Debunking: 7 preconceptions about Bitcoin that are important to correct

Bitcoin is a divisive subject that can spark passionate debates often fueled by personal opinions. There are those who defend it in all respects and who wish to make it a universal currency recognized by all. There are those who only see bitcoin as an insignificant virtual asset with no other use than speculation.

Whether you support Bitcoin or not, it's important to know that there are many preconceptions floating around. Before choosing a side, it is reasonable to learn about the arguments of each side in order to form an opinion that is based on factual elements.

We believe that Bitcoin suffers from a real lack of awareness, which is unfortunately relayed by many people and media who have not educated themselves sufficiently on the subject. We wanted, here, to take up preconceived ideas, opinions and popular prejudices in order to shed rational light on them.

The goal is not so much to convince or advocate for bitcoin as to correct the errors that hinder its understanding.

Misconception #1: Bitcoin has no real-world utility

This is one of the most common myths about bitcoin: that it has no use in the real world. Critics of bitcoin claim that bitcoin is a virtual currency and has no anchor in the real economy. It would be no more useful than an internet casino coin. By the same logic, it is said that without a computer and without a connection to the Internet, Bitcoin would not exist.

The truth is that bitcoin has a use in the real world, and not a small one. Bitcoin is an electronic payment system that allows instant payments to be made without the need for a trusted third party. With bitcoin, anyone in the world can make a payment to anyone, without having to go through a bank or payment service. It is a very concrete utility that bitcoin has when it comes to paying for a service or good in real life. What about unbanked people who cannot receive funds from abroad and for whom bitcoin is the only alternative?

Can we really continue to say that bitcoin has no use in the real world, when precisely it solves the problems of global monetary transfers which are currently lacking? Providing a financial system accessible to all, without restrictions of age, gender or nationality, represents a utility that goes beyond simple individual use.

Preconceived idea #2: bitcoin is not secure, anyone can lose their bitcoins

A common misconception among people unfamiliar with Bitcoin is that Bitcoin is a fallible network, subject to various hacks. This preconceived idea is the result of confusions and amalgamations between different stories. Indeed, when exchange platforms or protocols suffer hacks that cause several bitcoins to be lost, a person who is unaware of how bitcoin works may think that this is a sharing of the protocol itself.

However, it is not. When a platform like the infamous MtGox shut down in 2014 following the theft of nearly 744 bitcoins, it was not the Bitcoin network that was hacked but the site that hosted the bitcoins. It is the faulty security procedures of the centralized platforms that can be hacked and this is where confusion arises in the minds of some people.

In 2023, the bitcoin protocol has been operating securely for 14 years and has never been hacked. Its source code is constantly reviewed by many security experts and IT professionals. Significant computing power secures the network and it would require staggering resources (financial, energetic, etc.) to attempt to carry out a 51% attack. Even more, the miners who secure the network are distributed all over the world. In other words, there is no single point of failure, unlike other centralized security systems.

Misconception #3: Bitcoin is an ideal currency for criminals and scammers

During the first years of existence on the market, Bitcoin received a very bad image because it was associated with the Darknet and crime. Indeed, the first significant use of bitcoin was to make payments on the platform Silk Road, founded by Ross Ulbricht. The platform that allowed the purchase of illicit products such as drugs, weapons and other things was closed in 2013. After that, bitcoin experienced ever greater expansion.

The truth is that just like the dollar or traditional fiat currencies, there can be dangerous or dishonest use of the currency. Bitcoin is a neutral currency and depending on people's uses, it can be used for criminal or philanthropic purposes. However, although this image of the Dark Web has been outdated for more than 10 years, it continues to be mentioned among detractors. However, the “Crypto Crime Report” from Chainalysis, indicate that transactions involving illicit addresses represented only 0,15% of cryptocurrency transaction volume in 2021.

Obviously, we can question the studies and the figures and add that there are a lot of scams in the crypto world. There, it would then be a question of not confusing the use of bitcoin for criminal purposes with scams linked to cryptographic projects, which are very far from the foundations of Bitcoin.

What you need to know is that fundamentally, bitcoin is not an ideal currency for criminals, it is even the opposite. Indeed, it is easy for the authorities to trace all operations and trace them back to the criminals. All operations are recorded immutably on the blockchain and anyone can access them. Therefore, cash is still the preferred route for criminals.

Preconceived idea No. 4: Bitcoin can be banned by states and governments

This is again a stubborn preconceived idea that is often put forward by people who do not know how Bitcoin works. Spontaneously, we can indeed think that it is enough for a government to decide to ban Bitcoin for it to stop working. We can also think that if a government prohibits the use of cryptocurrencies with the impossibility of accessing certain sites, then the population will not be able to access them. Finally, we can also naively think that a country could take part in bitcoin mining to shut down the network and put an end to Bitcoin.

It is true that it is possible to partially censor the Internet. Governments could block access to certain sites, as can be seen in China or North Korea. This is partially possible because the Internet relies on centralized servers with providers that governments can shut down. On the other hand, Bitcoin works thanks to decentralized nodes distributed throughout the world. This means that for ban bitcoin, all governments in the world, without exception, would have to agree to ban bitcoin, and that would not be enough to stop the network. Today there are satellites and solutions for sending bitcoin by SMS. So, even in this unlikely scenario, there would still be the possibility of running the network with a few servers.

