The discovery of gold and its use to support fiat currencies made it compulsory that paper money had to be backed by the equal amount of gold in a country’s reserve. This was the basis of the California gold rush that brought a total of 300,000 people to the state, as a result of the discovery of traces of gold in Sacramento by John Marshal in January 1848.
Before gold was made a standard and even before the evolution of paper currencies, people had used assorted means to carry on transactions and exchanges, in which trade by batter was a very old means. Apart from the rush and quest for gold which everybody was used to, nobody was prepared for the phenomenon called cryptocurrency that suddenly took the world by waves, throwing everybody into a state of frenzy.
People were ill prepared for any currency or means of exchange that will torpedo the dollar to such an extent that a coin will exchange for close to $20,000 as was seen around December 17, 2017. Nobody was actually prepared for the revolution called cryptocurrency and as should be expected with such an unusual phenomenon, tongues will wag, myths will be built, and legendary if not fairy tales will be told.
The important thing, however, is to clinically look at the stories being told and to be able to decipher from the probable, the possible, and the reality. But then, what should one have expected? With the projection that the cryptocurrency market valuation will hit $1 trillion this year, people who are on the sidelines, who felt they were not carried along may want to play the spoiler by alluding all sorts of negativity to the cryptocurrency.
It has, therefore, become very apt that myths that have been making the headlines be taken to the cleaners and the following more serious ones have been debunked after experts and technocrats in the blockchain and other relevant industries have painstakingly and exhaustively carried out comprehensive trials and analysis of the process.
#1 Cryptocurrency is basically different from other currencies:
This is one of the things people see about cryptocurrencies and tend to rave about it. Before the advent of the formal currencies which vary from country to country, people are known to have physically exchanged goods as a means of trade in the absence of physical money. That can go on to mean that goods were then used as currencies based on agreements reached.
To this extent, it is important to then note that currencies can be money, which is generally accepted as a medium of exchange, a measure of value, as well as a means of payment. Currencies can also be any form of legal tender that is an official medium of payment, recognized by law, and that can be used to freeze out a public or private debt. It is also used to meet any financial obligation.
For all intents and purposes, cryptocurrencies meet the characteristics of money, which are durability, divisibility, portability, and difficult to counterfeit. Bitcoin as an example of cryptocurrency is divisible by 100 million. Some units of the bitcoin are the Satoshi, Microbit, Decabit, and Megabit, all with their different values.
Anything that derives its value from a social contract between a society can be used as a medium of exchange. To this end, cryptocurrencies have severally been used as media of exchanges to offset prices for goods and services such as utility bills as seen in Japan and government services in the Swiss town of Zug in central Switzerland.
The Dollar, Pound, Euro, and all other currencies that are used in countries of the world to a large extent perform exactly the same function cryptocurrencies have been put into, therefore fathoming rumors to the effect that cryptocurrencies are basically or fundamentally different from other currencies can only be said to be balderdash.
#2 No intrinsic value
The value of the currencies controlled by the different central banks of the world was for a very long time hinged on the value of gold in their vaults. According to Gold Industry Information, however, about 10 percent of the total supply of gold was used for technology, 78 percent was mostly used for jewelry, while 12 percent of the supply was purchased by central banks.
It’s therefore arguable to say that the value of the currency was really backed by gold, and since this is not the case of cryptocurrencies, they don’t have intrinsic value. Mises in ‘The Theory of Money and Credit’ was able to put to rest the belief that the value of money is the money itself.
From the theory, we came to realize that the value of money or any currency actually lies in the value of an object that is useful in some other way than as money. The fact that silver or gold have had money value was because they had value as commodities first.
In the case of cryptocurrencies, they are decentralized global payment networks. They have open public ledgers that are immutable. They require real-world resources to operate such as electricity, hardware, bandwidth, and space in order to maintain the features they proclaim as secure public ledgers in the world.
The payment system is very popular in a lot of poor countries that can’t afford vast banking infrastructures, institutions like the Federal Reserve, OECD, World Bank. And major investment houses are looking deeply at cryptocurrencies with the attendant respect and attention.
The payment system is the source of a cryptocurrency value and the accounting unit goes on to express that value in terms of the price the value of the cryptocurrency is bound up with its attached payment network. The value of the cryptocurrency emerged as a result of real-time testing in a market environment.
It will be absolute erroneous to attribute intrinsic value solely to anything that has an only physical presence. Since the cryptocurrency can also be printed on a piece of paper. The cryptocurrencies have a digital presence and have been able to create a concept of digital scarcity, which is what is needed in a currency.
#3 An avenue for tax evasion:
This is as interesting as they come and is bandied by lazy revenue workers who want everything on a platter of gold. Cryptocurrencies are powered by blockchain technology and it only requires a very serious-minded individual to track down the transactions.
