflation is an attribute that all fiat currencies dream of, but fail to achieve.
- Openness and lack of borders - Bitcoin is open for use and exchange for any human being on Earth, regardless of ethnicity, skin colour, religion, gender, age, sexual preference or political preference. The Bitcoin network is distributed across a wide range of countries and all continents and the exchange of Bitcoin cannot be restricted neither between the borders of a state nor cross-border.
- Neutrality and decentralization - Bitcoin as a network and its coin supply are totally independent from any country, no matter how powerful it is, and consequently from any political party or central bank, making it unsusceptible to the temper of incompetent rulers or irresponsible habits of central banks.
- Unforgeability - Unlike paper bills or coins, Bitcoin cannot be forged because of the way the Proof-of-Work consensus algorithm is designed, requiring a gigantic amount of processing power and electricity to even attempt such an operation, thus there's no notion of fake Bitcoin. For a brief technical explanation, please refer to the first question in this list - "What are Bitcoin's main attributes?".
What does Bitcoin have that commodities like gold don't?
Again, this is going to be a rather short answer, since I already outlined most of the aspects that differentiate Bitcoin from gold throughout this page. Please refer to the "Bitcoin cannot be used as a store of value (digital gold)" and "Bitcoin has no intrisic value" myths. However, let's summarize the main attributes of Bitcoin that gold lacks.
- Divisibility - Each Bitcoin is divisible up to the 8th decimal place, meaning it can be broken down into 100,000,000 sub-units, called Satoshis. Along with technical upgrades like the Lightning Network, it will be very easy for anyone to perform micropayments in terms of Satoshis, thereby taking advantage of Bitcoin's divisibility. On the other hand, using gold for transactions is highly impractical, since it would require a similar level of divisibility.
- Portability - No matter if you store your Bitcoin on a smartphone app, online service or hardware wallet, it's pretty effortless to have access to your funds wherever you go. Moreover, when having your own Bitcoin wallet (not a third party service as a custodian), you will be granted a seed (list of 12, 18 or 24 random words that represents your private key) at the time you create the wallet. You can just remember the seed and use it at any time, on any device and with any BIP39-compatible wallet (some of them listed here) to regain access to your funds.
- Unforgeability - Unlike gold, that can be faked and is being faked all around the world, Bitcoin cannot be forged because of the way the Proof-of-Work consensus algorithm is designed, requiring a gigantic amount of processing power and electricity to even attempt such an operation, thus there's no notion of fake Bitcoin. For a brief technical explanation, please refer to the first question in this list - "What are Bitcoin's main attributes?". Oh and by the way, here's how you can tell if your gold is fake. All that stress and tension, when you could own some Bitcoin...
Bitcoin isn't backed by anything tangible
It seems that most people (at least the ones permanently bashing Bitcoin) are feeling a profound need of tangibility when it comes to money. From ancient times, people are used to touching and holding their valuable possessions like artifacts, jewelry, fine art, coins or bank notes. Even in modern times, a large chunk of population still prefers cash over credit cards, some store their golden necklaces, watches, rings, diamonds or pearls in a "secret" drawer and others collect valuable paintings and statuettes. This way, they can easily see, feel and even smell the things they have at any time, thereby reaffirming that human beings rely very much on touch. It seems like there's a basic human need for being able to touch our most valuable assets, a need that makes us feel comfortable.
Now, the truth is that there's really way more value stored electronically in banks and related services as savings and deposits, stock markets, derivative markets and cryptocurrencies than all of the cash, gold and silver combined. Here's an interesting chart that might provide more insight into the amount of value/money/commodities worldwide.
Another point I want to make here is actually a broader question which we already answered above when fighting the "Bitcoin has no intrisic value" myth and that's "What is cash, silver, copper or sugar backed by?". Well, as outlined earlier, the only things that really give value to an asset are community agreement and use cases. If people in a country, community, region, industry or class agree that corn, coffee, platinum or Bitcoin is of any use for them, then it has value. People cherishing freedom, privacy, decentralization and deflation value Bitcoin. There you have it!
The final thing I would like to add here is that if you truly understand what Bitcoin is, beyond the BTC ticker and price, then you surely know that Bitcoin is backed by thousands of advanced hardware devices, powered by a massive electricity infrastructure built around them, with immense cooling capabilities, human resources, maintenance and upgrade requirements and millions of users. And if that's not tangible, then I don't know what is.