Preconceived idea No. 5: The price of bitcoin is a speculative bubble

Considering that the price of bitcoin is purely speculative and that it is only a phenomenon of “tulipomania” is certainly one of the oldest arguments to discredit Bitcoin. There tulipomania is a financial episode that occurred in the United Provinces in the middle of the 17th century. Also known as the “tulip crisis” in economic history, this traces the massive increase in the price of the tulip bulb before its sudden collapse. Described as the first speculative bubble in history, many people believe they recognize the same financial scenario in bitcoin.

A speculative bubble is defined by a surge in asset prices to levels significantly above the fundamental value of that asset. However, the fundamental value of bitcoin is not necessarily intrinsic and it must be considered from the angle of law of supply and demand. When observing the price of bitcoin, it undergoes variations both upwards and downwards, just like any financial asset. The history of the bitcoin price presents a series of price fluctuations which justifies that it is not a speculative bubble. The price of bitcoin, which has remained bullish since its creation, can be explained by numerous pragmatic reasons including the deflationary nature of the currency (There will never be more 21 million bitcoins issued), the ever-increasing use, the difficulty of extraction, etc.

Without being ironic, we can even consider bitcoin as an example of “anti-bubble“, to the extent that its price increases when speculative bubbles in the economy explode. Remember that bitcoin was created in 2009, after the speculative subprime crisis... Since then, bitcoin has been considered just like theor, as a “safe haven” by investors who seek to hedge against inflation in the prices of fiat currencies.

Preconceived idea No. 6: Bitcoin is an outdated technology, it will be replaced by other cryptocurrencies

Bitcoin was created in 2009 by Satoshi Nakamoto and since then, the same protocol has always been used. The new cryptocurrencies that subsequently appeared brought interesting technological innovations with faster transactions, for example. Critics like to say that bitcoin is an outdated protocol that will be replaced by new, more efficient cryptocurrencies. It is true that many blockchains have appeared with numerous improvements and use cases. We can think of Ethereum, for example, which allowed the emergence of multiple protocols and the creation of what we today call decentralized finance. It is a fact, however, this is again a confusion between bitcoin and other cryptocurrencies that is good to understand.

It is a misconception to think that you can replace bitcoin with other cryptocurrencies like ETH or other altcoins. The vast majority of cryptocurrencies were not created to be currencies but to be utility tokens which are used for the use of certain specific protocols. While cryptocurrencies that were designed to be alternatives to bitcoin like litecoin for example do not have the characteristics specific to bitcoin (decentralization, security, absence of entity controlling it, etc.).

Likewise, the preconceived idea that Bitcoin can be replaced does not take into account the continuous developments made to the bitcoin protocol. There are proposals (BIP) submitted regularly to make the protocol ever more scalable. This allows Bitcoin to adapt and evolve as needed while maintaining security. Bitcoin is constantly evolving and it is wrong to imply otherwise. We saw updates like the Segregated Witness (“SegWit”) in 2017 which notably made it possible to set up the Lightning Network. It is now possible to make instant and inexpensive payments in bitcoin, for example.

Preconceived idea No. 7: Bitcoin is a tragedy for the environment

Bitcoin mining is certainly the most powerful argument used by opponents of bitcoin. Studies like those conducted by Cambridge Bitcoin Electricity Consumption Index (CBECI) indicate that bitcoin mining is equivalent to the energy consumption of a country like Sweden. With alarming numbers, many environmental activists have spoken out to strongly condemn Bitcoin miners. Recently, the campaign led by GreenPeace urged miners to “change the code” to stop the “proof-of-work” used by the network, which is the source of energy consumption.

To respond to these arguments, you must know that there are several angles of understanding and several elements to take into account. First, we must understand that what we criticize about bitcoin is not so much for polluting as for consuming fossil energy. However, for years, Many studies show that bitcoin miners use more than 60% renewable energy (wind, solar, hydraulic, etc.). It is true that it is difficult to accurately measure mining data and that some studies may display different data.

It is also necessary to take into account the numerous ecological innovations brought by the mining industry to limit the environmental impact. Today, many experts agree that the mining industry is part of the solution and not a problem to combat climate change. It is indeed a counter-intuitive solution which many ecological activists such as Daniel Batten defend the principle today.

Of course, the mining industry is not yet a solution that is completely free from criticism. However, it would be unfair not to applaud the efforts made by miners and not consider the improvements made to the industry that help combat climate change.

Final word

We wanted to write this article by taking only 7 common preconceptions, however, we know that there are many other prejudices and errors circulating about Bitcoin. We wanted to publish specific articles for some of the preconceptions that require more detailed explanation. Also, if you are looking to improve your knowledge of Bitcoin, know that there are numerous books on bitcoin and blockchain which will allow you to sharpen your knowledge.

Finally, it is important to understand that Bitcoin is not easily understandable and that it requires knowing different notions and concepts which are at the crossroads of several disciplines, such as philosophy, economics, history or even finance. . You cannot understand bitcoin by reading a few descriptive lines here or there and even less through the writings of people who do not have in-depth knowledge on the subject. It is through a body of knowledge and scientific approaches that bitcoin can truly be understood for what it is or what it is not.

sources:

• Crypto Crime Trends: https://blog.chainalysis.com/reports/2022-crypto-crime-report-introduction/
• Bitcoin mining can prevent climate change by Daniel Batten: https://bitcoinmagazine.com/business/bitcoin-mining-can-prevent-climate-change