As a decentralized public ledger, the blockchain keeps records of every transaction. Most users leave a paper trail when they buy or sell cryptocurrency in exchange for dollars or any other currency. Exchange services record identities of customers to comply with KYC laws.
The following set of directives released by the Internal Revenue Service (IRS) as far back as March 5, 2014, completely laid to rest this particular myth.
- Wages paid to employees using cryptocurrency are taxable to the employee; it must be reported by an employee on a Form W-2, and they are subject to federal income tax withholding and payroll taxes.
- Payments using cryptocurrency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
- The character of gain or loss from the sale or exchange of cryptocurrency depends on whether the currency is a capital asset in the hands of the taxpayer.
- A payment made using cryptocurrency is subject to information reporting to the same extent as any other payment made in property.
Anybody who wants to evade tax will go all the way to conceal transactions and not because the transactions were cryptocurrency based.
#4 The basis for Money Laundering:
This myth is upped by the fact that cryptocurrencies do not go through the same procedures as would any financial institution governed by the Anti-Money Laundering Council (AMLC), and as such, criminals will take undue advantage. This assumption may be true on face value but what we have on the ground totally negates this.
Transactions that are carried out with cryptocurrencies leave data trails that can be traced with the right forensic intelligence. As a very transparent value system, it’s relatively easier to apprehend criminals who may want to use the system to carry out their nefarious activities. They know this and prefer to use plain old cash and banks.
The Center on Sanctions and Illicit Finance, a program at the ;Foundation for Defence of Democracies’ in conjunction with Elliptic, a UK based cybersecurity firm reported after an all-encompassing study in a research paper that, “the total percentage of identified ‘dirty bitcoins’ going into conversion services was relatively small. Only 0.61 percent of the money entering conversion services during the four years analyzed were verifiably from illicit sources, with the highest proportion (1.07 percent) seen in 2013.”
#5 The blockchain is all about cryptocurrency:
It’s true that cryptocurrency is powered by blockchain and without the blockchain, we can kiss cryptocurrency goodbye. The other side of the coin is that the blockchain is a technology that is all involving. Any business can use the underlying technology of distributed ledgers. A good number of institutions and organizations have used the technology to carry out varied transactions which have put paid to the rumors that have been milling around.
- The blockchain technology can be used to replace and replicate a lost protocol, create a decentralized database for music rights, and be used in insurance, cross-border payments, and asset management.
- Blockchain technology is making tracking and managing digital identities both secure and efficient, resulting in seamless sign-on and reduced fraud.
- Liberal Alliance, a political party in Denmark used blockchain to vote in 2014 since it has the ability to provide an unhackable electronic vote-counting system.
#6 Cryptocurrency is hackers’ goldmine:
Cybersecurity is an ordeal that every facet of the business world, governments, and individuals are battling. It’s not restricted to any sector so harping on that in the case of cryptocurrency is a non-issue. The Wired reported that in April 2017, Shadow Brokers released their most impactful cyber attack which included a trove of particularly significant alleged NSA tools.
In the case of cryptocurrency, the security of the digital wallet would ultimately depend on the user. There is the absolute need for extra security. The owner of the wallet can add a multifactor authentication and also use encryption to thwart the effort of the criminals. It’s just the same way you need secure your serial security number, bank accounts, and credit cards.
It is also better to store your digital money on a hardware wallet or a USB drive (with encryption enabled) that you keep disconnected from any other computer. Outsourcing security to someone else might not necessarily do the magic. Ensure you are operating a decentralized exchange so that no one can access your funds other than you. If your private keys are not compromised, you are secured.
#7 Cryptocurrency is a Ponzi scheme:
Cryptocurrency is never a Ponzi scheme. The reason a lot of people bandy this about is that of the huge ROI that accrues from investing in cryptocurrency, but then any businessman sets out to make a handsome profit on the investment. Ponzi schemes do not undertake any revenue-producing activity other than the continual raising of new funds.
The fact that people who invested very early into cryptocurrency usually make bigger returns does not make it a Ponzi scheme. It’s pertinent to point out that they also took the bigger risks. Cryptocurrencies, unlike Ponzi schemes, do not lure new investors by offering them unusually high payouts and older investors do not get payouts from new investors, rather than from profits earned.
Satoshi Nakamoto, the founder of bitcoin had to run a full node and mined bitcoin blocks to receive block rewards to get new bitcoins like any other person. This is a legal way that anyone can follow and not by running away with a big chunk of money the way founders of Ponzi schemes are wont to do. Cryptocurrencies are in fact, legitimate and potentially life-changing part of a speculative portfolio and are not controlled by a central person or group.
In conclusion, there are a whole lot more of myths about cryptocurrencies but in the face of these 7 very serious ones, all the others can easily pale to nothingness.