Bitcoin is used by tax evaders and for money laundering
There's no point in arguing against the fact that Bitcoin or other cryptocurrencies may be or are being occasionally used as tools for tax evasion or money laundering. However, people trying to suggest that Bitcoin is only a tool for law breakers to deploy various criminal activities is not only absurd or ignorant, but plain stupid. This kind of approach proves not only the intellectual limitations of the claimant, but also a strong bias against innovation and a lack of sound judgement. As with other technological revolutions in the past such as the Internet, there will always be ignorant and hostile naysayers blaming the tech for the criminal behavior of fellow humans and desperately clinging to old paradigms just because a) they don't understand the upcoming paradigm shift, whatever that may be or b) they do understand it, but it hurts their financial interests so much that they rather look stupid than lose power or money.
Now, let's turn our attention to the facts and figures and let them speak for themselves. For anyone with a minimal amount of working neurons and no hidden agenda, it's more than obvious that the vast majority of tax evasion and money laundering crimes are being commited using traditional fiat currencies like the US dollar. If we take a look at this interesting chart we can see that between 2001 and 2010 tax evasion costs in the US add up to $3.09 trillion, with an average of about $300 billion per year. One more interesting fact is that Bitcoin's peak market cap was around $330 billion in December 2017. That's $27 billion less than the US tax evasion costs in 2008. By the way, Bitcoin was born in 2009, so it seems that US criminals and corporations somehow managed to always evade taxes without needing cryptocurrencies. Strange, huh?
Let's now have a look at money laundering in the UK. According to a National Crime Agency report, money laundering costs the UK around £24 billion a year and is likely to exceed £90 billion a year according to another report. Furthermore, the NCA describes the two main methods that felons use to launder money: "Cash-based money laundering - which can involve the physical movement of currency over national borders, as well as the use of companies with high cash throughput as a cover, with payments being broken down into smaller amounts to avoid detection" and "High-End money laundering – which is specialist, usually involves transactions of substantial value, and involves the abuse of the financial sector and so-called ‘professional enablers’". Please notice the words "cash", "transactions" "companies" and "financial sector". No Bitcoin, no cryptocurrencies? Oh, common, that's disappointing.
Another representative figure inside the NCA report is "The best available international estimate of the amount of money laundering is equivalent to some 2.7% of global GDP or US$1.6 trillion in 2009.". Again, in the year Bitcoin was born and almost no one knew about it or used it, worldwide money laundering was estimated around 5 times the peak market cap of Bitcoin in 2017 and twice the 2017 maximum market cap of all cryptocurrencies combined. So, it seems that Bitcoin was never and still isn't among the main tools for money laundering, as the defenders of the traditional "financial sector" are trying to portray it. It's very plausible that their endeavour is not towards eradicating money laundering, instead they seem to protect the very broken system that is the de facto means for financial crime. Sounds like complicity to me.
Bitcoin is used by terrorists and drug dealers
What does history teach us about discrimination through generalization? "All black people are law breakers", "All Muslim people are terrorists", "All Russians are communists". Do all of these sound familiar? How narrow-minded can one be to think these trashy things, let alone claim them out loud? Haven't they learned that such ways of thinking always lead to abuse, hate or war? We found out recently, during a House Financial Services Committee hearing on cryptocurrencies, that "As a store, as a medium of exchange, cryptocurrency accomplishes nothing except facilitating narcotics trafficking, terrorism, and tax evasion." and "As long as the stupid criminals keep using bitcoin, we'll be great". Wait, what? So all cryptocurrency users and holders are some sort of criminals involved in drug dealing, terrorism and tax evasion? Isn't that the same sick and discriminating mentality leading to "All X are Y"? Are these people forgetting about our basic human rights? Did they ever read Article 11 of the Universal Declaration of Human Rights referring to the presumption of innocence: "(1) Everyone charged with a penal offence has the right to be presumed innocent until proved guilty according to law in a public trial at which he has had all the guarantees necessary for his defence."?
Now, don't get me wrong here. There's definitely a bunch of bad actors in the Bitcoin space, like the Silk Road case proves. That's as condemnable as any other crimes and misdeeds and since this was one of Bitcoin's first use cases, the public perception still throws this sticker on every Bitcoin-related news or person. However, forgetting or overlooking the fact that 99% of drug dealing and terrorist financing is accomplished using USD or other fiat currencies and blaming Bitcoin for all of the world's evil is absurd and insulting to millions of Bitcoin users all around the world. Moreover, in the early days of the Internet its users faced the same ridiculous allegations from the same kind of close-minded individuals defending the old paradigm and not understanding the huge potential that the technology in front of them had. They chose to blame early Internet adopters, but later ended up using the Internet for sending e-mails, tweeting, buying stocks or getting their campaigns funded. They're choosing to blame early Bitcoin adopters now. Any guess on how's that gonna end?
