2021 was a golden year for crypto as a survey found that 41% of crypto owners made their first crypto purchase in 2021 and it is spill over to 2022.
Cryptocurrencies have experienced significant growth in popularity and it is projected to increase in the coming years.
The rise of crypto has brought with it a series of misconceptions and I will be debunking the top five common misconceptions about crypto:
1. Cryptocurrency has no value
One of the most common statements I hear is that cryptocurrency has no value. Well, it is true that cryptocurrency has little to no intrinsic value but then again does the money in your wallet have any intrinsic value?
Vendors and service providers accept and recognise the value behind the dollar note not because of the intrinsic value but because there is value in exchange as it is backed by the government.
In the same way, cryptocurrency also has value in exchange. There is a market for cryptocurrency and users are willing to buy and sell at a certain price.
2. Cryptocurrency is a scam
I understand that cryptocurrency used to be considered a scam as there are no real-world use cases for it. But we have moved on into an age where cryptocurrency has been recognised by merchants and even government bodies as a means of exchange.
Retailers all over the world have started to accept cryptocurrency as payment and it will only be a matter of time before cryptocurrency reaches mainstream adoption.
That being said, there are still many scams in the crypto world. It has evolved from the Nigerian prince email scam to a more sophisticated kind of scam that are harder to identify.
One of the most prominent scams of the 21st century got to be the Squid Game crypto token scam. Many investors aped into the hype only to figure out that they cannot sell the tokens.
The developers then decided to rug pull the project and the price plummet down by 99.99%. Many lost money and some even claim that they lost their life savings.
3. Cryptocurrency is only used for illicit activity
This is one of the most common age-old misconceptions about crypto. Well, it’s true that many criminal masterminds are early adopters of crypto, governments and international community have started to crack down on cryptocurrency used by criminals.
Most blockchains out there are transparent and when equipped with the right tools, it is not that hard to trace the cryptocurrency to the end-user.
A number of CEX (centralized exchanges) have started to introduce KYC (know your customer) to help combat the use of cryptocurrency for illegal activities.
Cryptocurrency-based crime hit a new all-time high in 2021, with illicit addresses receiving $14 billion over the course of the year, up from $7.8 billion in 2020. However, with the growth of legitimate cryptocurrency usage far outpacing the growth of criminal usage, illicit activity’s share of cryptocurrency transaction volume has never been lower.
4. Investing in crypto is the same as gambling
To invest means to:
“expend money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property, or by using it to develop a commercial venture.”
On the other hand, gambling means:
“the wagering something of value on an event with an uncertain outcome with the intent of winning something of value.“
While many would argue that crypto is gambling and not investing, it actually boils down to your strategy.
A sound investment strategy would see a diversified portfolio to mitigate risk and decrease the odds of losing money.
Sadly, most newbies tend to chase after crypto that could make them rich overnight. And the next thing they know their portfolio starts to crash and burn.
What you invest in also matters as you should always DYOR ( do your own research) before you buy into it. If you don’t DYOR and buy into it because of the hype, it is no different to gambling.
5. Cryptocurrency will replace fiat
First of all, fiat is a type of money issued by the government. The value of fiat is backed by the government and is not linked to any physical reserves like gold or silver. Examples of fiat include the US dollar, euro, yen, UK pound and other major global currencies.
Unfortunately, cryptocurrency will not be replacing fiat anytime soon. However, I believe that cryptocurrency especially stablecoins will be used alongside fiat in the near future.
There are many reasons why governments would not allow cryptocurrency to replace fiat. One of the key reasons is the lack of control. Cryptocurrency is decentralized in nature and central banks do not have the tools to control how they would affect the country’s economy.
Central banks use modern tools like monetary policies to either curb inflation or to boost economic growth. Without these tools, the country’s economy would go haywire and it would eventually lead to a downward spiral.
Until there is a way for the government to control cryptocurrency, it would continue to stay on the sidelines as an alternative mode of payment instead of replacing fiat.
I hope this article addresses some of those burning misconceptions that you or your friends might have about crypto.
The crypto space is still like the wild west and anything can happen. Always invest safely and do not just blindly chase the hype.
All in all, cryptocurrency is more than just a fad. While it is still taking shape, I believe it will change how the way the world works.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Chain Debrief