Since they were first introduced in 2009, cryptocurrencies have significantly increased in popularity. Due to their obscurity and complexity, many misconceptions and rumors surround these digital currencies.
Cryptocurrencies are viewed in various ways, from the fervently enthusiastic to the downright skeptical. Although cryptocurrency is viewed in different ways—as a speculative fad or a technological advancement that will forever alter the banking system—investors must distinguish fact from fiction to avoid making costly mistakes.
The majority of cryptocurrency transactions are made for legitimate purposes. Some people find value in cryptocurrencies, and they are secure if the proper security precautions are taken. Cryptocurrencies are, by definition, money, but they are not “real” (as in, backed by governments or physical objects) money. Many use cases are being explored and developed for cryptocurrencies, suggesting they may not just be a passing trend.
Myth 1: Cryptocurrencies are not safe.
Because central banks do not issue cryptocurrencies, they are not legal tender. They appear unsafe to some because they are not a recognized currency. Crypto, a blockchain-based digital currency, is stored on an exchange or in a wallet. It is not FDIC-insured in the same way that money in a financial institution is.
Your cryptocurrency is safeguarded by encryption, linked blocking, and consensus mechanisms. There are some risks associated with how crypto is stored and accessed, but there are ways to mitigate these risks.
Myth 2: There is no practical use for bitcoin.
Bitcoin’s detractors frequently assert that it has no practical use in daily life or, if it does, that use is primarily related to illegal activity. Both of those claims are untrue. Bitcoin has a long history of sending payments to anyone around the world without the need for a bank or payment processor. Major institutional investors are also increasingly using it as a gold-like hedge against inflation.
Myth 3: Every cryptocurrency is the same.
One of the common misconceptions in the popular understanding and mainstream media is that Bitcoin and cryptocurrencies are interchangeable when this is not the case. The truth is that while Bitcoin has been around for many years, the broader crypto industry is still very young. To put it in perspective, investors should remember that other cryptocurrencies are still in their infancy.
Myth 4: Cryptocurrency is not taxable
There is no central authority and no involvement of banks. However, it is still possible that virtual currency avoids paying taxes. You pay taxes like any other transaction whenever you sell it or get paid in cryptocurrency.
In reality, the IRS regards cryptocurrency as property. The agency taxes it in the same way that it taxes other assets, such as gold and stocks. When you sell, trade, or dispose of your crypto holdings, you pay taxes on the gains and can deduct the losses, just like you would with Amazon stock or your favorite ETF.
Myth 5: Cryptocurrencies Are a Pyramid Scheme
Many retailers and shop owners now accept cryptocurrency as a form of payment. People use them in personal transactions, and governments attempt to regulate them. Most cryptocurrencies do not have any programming, code, or malicious artificial intent to steal your money.
Some people have devised schemes to scam you of your cryptocurrency or money. For example, unregulated fundraising for new cryptocurrency ventures, which turned out to be scams. In other cryptocurrency scams, someone may call you pretending to be a government official and ask you to pay your debts in cryptocurrency.
Myth 6: High profits are likely.
Due to the dominance of the ‘ crypto bro ‘ narrative, Bitcoin has a lingering reputation as an all-or-nothing asset class that bullish investors pursue to double their money – essentially a gambling exercise.
Like all other forms of trading, trading in cryptocurrencies is a zero-sum game. You make money by exploiting others. There is also the misconception that mining cryptocurrency is a quick way to become wealthy.
The initial cost can be pretty high. Mining cryptocurrency is expensive, so not everyone with a laptop can mine cryptocurrency. As more cryptos are mined, the algorithm underlying the process requires more computing power.
Myth 7: Cryptocurrency investments are now too late.
Some people might think that cryptocurrency was initially just a niche fad. It has spread across the world in a relatively short amount of time. Nowadays, a wealth of information is available to educate yourself before making an investment, unlike in the past.
Whether you believe cryptocurrencies are secure depends on your viewpoint, level of knowledge, intended use, and management style. Proper controls can be as secure as fiat money kept in a bank; when used carelessly, it can be just as secure as stashing cash next to the house key under the doormat.