The last point I want to make here regarding the "Bitcoin is being used by terrorists" myth and the call for a total ban (assuming that's even possible) is that it's ludicrous to think that it would actually prevent, reduce or stop terrorism. It's simply absurd to suppress a new technology just because a small number of people use it for no good. Should we ban fire because someone chose to burn a flag? Should we ban oil because it is being used by terrorists in the Middle East to fund their grotesque actions? Should we ban shoes because drug dealers wear them when selling coke? Should we ban the US dollar for being used in tax evasion and money laundering? Of course that would be irrational. Instead, what our beloved leaders should do is find the right ingredients to create a fair and wise regulation standard for cryptocurrencies and fight crime and corruption as best as they can. Because that's what we're paying them for.
Bitcoin is also inflationary, since it can be hard forked (Bitcoin Cash)
First of all, what the heck is a fork? Although Andreas Antonopoulos explains the concept very well and highlights the differences between various types of forks in this must-see video, you can think of a hard fork as a split in the blockchain where part of the community decides to split away from the establishment and adopt a new set of rules (most of the time out of technical disagreements or just plain greed using the Bitcoin brand to make some easy money). While bifurcating the chain, coins on the new chain will not be compatible with the old set of rules and therefore cannot coexist with the existing coins. However, since both chains share a common history, users will own equal numbers of coins on both sides by accessing their Bitcoin wallet using the same private key. Now, this doesn't mean you will double your money (Bitcoin) each time a hard fork is performed, because the newly created coins will immediately hit the open, free market and their price will definitely not achieve the same level as Bitcoin's. For instance, you can lookup Bitcoin Cash or Bitcoin Gold on CoinMarketCap and you will quickly see the significant difference in price as compared to Bitcoin. Another point to make here, to be 100% technically accurate, is that inflation occurs when the existing currency supply is supplemented with additional units of the same currency. Since Bitcoin and Bitcoin Cash are currently two entirely distinct projects and currencies (although with a common background up to a certain point in time), it's highly inaccurate to consider the supply of Bitcoin Cash as being a supplement of Bitcoin's coin supply.
In conclusion, all of Bitcoin's subsequent hard forks are completely different networks, each of them having a different set of rules and none of them having the magnitude and extent of the original Bitcoin implementation, network and brand. However many hard forks will occur from now on (although this trend is fading pretty fast), the overwhelmingly vast majority of Bitcoin developers, miners and users will stick to the original chain, due to its trustworthiness, security, brand and pecuniary rewards. Therefore, you should keep in mind that Bitcoin's supply is forever fixed at 21 million BTC, regardless of any average Joe deciding to recruit a couple of developers and miners and create their own version of Bitcoin (which will most probably prove to be a useless clone over time and ultimately fail due to the lack of trust coming from an increasingly educated and knowledgeable community).
Bitcoin is concentrated in the hands of a few people
First of all, even if this statement would be 100% accurate, wouldn't that be the exact same scenario as we currently have in place with fiat currencies? Aren't most of the money held by the 1% financial worldwide elite, like billionaires, banks, top politicians and governments? Why would someone accuse Bitcoin using the exact same argument that we can fight back against traditional currencies with?
Now let's see some numbers. Although the total supply of Bitcoin ever to exist is 21 million BTC, with more than 17 million BTC already mined (circulating supply here) and 4 million left to be mined until the year 2140, there are actually about 4 million BTC that have already been lost. According to a study made by Chainalysis in late 2017, around 3.79 million BTC are forever inaccessible because of lost or forgotten private keys, death of their owners or they're part of the original coins (Satoshi's coins) which are presumably not going to move, being left untouched since Satoshi disappeared from the community. These numbers don't include hacked/stolen Bitcoin, since these are still under the control of the thieves.
