It seemed like a good time to look at some of the most common myths and misconceptions people tend to have about the world’s first cryptocurrency, Bitcoin, to determine whether or not they have any basis in reality and to set the record straight, as Bitcoin has recently reached new all-time highs and major news has been breaking almost every day. This tutorial is for you if you have any preconceived notions about Bitcoin’s value, such as the notion that its worth is “based on nothing” or that the cryptocurrency is too volatile to have any practical use. In order to learn the truth about the most widely used cryptocurrency on the planet, we are separating the fact from the fiction, but we are not ignoring the actual dangers that exist.
Even if it’s true that some people acquire Bitcoin as a speculative investment in the hopes of making large profits, this does not suggest that Bitcoin itself is in a bubble. Bubbles are economic cycles that are characterised by spikes in market value that cannot be sustained over time. When investors understand that prices are significantly greater than an asset’s inherent value, the bubble will inevitably burst and explode. Bitcoin is commonly likened to the infamous early speculative bubble known as “tulip mania,” which occurred in the Netherlands in the 17th century. In the year 1637, speculators drove up the price of certain types of tulips by a factor of 26. The bubble lasted for six months until it burst and has never recovered since then.
The truth is as follows:
Over the span of more than a decade and a half, Bitcoin’s price has been subjected to a variety of price cycles, but it has consistently rebounded to reach new highs. It is to be assumed that boom and bust cycles would occur with any new technology. For instance, during the conclusion of the dot-com period in the nineties, Amazon stock plummeted from roughly $100 to only $5, but in the ensuing decades, it has become one of the most valuable firms in the world.
Major Bitcoin investors are of the opinion that the cryptocurrency’s price fluctuations follow a pattern that is characteristic of emerging markets. They predict that Bitcoin’s price will continue to rise and fall, but that the swings will be fewer and the intervals between them will be longer until, at some time in the future, it settles into a state of relative stability. However, only time will tell for sure.
It is common for sceptics to assert that Bitcoin has no practical application in the real world, or that if it does, it is mostly applicable to illegal transactions. Both of those assertions are false. Neither one is true. Bitcoin has a long history of use as a method of making payments to anybody in the world, all without the need for a bank or payment processor to act as a middleman in the transaction. In addition to this, significant institutional investors are increasingly using it in a manner analogous to gold as a hedge against inflation.
The truth is as follows:
Bitcoin has earned the term “digital gold” in recent years due to its growing popularity as an inflation-resistant store of value that is comparable to gold. This trend occurred over the course of many years. Bitcoin is being purchased for millions or even billions of dollars by a rising number of significant funds and publicly listed firms (including Tesla, Square, and MicroStrategy) as a method of better managing their assets. This trend is expected to continue.
Bitcoin is extremely rare, comparable to gold (there will never be more than 21 million Bitcoin). Gold is notorious for being cumbersome, cumbersome, and difficult to move and store due to its weight and volume. Bitcoin, on the other hand, may be sent digitally in the same way that an email can be transferred.
In its early years, as a form of payment on the dark web, bitcoin was met with a great deal of unwanted attention. However, within only a few days following the closure of the first major dark web market, Bitcoin values began to soar, and they have continued to do so ever since.
Some of it, just like every other kind of money, is going to be put to inappropriate use. The illegal use of bitcoin, however, is a drop in the bucket when compared to the usage of US dollars. According to a research that was published not too long ago, 2.1% of the total number of Bitcoin transactions in 2019 were tied to illegal activity.
And because all Bitcoin transactions take place on an open blockchain, it is typically more simpler for authorities to follow illegal conduct using Bitcoin than they would be able to do using the conventional monetary system.
Bitcoin, like the United States dollar and practically all other forms of modern fiat currency, does not have any sort of tangible backing, such as gold or other precious metals. Bitcoin is pre-programmed to have a limited supply, which contributes to the cryptocurrency’s resistance to inflation. When huge quantities of a fiat currency are generated, this can lead to inflation since it dilutes the quantity that is already in circulation.
The truth is as follows:
There will never be more than 21 million bitcoin in circulation. This is a significant factor that contributes to its worth.
Not only is there a limit on the supply, but also the quantity of newly minted Bitcoin follows a pattern that indicates it will gradually decrease over time. The block rewards that are distributed to miners on the network are halved every four years during an event that is referred to as a “halving.”
This helps to ensure that the supply is always decreasing, which, according to the fundamental economic principle of scarcity, has worked to keep the price of Bitcoin broadly trending upwards over the long term. The price of Bitcoin has increased from less than a penny at the beginning to more than $50,000 as of the middle of February 2021. (For the current price of Bitcoin, go here.)
The value of Bitcoin is also derived from the effort that computers connected to the Bitcoin network contribute through a process known as mining. Strong computers located all over the world provide a substantial amount of processing power to the effort of validating and safeguarding each transaction. In exchange for their labour, these computers are paid with newly created bitcoins.
Bitcoin was the first digital currency to achieve widespread acceptance. And despite the fact that new cryptocurrencies have long claimed to overtake Bitcoin by including new features or other advantages, none of these new cryptocurrencies have even gotten close.
The truth is as follows:
Bitcoin has always been and continues to be the most valuable cryptocurrency as measured by market value by a large margin. This is despite the fact that thousands of competing cryptocurrencies have been developed over the past decade.
Additionally, it is the most widely used cryptocurrency, accounting for around sixty percent of the market.
