Debunking Some Common Bitcoin Misconceptions
People are often suspicious of anything new, especially new things that aren’t easy to understand. So, it’s only natural that Bitcoin — a totally new currency unlike anything the world had ever seen before — would confound people, and a few misconceptions would result.
Here are some of the misconceptions you might have heard about Bitcoin:
- Bitcoin was hacked. There has never been a successful attack on the Bitcoin blockchain that resulted in stolen Bitcoins. However, many central systems that use Bitcoin have been hacked. And wallets and Bitcoin exchanges are often hacked due to inadequate security. The Bitcoin community has fought back by developing elegant solutions to keep their coins safe, including wallet encryption, multiple signatures, offline wallets, paper wallets, and hardware wallets, just to name a few.
- Bitcoin is used to extort people. Because of the semi-anonymous nature of Bitcoin, it’s used in ransomware attacks. Hackers breach networks and hold them hostage until payment is made to them. Hospitals and schools have been victims of these types of attacks. However, unlike cash, which was favored by thieves in the past, Bitcoin always leaves a trail in the blockchain that investigators can follow.
- Bitcoin is a pyramid scheme. Bitcoin is the opposite of a pyramid scheme from the point of view of Bitcoin miners. The Bitcoin protocol is designed like a cannibalistic arms race. Every additional miner prompts the protocol to increase the difficulty of mining. From a social point of view, Bitcoin is a pure market. The price of Bitcoins fluctuates based on market supply, demand, and perceived value.
- Bitcoin will collapse after 21 million coins are mined. Bitcoin has a limit to the number of tokens it will release. That number is hard-coded at 21 million. The estimated date of Bitcoin issuing its last coin is believed to be in the year 2140. No one can predict what will happen at that point, but miners will always earn some profit from transaction fees. Plus, users of the blockchain and the Bitcoins themselves will be incentivized to protect the network, because if mining stops, Bitcoins become vulnerable and so does the data that has been locked into the blockchain.
- Enough computing power could take over the Bitcoin network. This is true, but it would be extremely difficult, with little to no reward. The more nodes that enter the Bitcoin network, the harder this type of attack becomes. In order to pull this off, an attacker would need the equivalent of all the energy production of Ireland. The payoff of this sort of attack is also extremely limited. It would only allow the attacker to roll back his own transaction. He couldn’t take anybody else’s Bitcoins or fake transactions or coins.
- Bitcoin is a good investment. Bitcoin is a new and interesting evolution in how people trade value. It isn’t backed by any single government or organization, and it’s only worth something because people are willing to trade it for goods and services. People’s willingness and ability to utilize Bitcoin fluctuates a lot. It’s an unstable investment that should be approached cautiously.