Taking the above information into account, let's see what are the addresses with the most BTC and some related stats here and here. Judging from the data in the second link, we can see that 0.1% of the total number of addresses own 100 BTC or more, making the owner of such a wallet kind of a crypto-millionaire. However, we should note that some of the largest wallets in the list, holding thousands or tens of thousands of BTC are cryptocurrency exchanges like Coinbase, Binance or Bitfinex, big mining pools, very early Bitcoin adopters and miners who are still very much involved in the space and commited to holding most of their coins and perhaps selling them gradually so that they don't affect the market and price and, of course, let's not forget the aforementioned millions of lost, permanently inaccessible coins. Also, the number of addresses we see in the stats don't equate to the same number of owners. There may be either multiple people owning the funds inside the same wallet using a multisig address or one person dividing his 1000 BTC fortune across 100 different wallets with 10 BTC each. Therefore, trying to estimate the number of individuals in Bitcoin's financial elite is quite a tedious task to perform.
Concluding this section, I dare to say that unlike the top 1% in the traditional financial system who use their money to corrupt politicians and become masters of puppets for most governments and parliaments worldwide, the top 1% in Bitcoin (minus the exchanges, mining pools and lost wallets) is mostly made of early geeks (developers, engineers, miners, libertarians or enthusiasts) who definitely enjoy being wealthy, living a financially independent life and showing the middle finger to every government out there, but don't have any oppressive aspirations like becoming top politicians, creating new shady elites and dictating any people's fate besides their own. No one can guarantee the goodwill of Bitcoin's richest people, but I think we're all pretty convinced of the ill will and moral corruption of the current financial elites.
Bitcoin is a ponzi scheme
If any other concern or misinformation in this list might be the result of not knowing what Bitcoin actually is, the "ponzi scheme" idiocy is definitely a consequence of not knowing what a ponzi scheme really means. If anyone stating that Bitcoin is such a scheme is benevolent enough, he or she may consider performing a basic Google search to find out the definition of a ponzi scheme. However, I will provide you with an article describing the ins and outs of this type of fraud. The main thing to note in this article is the need for an initiator - notice the words "All one has to do", "the schemer", "he or she" or "one person", each of them implying the presence of a central party to operate the scheme. If you've been following all the information and external resources provided thus far on this page, you should've known by now that there's no single/central entity exerting any kind of authority within the Bitcoin ecosystem, but a large, distributed, decentralized network of miners, users, exchanges, developers and retailers deciding the evolution of Bitcoin by overwhelming consensus only. So, given that the main attribute of a ponzi scheme does not apply in any way, shape or form to Bitcoin makes this argument invalid and ridiculous right from the start.
That's not to say that there aren't any ponzi schemes in the cryptocurrency space, as frequently outlined using articles and lists such as this one. However, caution should be taken when comparing Bitcoin, a perfectly legit and safe ecosystem, with such cases of ponzi schemes like Bitconnect or others that were obviously fake promises made to naive people wanting to become overnight millionaires. In all honesty, ponzi schemes like Bitconnect ar as blamable as the people who threw their money at them blinded by greed and lack of judgment and financial education. Furthermore, the fact that some of them also invested some money in Bitcoin, that doesn't make Bitcoin a ponzi scheme as well. Similarly, assuming the same person had invested in Enron (which proved to be a fraud) and General Electric (one of the S&P500 stocks) doesn't make GE a fraud just because they're both stocks or had common investors buying those stocks. Think before you speak!
Bitcoin, cryptocurrencies and ICOs are scams
Again, throwing everything crypto-related into the same bucket? That's not a wise approach at all, as well as generalization and discrimination in the opposite direction, like "All politicians are corrupt" or "All bankers are crooks". This kind of narrow-minded tackling of any issue or group of people usually leads to abuse, hate and misinformation. Let's take a more mature route to narrowing down the list of possibilities.