Bitcoin is popular for a number of reasons, including the fact that it was the “first-mover” digital money, as well as the fact that it is a decentralised and open currency.
But it doesn’t mean that other businesses can’t give it a shot and compete with us. Bitcoin is “decentralised,” which means that it is not controlled by one centralised authority but rather by a worldwide community of “miners” and “nodes.”
For instance, if Bitcoin’s fundamental architecture has to be modified to include new functionality, features, or to defend against a newly found problem, the Bitcoin community can launch a fork to update the network. This will allow for the necessary changes to be made.
It is necessary for there to be support for the modification from a majority of the community—at least 51%—before the update may be approved. This enables Bitcoin to adapt and progress as necessary, as seen by the implementation of the Segregated Witness (also known as SegWit) update in 2017.
Because the software is open source, developers who are unable to win over the Bitcoin community can even construct a hard-fork of the Bitcoin blockchain and produce an altogether new cryptocurrency. This allows them to circumvent the need for the community to reach a consensus. For example, Bitcoin Cash was produced in this manner; nevertheless, none of the Bitcoin clones have been able to replace the original cryptocurrency to any significant degree.
There is a significant amount of innovation taking place in this sector, and as a result, the emergence of a more formidable competitor is not inconceivable. However, in light of the current climate, the vast majority of industry professionals do not believe that Bitcoin will ever be supplanted in the near future.
Although it is true that Bitcoin’s price has been quite volatile over the past decade, this kind of movement is to be expected in a market that is still relatively new and expanding. Since the creation of Bitcoin’s genesis block in 2010, the cryptocurrency has shown consistent growth in its long-term value, reaching a market valuation of more than one trillion dollars (as of February 2021; see the current market cap). A solid regulatory system in nations all over the world has helped to attract a wave of institutional investment as Bitcoin has continued to mature over the course of the past several years (Tesla, hedge funds).
The complete account:
When you go to a casino, you are well aware that the odds are stacked in the casino’s favour; on the other hand, there is a fundamental reason for a Bitcoin investor to assume that the value of their assets should increase. Even if there is no way to predict Bitcoin’s performance in the future or ensure that its current results will remain stable, the long-term trendline for Bitcoin over the past decade has been an upward trend.
The practise of investing a certain sum of money once every week or month, regardless of how the market is performing, is known as dollar-cost averaging, and it is one of the more common investment strategies used to mitigate the negative effects of market volatility. In an environment with a positive trendline, this technique will almost always result in positive returns, regardless of the level of volatility.
The volatility of the Bitcoin price looks to be decreasing. A recent investigation by Bloomberg compared the current bull run in Bitcoin to the boom that occurred in 2017, and they discovered that the volatility is far lower this time around. Why? The increased participation of institutional players and the generally calming impact of cryptocurrency “becoming mainstream.”
Your individual circumstances, level of comfort with financial risk, and investment horizon all play a role in determining if Bitcoin or any other cryptocurrency should have a place in your investing portfolio. And despite the fact that throughout the course of the last decade Bitcoin’s price has generally moved in an upward direction, it has also seen significant downward trends. When navigating markets that are turbulent, investors should proceed with caution (and consider working with a financial advisor before making major investments).
There has never been a successful hack on the Bitcoin network. Numerous computer scientists and security professionals have looked through its open-source code to ensure that it is safe to use. Bitcoin was the first digital money to address the problem of double spending, which made it possible for peer-to-peer currencies to function without a central authority. In addition, Bitcoin transactions cannot be undone under any circumstances.
The truth is as follows:
Assaults against third-party companies and services that make use of Bitcoin have given rise to many misunderstandings regarding the safety of Bitcoin; nevertheless, the Bitcoin network itself has not been the target of any such attacks. Several high-profile hacks of early Bitcoin companies with flawed security procedures (like the one that hit the early Japan-based exchange Mt. Gox) and occasional data breaches (like the one that impacted users of the wallet provider Ledger) have caused some users to question the security of Bitcoin. For example, the hack that affected users of the wallet provider Ledger.
Since its inception in 2009, Bitcoin’s core protocol has maintained a stable and secure operation with an uptime of 99.9%.
The network is protected by a significant quantity of processing power. Additionally, the miners that run the network are dispersed around the globe, with nodes located in one hundred different countries; this ensures that there are no single points of failure.
Mining for bitcoin requires a significant amount of energy. The environmental impact, however, might be difficult to ascertain. To start, the digital economy in its entirety necessitates the use of energy. Think of the whole worldwide banking system, together with all the energy that is needed to handle bank transactions and power office buildings, automated teller machines, local branches, and a great deal more.
The truth is as follows:
A recent study conducted by the investment management firm Ark Investment Management in New York came to the conclusion that “Bitcoin is significantly more efficient than traditional banking and gold mining on a worldwide scale.”
The mining of Bitcoin is fuelled in considerable part by alternative energy sources (including wind, hydro, and solar). According to the Cambridge Bitcoin Electricity Consumption Index, the true figure falls somewhere in a range that goes from twenty to more than seventy percent.
The academics from Cambridge came to the following conclusion: “At this time, Bitcoin’s environmental impact is, at best, minimal.”
It is even possible to make the case that the economic incentives that are inherent to Bitcoin mining are helping to drive sustainable energy innovation. This is because miners are constantly seeking to increase their profits by lowering their electricity costs, and this is happening in a world where renewable energy is quickly becoming the most cost-effective choice.
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