The Top 10 Common Misconceptions About Bitcoin and The Blockchain
We put together a list of 10 misconceptions about Bitcoin we see out “in the wild” a lot and wanted to clear up the confusion
Here are the Top 10 common misconceptions we’ve seen or heard around Bitcoin and Blockchain technology:
- Bitcoin is anonymous – Not exactly. Bitcoin is pseudonymous, which means you are given a disguised identity(versus personal and banking data). Within the Bitcoin network you exist as a unique string of letters and numbers(which form your public and private key). To be clear though, your digital footprint can still be triangulated by making use of personal data, like an IP address. Therefore, it is not truly anonymous, at a protocol level, for users.
- Bitcoin is illegal – In most countries worldwide, this is not true. Although, there are 5 countries that have taken very anti-Bitcoin stances. While not illegal, there is still a lot of controversy in the US about the nature of ICOs, Securities and other Crypto tokens. One area that has generated arrests, is the illegal selling of Bitcoin without a money transmitters license(MTL). Bitcoin and businesses around financial services definitely need to exercise caution around being seen as a money services business(MSB) in the eyes of regulators.
- Bitcoin is mined by GPUs – At one time this was true during the early days of low difficulty mining (meaning people could mine with less robust hardware like laptops). Today, this is not true and this confusion added by mainstream media is problematic. Bitcoin today is mined by specialized equipment called Application Specific Integrated Circuits (ASICs). GPU’s are still used for mining, but that is reserved for newer “altcoins” and is considered highly speculative(spec mining).
- Bitcoin is mostly used for buying illegal things online – Believe it or not, this is not the case despite much of the media outcry to the contrary. While the Silk Road captured headlines, this is a pretty small use case. The FBI and other federal agencies efforts, they have been able to capture some of these sites and are presumably still monitoring the activity on the darknets. While merchant adoption has waned much to the chagrin of enthusiasts, bitcoin appears to be more of a speculative investment and vehicle for donations to charity and other organizations.
- Bitcoin is a security – The SEC seems to want to push things toward a security token model for most offerings while others advocate for a more hands off approach. Still, SEC director of Corporate Finance, William Hinman, has said that both Bitcoin and Ethereum are not securities. This is a rare example of concrete clarity being provided around Cryptocurrency, but it was not unexpected by people in the compliance world.
- Blockchain is separate from Bitcoin – There are absolutely other Blockchains that are not focused on being Cryptocurrency tokens(like Hyperledger) However, it’s also important to understand how Bitcoin and the Blockchain work together. Bitcoin serves multiple purposes and ultimately acts as the economic incentive and glue that brings together security, infrastructure and monetary issuance by the network. Without the incentives of Bitcoin, the “Blockchain” would just be an inert database.
- Blockchain and Digital Ledger Technology(DLT) are synonymous – Definitely not. As mentioned above Bitcoin acts as an economic incentive for others to help build and maintain the network. The first Blockchain ever is composed of Bitcoin transactions (bundled into blocks) and linked together(hence the “chain”). Even if a DLT simulated this process, the lack of globally distributed, decentralized players(miners, nodes, etc.) would make it a centralized database and would cease to be a Blockchain in any way, shape or form.
- Blockchains are free – The Blockchain is free in the sense that anyone can leverage the codebase of the technology freely through MIT Open Source licenses. However, to create a Blockchain from scratch is most certainly not free. Miners set up millions(and billions) of dollars worth of infrastructure at their own cost. In addition, there are the Bitcoin Core development team, as well as the myriad of volunteer developers and startups each with their own coffers(large and small) they must dip into to maintain operations. There is also the network fee attached with sending Bitcoin which is also a cost for users that transact with the Cryptocurrency.
- The Blockchain is just for creating money – While we did provide a distinction between DLT and Blockchain, money issuance is just one application of the Blockchain. Many Blockchain visionaries excitedly discuss the potential for interoperability and cross-chain transactions between Blockchains without an intermediary like exchanges. Another big use case is in improving supply chain efficiency(like how Walmart is using it for food trace-ability). Food safety is a big need and IBM is also working on that niche with their Hyperledger Blockchain and Cloud platforms.
- Every company should create their own Blockchain(and token) – Please, don’t. This is an inconvenient truth for many would be startup entrepreneurs. Now, we don’t say this to the seasoned, diligent startups that have a pile of engineers and business experience to boot. We say this to the majority of people out there who think they can roll their own Blockchain, issue a token and ride off into the sunset. Sorry, but that’s not how it works. Most companies and organizations should leverage the tools, knowledge and networks of the professionals already out there, first.
Hope you enjoyed our list of 10 common misconceptions about Bitcoin. Were there any that we missed? Feel free to tweet at us other ones you’ve heard of!
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Feature Image Source: jcomp