It should be clear by now why Bitcoin is not a scam or fraud and if you haven't had the chance to learn why, please consider taking the time to read this page end-to-end. Now, extrapolating the discussion to the entire cryptocurrency landscape and even beyond that, including the ICO (yet to be released cryptocurrencies) phenomenon, then things start to change dramatically. Having studied the entire cryptocurrency and ICO space in depth for over a year now, almost on a full-time daily schedule, I have concluded that maybe at the very most 10% of existing cryptos are 100% legit and highly promising projects, having a strong team, an existing or upcoming product and a real blockchain business case. When turning the page to the ICO chapter, the figures are even less optimistic, with about 95% of them being an utter disgrace for the blockchain industry. That's not to say they're all fraudulent. However, I tend to classify the so-called cryptocurrency scams in two categories: hard scams, meaning ponzi schemes or people/websites/social media profiles magically disappearing as soon as the crowdfunding campaign is over, leaving people empty-handed and with some Bitcoin or Ether missing from their portfolio; and soft scams, where a group of failed non-blockchain entrepreneurs has a "Hey, let's create X on the blockchain!" idea, where X usually is either something that has almost zero applicability to blockchain or it's a blockchain-related application with fictitious performance metrics (like "Our blockchain supports 1 million transactions per second from day 1!"). Soft scammers are generally nothing more than good marketers with some poorly written code, driven by greed and the fear of missing the blockchain train, willing to deliver the shiniest website, the largest number of Twitter and Telegram bots to simulate a supporting community and monumental promises to change the world. This is one of the main reasons the cryptocurrency space is regarded as the land of scams and many people still stay away from it. Concluding my personal ICO statistics, I tend to believe that around 95% of ICOs are either hard scams or soft scams and there are studies such as this one backing up such high percentages (although assessing some aspects like the team members, documentation, code or potential of each ICO can be somewhat subjective and the final estimates may vary).
The good news is that, like in the case of the early Internet and the Dot-Com bubble, out of this overcrowded, frequently overvaluated, noisy, uncertain, partially scammy, highly speculative landscape, a set of projects, currencies and companies will undoubtedly emerge and pave the way for a technological and financial revolution that will change the fabric of society. Will people be scammed on the way? Yes, especially since most cryptocurrency "investors" have no clue about the projects they're funding and don't bother doing even the most basic research. Will people invest in some very promising projects that will eventually fail? Yes. Will people miss the chance to invest in the next trillion-dollar blockchain project? Sure, you can't nail them all. But it's all part of the game called (r)evolution and the only thing you can do is be aware of all postives and negatives and minimize risk as much as possible. By the way, as a final point here, if you're interested in learning how to filter out scammy and shady ICOs and reduce risk to a minimum by doing your own research, check out my free video course on Udemy. I hope you'll find it useful!
Bitcoin Cash (BCH) is the real Bitcoin
Well, no, it is not. Although one of the top cryptocurrencies in terms of market capitalization, Bitcoin Cash (ticker: BCH) is nothing more than a hard fork of Bitcoin (ticker: BTC) implemented starting August 1st 2017. Since transaction fees were getting higher on the Bitcoin network, a very small group of people led by Roger Ver, a controversial, yet charismatic and noisy figure in the cryptocurrency community, decided to split from the original Bitcoin implementation and create their own blockchain, having no SegWit (Segregated Witness) activation and a larger block size than Bitcoin's 1MB (Bitcoin Cash had a block size of 8 MB initially, upgraded to 32MB starting 2018). However, most fundamentals remained the same as Bitcoin's - Proof-of-Work, SHA-256, block rewards, block time and coin supply. Now, if you're curious to learn more about the technical implementation of Bitcoin Cash and the things that sets it apart from Bitcoin feel free to research that for yourself. However, for the sake of fighting against the "BCH is the real Bitcoin" myth let's make a couple of non-technical points here.
First of all, as we previously said, any hard fork of any cryptocurrency out there will hit the open, free market and people will decide its value and price, there's no doubt about that. Bitcoin Cash, being so popular at the time of its launch and benefiting from the undeniable marketing skills and efforts of Roger Ver, skyrocketed to around $4000 in December of 2017, which is not bad at all for a 5 month-old currency at that time. Moreover, due to Ver's advertising talents and online reach, Bitcoin Cash got easily listed on all major and minor exchanges worldwide and quickly became very popular especially during the bull market in late 2017 when Bitcoin's fees and confirmation times got ridiculously high. Another key factor in the huge success of Bitcoin Cash is people's fear of missing out some free coins - let's not forget that a hard fork will always provide you with as many newly created coins as the number of original coins you own on the old blockchain and that's because the two blockchains share a common history up to the bifurcation point. As you may recall, whenever a Bitcoin hard fork occured all hell broke loose with people going crazy and buying more Bitcoin in order to get equal amounts of fork coins or "free money", as they call it.
