Bitcoin Myths
Bitcoin is used by criminals
One of the most popular "arguments" against Bitcoin is the claim that Bitcoin is largely used by criminals, for example to launder money. This probably stems from the fact that in its early days Bitcoin was partly used on the darknet on platforms like the famous SilkRoad. However, this does not change the fact that Bitcoin is rather unpopular with criminals. Why? Bitcoin transactions are merely pseudonymous, not anonymous. The transactions can be traced and services such as Chainalysis are already cooperating with law enforcement agencies such as the FBI or the American tax authority IRS. In the service provider's last "Crypto Crime Report", it was stated that of the 3 trillion US dollars in trading volume (including all other cryptocurrencies besides Bitcoin), only a good 0.3 % could be attributed to illegal purposes. It should also always be noted that the most popular form of money for criminals is still the cash of traditional fiat currencies.
Bitcoin is a bubble
While it’s true that some people buy Bitcoin as a speculative investment seeking big returns, that doesn’t mean that Bitcoin itself is a bubble. Bubbles are economic cycles characterized by unsustainable rises in market value. They eventually pop when investors realize prices are much higher than an asset’s fundamental value. Bitcoin is occasionally compared to an infamous early speculative bubble: the 17th century Dutch “tulip mania.” In 1637, speculators caused prices for some tulip varieties to surge 26-fold. The bubble lasted six months, crashed, and never recovered.
Bitcoin in contrast has gone through multiple price cycles over the course of over 12 years — and has recovered each time to achieve new highs. As with any new technology, boom and bust cycles are expected. For example, at the end of the dot.com era in the nineties, Amazon stock nosedived from around $100 to just $5, only to become one of the most valuable companies in the world in the subsequent decades.
Some major Bitcoin investors believe that Bitcoin’s oscillations form a pattern typical of young markets. Bitcoin, they say, will surge and recede with smaller swings and longer durations between them until at some point in the future it settles into relative stability. But only time will tell.
Bitcoin is obsolete and will be replaced by a competitor
"Bitcoin is obsolete, it will surely be replaced by another cryptocurrency soon!" - these are the kinds of claims you often hear when you look into the subject, and have been for many years. Bitcoin is indeed the oldest cryptocurrency. It is also true that Bitcoin is not (yet) well suited as a currency. Nowadays, it is more of an asset that is acquired as protection against the threat of inflation. Because Bitcoin is the oldest cryptocurrency and there have never been any significant incidents in the network, a very high level of trust has developed in it. This is one of the reasons why large companies such as Tesla and large banks are investing in the number one cryptocurrency.
Bitcoin is too volatile
Bitcoin is indeed very volatile and has claimed many victims among day traders. But that's the point: day traders trade minimal intraday movements, much like swing traders on slightly higher time frames. In doing so, one automatically exposes oneself to a higher risk of being squeezed by the high volatility. But if you look at the price development over a scale of several years, you will come to the conclusion that it went steadily upwards. Very few people who have ever bought and held Bitcoin are currently in the red. As market capitalisation and trading volumes grow, volatility will also minimise in the long run.
Bitcoin has no real value
While Bitcoin might not be backed by a physical asset like gold, neither is the US dollar or virtually any other modern fiat currency. The US dollar was once 100% backed by gold, at least partially until 1971. This is no longer the case today and it is only "worth" something because people believe it is worth something.
In contrast to fiat currencies, Bitcoin's supply is hard-coded to be scarce, which helps make it resistant to inflation. Inflation with fiat currencies can occur when large quantities are created, thus diluting the existing supply. There will only ever be 21 million Bitcoin. This scarcity is a major driver of its value. Not only is the supply capped, but the amount of new Bitcoin being mined is declining over time in a predictable way. Every four years, in an event called a “halving,” block rewards paid to miners in the network are cut in half. This helps ensure that the supply is always reducing which, by the basic economic principle of scarcity, has worked to keep the price of Bitcoin broadly trending upwards over the long-term — from less than a penny at the start to more than $60,000 as of November, 2021. Bitcoin also derives value from the work the computers on the network contribute via a process called mining. Powerful computers all over the world supply a vast amount of processing power towards the work of validating and securing every transaction (in exchange they’re rewarded with new Bitcoin).
Bitcoin is not secure
The Bitcoin network has never been hacked. Its open-source code has been scrutinized by countless security experts and computer scientists. Bitcoin was also the first digital currency to solve the double-spend problem, making “trustless” peer-to-peer currencies a reality. Further, All Bitcoin transactions are irreversible.
Many misconceptions around the security of Bitcoin stem from attacks on third-party businesses and services that make use of Bitcoin, and not the Bitcoin network itself. 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 made some users question the security of Bitcoin.
Bitcoin’s core protocol has functioned securely with 99.9% uptime since its creation in 2009. A vast amount of computing power secures the network. And the miners that power the network are distributed throughout the world, with nodes in 100 countries — which means there are no single points of failure.
Bitcoin is bad for the environment
Very often, critics also claim that Bitcoin is harmful to the environment because the energy consumption is so high. They often fail to distinguish between "electricity" and "energy". Let's stay with energy consumption and look at the figures from a report by ARK Investment Management LLC from 2020: From this statistic we can see that the energy consumption of the banking sector is 2.34 billion GJ (gigajoules) per year, gold mining 500 million GJ and Bitcoin only 184 million GJ. The efficiency (ratio of mining costs to energy consumption) is also much better for Bitcoin. Bitcoin mining is 40 times more efficient than banks and 10 times more efficient than gold mining.
Furthermore, a significant portion of Bitcoin mining is powered by renewable-energy sources (including wind, hydro, and solar). The actual number ranges from 20 percent to more than 70 percent, according to Cambridge Bitcoin Electricity Consumption Index. The Cambridge researchers concluded: “Bitcoin’s environmental footprint currently remains marginal at best.”