The real issue of Bitcoin Cash is not its popularity, its unjustified market cap (specific to most cryptos) or its technology (although increasing the block size indefinitely seems a way worse approach than a 2nd layer scaling solution like the Lightning Network), but the disgraceful behavior and deceitfulness of Roger Ver blindly defending BCH even at times when the arguments don't favour him. This sectarian and radical approach may turn people's heads away from Bitcoin Cash, leaving Ver with a community of newbies confusing BCH with BTC, small speculators and people searching for a quick laugh on YouTube. Public outbreaks such as this famous one crumble one's credibility in an increasingly aware and educated space. Let's not overlook the fact that cryptocurrencies are still at under 1% global adoption and billions of people and trillions of dollars are yet to come. How will they perceive projects and communities led by such unprofessional characters? I don't mean to offend Roger Ver or anyone else, but the question is 100% legit in a global context much larger than our current pretty little sandbox.
Furthermore, using Bitcoin's name and brand to advertise your sligthly-modified Bitcoin clone might be interpreted as misleading to say the least. Litecoin (LTC) also borrowed most of Bitcoin's code, but at least Charlie Lee had the decency of naming his currency without using Bitcoin's name, when he could easily have named it Bitcoin Lite. Moreover, Lee publicly disapproved with Roger Ver's deceptive approach multiple times, blaming him for trying to mislead people into thinking that BCH is actually Bitcoin, by calling the latter Bitcoin Core. This is a common practice of Roger Ver and his community, permanently manipulating people, especially newcomers, throughout his online channels like the bitcoin.com website or the @Bitcoin Twitter page. On the other hand, Bitcoin's supporters tend to call Bitcoin Cash "bcash", driving Roger Ver crazy each and every time. However, unlike Ver's "Bitcoin Core" and "Bitcoin Cash is the real Bitcoin" cheesy propaganda, the "bcash" naming is not meant to mislead anyone into believing a deception or buying a certain asset, but it is a form of protest against the misuse of the Bitcoin brand. Concluding this debate, newcomers should keep in mind that Bitcoin (BTC, ranked no. 1 on CoinMarketCap.com) is the only Bitcoin out there, with a community of miners, developers and users which is orders of magnitude larger than any of its pitiful little clones. Should BCH have a place in this emerging landscape? If the market decides so, then yes. If BCH's tech will prove to be better than Bitcoin's over the years and will be the one to bring mass adoption and even institutional investors, then yes, they're welcome to take its spot as number 1. But for that to even have the slightest chance of happening, it requires the relinquishment of manipulation, misleading, rage, misconduct and vanity. Otherwise, we run the risk of the other 99% of Earth's population to forever look at the cryptocurrency community and see a bunch of puerile geeks with childish, sometimes shady or scammy behavior, playing with money. Would you, as an outsider, be willing to risk your funds in such an immature space?
Bitcoin can be held hostage by collusion of big mining pools
This myth is frequently propagated whenever the mining aspect of Bitcoin is in discussion, raising the question of whether the largest 6 mining pools, accountable for two thirds of the global hashrate, will one day collude against all the other actors in the Bitcoin ecosystem and hard fork the blockchain, creating their own coin and economy and leaving grandpa Bitcoin defenceless and defeated. Is this a valid concern? Can the entire Bitcoin phenomenon be torn to pieces in a jiff by a simple handshake between the miners? Let's try to address these questions using logic, common sense and the things we know about Bitcoin.
First of all, if this thing would actually happen and 66% of miners would recruit some developers, change a couple of lines of code and hard fork the current Bitcoin blockchain, then a new cryptocurrency would emerge. Let's call it Bitcoin Trash, for instance. In this case, there would be a lot of consequences, but let's start the debate by addressing the most obvious ones. Firstly, there would still be 34% of miners that still mine the original Bitcoin blockchain, therefore the Bitcoin network would not instantly succumb and get wiped off the face of the Earth. Although much less stable and secure, grandpa Bitcoin would survive this "nuclear disaster" and, still having an ace up his sleeve and that's the huge brand, would probably be able to quickly gather up new miners, small and large, from people secretly mining with their employer's server to huge investors filling professional data centers with specialized hardware. The second obvious consequence would be the birth of yet another Bitcoin clone. If Bitcoin Cash was indeed a real financial success, Bitcoin Gold and Bitcoin Private are still light-years away from BCH in terms of market cap. And as if these flavors were not enough, we currently have Bitcoin Diamond, Bitcoin Interest, Bitcoin Dark, Bitcoin Green, Bitcoin Atom, BitcoinZ, Bitcoin Plus, 0xBitcoin, eBitcoin, BitcoiNote, Bitcoin Fast, LiteBitcoin, Bitcoin Scrypt, Bitcoin Red, Bitcoin 21, Bitcoin Planet, Super Bitcoin, BitcoinX, Bitcoin File, United Bitcoin, Bitcoin Token, Bitcoin God, Bitcoin Instant and First Bitcoin. The amount of greed and scammy projects capitalizing on Bitcoin's brand is already too damn high! Where would our imaginary Bitcoin Trash fit inside this overcrowded junkyard? Would people fall for yet another Bitcoin fake? Some would, but how many?/p>
Now, let's dig a bit deeper into this scenario and think of what actors does Bitcoin employ for this "Decentralization" act. Well, there are the miners, the developers, the exchanges, the wallet providers and the users (both individuals and businesses transacting in Bitcoin). If the entire power to change Bitcoin's rules and destiny would be in the hands of just one of these categories of actors then the Bitcoin ecosystem would be vulnerable to authoritarian rule enforcement and therefore easy to compromise. Let's assume for a second that miners decide to do things differently without the consensus of the other actors. This means that they stop mining the original Bitcoin blockchain and start mining our imaginary coin friend - Bitcoin Trash, BTH. In order to cover their huge electricity and logistics costs, they would need to sell BTH for fiat currency and do it fast, because like it or not, electricity bills are still fiat-dependent. If the rest of the actors don't agree with the new rules imposed by miners, then a) what (high-liquidity) exchanges are the miners going to use to sell their tons of BTH for USD? b) what big, tustworthy wallet providers will modify their software to accept the new coins? c) what users, businesses or investors will buy, sell, hold or accept BTH? See what I mean? Let's forget miners for a bit and assume developers want to add a new feature to the code without advising with the other parties involved. Will the miners accept this change blindly? Will the wallet providers update their software without flinching? Will exchanges consider adding this new version of Bitcoin promptly? This train of thought instantly breaks apart the idea of one group of actors secretly colluding against the other players in the game, simply because the financial incentive to do that is simply not there. Yes, technically it's completely possible that by tomorrow morning the biggest 6 mining pools will take over the Bitcoin network, change the rules and come up with their own crypto-economy. Technically, sure, it can be done. But financially, that would be a complete failure because of what I just described. When mining is your main revenue source and costs of running such a business 24/7 add up pretty quickly, having even the smallest downtime, operational risk or community disagreement can seriously affect your cash flow. The way Bitcoin is designed as a pure demoractic ecosystem, with the need for overwhelming consensus when it comes to every change of rules, will permanently incentivize fair actors to remain fair and respect the ruling of the majority. That's why I think it's almost impossible for Bitcoin to become a hostage of any miner or mining pool and propagating such a myth clearly shows that the person understands neither the Bitcoin environment, nor the cryptocurrency market.
Bitcoin isn't safe to own, being frequently stolen by hackers
Let's make it clear, Bitcoin IS safe to own only if you know how to secure it properly. And yes, Bitcoin and other cryptocurrencies are being quite frequently stolen ($1.1B in the first half of 2018 alone) from unsecure wallets and services like exchanges, unsecured smartphones and computers. The attacks can be quite diverse, ranging from DNS Hijacking and phishing to social engineering and exploiting wallet vulnerabilities with 0-day exploits. You can learn more about some of the biggest cryptocurrency hacks in this article and then you should ask yourself what do they all have in common, from an investor's point of view.
Well, the answer is pretty clear. Most people who lost their Bitcoin, Ethereum or other cryptos were the ones storing them on various exchanges. When you leave your coins on an exchange, no matter how big and trustworthy it seems to be (remember Mt. Gox, handling over 70% of all bitcoin transactions worldwide at that time, lost more than 740k BTC), you're not the actual owner of those coins, but the exchange is. Why? Simply because you don't own the private keys for the Bitcoin wallet associated with your exchange account, they do. Just remember this for the rest of your cryptocurrency life: "Not your keys, not your coins!". Exchanges are online services, with websites and databases just like any other business out there, and they're always going to be huge targets for hackers looking for some "free money". The chances are that sooner or later the exchange you're using to store your coins is going to be breached one way or another. Hackers are getting more creative by the day and it seems they're almost always one step ahead of those guarding against them.
However, not only exchanges can fail to protect your coins, but also desktop and smartphone wallets. To be fair, most people don't know how to properly secure their operating system, either desktop or mobile, and are not at all worried about opsec. Desktop operating systems, especially Windows, are highly susceptible to viruses, trojans, ransomware and surveillance, if not handled correctly. Furthermore, smartphones, being permanently connected to the Internet, having tons of apps and services installed (some of which you may not even know), enable a large attack surface that the hackers can test and make use of in case any vulnerabilities are found. Moreover, various games you download or websites you visit can quietly install a keylogger on your smartphone and record everything you type from that point on, including passwords and wallet seeds, take screenshots or even activate your microphone without you having the smallest clue. And, of course, after gathering enough info, these small, invisible programs report everything to the "mother ship" belonging to the hacker or group of hackers. Yes, you can employ various security measures on both computers and smartphones, like antivirus and antimalware solutions, VPNs, restrictions and so on, however the risk is still there and a versed hacker will have no issue in bypassing such means of protection.
That's why there's currently only one solution for keeping your cryptocurrencies safe and it's called a hardware wallet (also known as cold storage). The key thing to remember about hardware wallets is that once connected to your computer via USB they have no access to your operating system or the Internet, nor do any outside sources have access to the device's inner world. The private keys inside the hardware wallet never leave the device, instead they are only used to sign the transactions you initiate when having it connected to your laptop. After completing your transactions, you just unplug the hardware wallet from your computer and store it somewhere safe. This approach greatly reduces the attack surface, keeping your private keys offline and your funds safe. There are several hardware wallet providers that are widely accepted and used by the community, like the Ledger Nano S, Trezor and KeepKey. However, since the only hardware wallet I tested and used is the Ledger Nano S, I can strongly recommend it to anyone worried about the security of their Bitcoin, Ether, Litecoin and other cryptocurrencies. The last thing to keep in mind when using your hardware wallet for the first time is to write down the seed (list of random words the device will generate) on a piece of paper and store it somewhere safe. Don't get smart and take pictures of this piece of paper and don't save the seed in "a hidden folder" on your computer or in a text document on your smartphone. Use plain old paper, make a backup on another sheet of paper and save them in two separate, hard-to-reach, safe places that you and you alone know about. Usually, your hardware wallet comes with multiple small paper cards thet you can use to easily write your seed and backups; at least the Ledger Nano S does. Whatever you do, whoever you are, whichever hardware wallet you decide to use, just make up your mind and do it before it's too late.
Bitcoin is the only cryptocurrency with a real use case
First of all, I should say that I don't preach for Bitcoin maximalism for two reasons. One, because I really do think that there are several other legit use cases for the blockchain technology and I will expand on that a bit shortly. Secondly, from an investing point of view, history proves that keeping all your money invested in a single asset, no matter how solid it seems to be, is simply not a smart choice. There has to be a balance between putting all your eggs in the same basket and having way too many baskets. As with other things in life, positioning yourself at either one of the extremes is rarely a wise choice to make.
Following these principles and going back to our "Bitcoin is the only one" myth, we must also avoid both calling every altcoin as a "worthless shitcoin" and preaching about how "all the existing altcoins bring innovation". The truth lies somewhere in the middle. As already mentioned on this page, there are a ton of worthless projects, horrible ideas and scams in the cryptocurrency space, but that doesn't mean we shouldn't keep our eyes and mind open to other benefits that blockchain can bring to various fields outside finance.
Due to its immutability, security and distributed nature, the Blockchain technology can be successfully applied to voting systems (as in Sierra Leone), supply chains and product traceability (VeChain, WaltonChain or TE-FOOD), big data and systems requiring data integrity (Zebi), distributed storage (Sia, Storj, Filecoin), distributed computing (Golem), decentralized web (Substratum), privacy and anonymity (Monero, Dash, ZCash), decentralized marketplaces (Power Ledger) or protection against identity theft (Civic). Please note that I'm not shilling or promoting any of these projects, nor making any recommendation for buying, selling or holding these crypto-assets (or Bitcoin, for that matter), I'm just pointing out a couple of examples that I perceived as being 100% legit, relevant and promising projects in the space, outside Bitcoin, Ethereum and any other well-known currencies or platforms. You don't have to take my word for this, just research each of these projects (and others) by yourself, evaluate their team, their roadmap, their documentation and whether they really need Blockchain to build their product or not. Whatever you decide to invest your time and money in, always do your own research, ignore any "gurus" or marketers trying to sell their junk (or not) and use your own judgement before making any move. All in all, it's better to make your own mistakes than other's.