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11 Myths About Bitcoin

by Aleksandar SvetskiSeptember 8th, 2018

Too Long; Didn't Read

There are many “myths” about Bitcoin, and it’s no surprise.

People Mentioned

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Let’s blow some shit up shall we…

There are many “myths” about Bitcoin, and it’s no surprise.

Humans (Homo Sapiens) have evolved over the millennia as a species that tells stories — and the things that matter most to us, ie; complex communication, the ability to exchange & transact value, shared fictions such as religion, money, gods, kings, knowledge in general etc — they’ve all been expounded upon via stories, which often become myth.

Bitcoin is arguably one of the most important advancements in the way human beings come to consensus since we started building complex laws in the early days of civilization.

I like to describe it as:

“A technological solution to a societal problem with political ramifications”.

I’ll let you think about that for a moment.

In the meantime, let’s go through and break down and/or dispel some of the common myths surrounding Bitcoin.

1. Bitcoin is Dead

Many have thought this. In fact, there is a website dedicated to all the times that someone has claimed that “Bitcoin is Dead”:

https://99bitcoins.com/bitcoinobituaries/

Networks, especially ones that grow organically, are decentralized, owned by the participants, have developed in an adversarial environment and are therefore inherently anti-fragile don’t just “die”.

As long as people believe in it, and in the case of Bitcoin, as long as we believe in Math, then Bitcoin will be around — barring some Nuclear catastrophe where we blow ourselves up — in which case, the paper money in your wallet or the money you “think” you hold in the bank won’t be worth much either ;)

2. Bitcoin Mining uses “alot” of power

This one is easy.

Compared to what?

If one measures the amount of energy required to maintain trust in the current monetary system, it’s mind boggling.

Let’s think about it shall we:

The only reason you trust the digits that represent the dollars in the bank or the paper in your wallet is because you trust that the banks or government will uphold their promise.
You only trust that because of the laws, courts, judges, politics and multiple layers of societal controls that have been created over hundreds of years are there to maintain “order”. That’s an expensive system.

What about payment processors?

Why do you trust that the service VISA or Mastercard provides is reliable?

Sheldon Square — One of VISA’s HQs

Well, because of all of the societal constructs I mentioned above, layered with the fact that both of these companies spend billions every year on people, servers, offices, travel, tech and operations in general in order to deliver a service that you can use.

Multiply that out by the amount of payment providers, middle-men, authorities, regulators, etc all around the world that all work together in a complex fabric, designed to keep the whole thing together.

Oh — and then how much money / time / energy is spent by governments and banks to print money, transport it, store it, secure it, etc?

That’s just for cash and digital money.

How about Gold?

Think about all the energy, resources, time & effort required to not only mine but to store, transport and maintain all of these.

It’s alot.

Bitcoin is so much smaller in comparison — and it delivers a network that is thermodynamically secure, and functional as a potential reserve asset upon which further infrastructure can be built, that can save a significant amount of energy worldwide.

3. Bitcoin is “slow”

Bitcoin does one thing (primarily) and it does it very well.

It achieves an agreement (consensus) on a state of transactions, in a globally decentralized digital network (kind of like the internet), amongst participants who don’t know each other.

This makes it an incredibly secure place to store “value”, and the more “time in market” that Bitcoin has, whilst maintaining its track record, the more it will be trusted (just like any Brand, security system, or form of money), as a place to do so.

The architecture that allows for the above is deliberately ‘slow’ by design. It’s a feature, not a bug.

The foundational (core chain) layer of Bitcoin is a settlement layer — not a throughput layer — and as a settlement layer, that has its security attributes, it’s the fastest on the planet by far.

Which brings me to point #2 on this.

How fast can you transfer $1m or $1 from Australia to Morocco using the current banking system?

Or…how about $100 to your friend on a Friday night?

Or…$10 to someone on a weekend?

With Bitcoin — it’s basically instant.

And that will only get better with layer 2 solutions as they roll out (out of the scope of this article).

4. Using Bitcoin is expensive

This is another common misconception, and was an agenda pushed by a couple of morons who don’t get it (along with the mainstream media who missed out on it) when Bitcoin experienced some growing pains at the end of 2017.

Bitcoin’s global, decentralised verification infrastructure (mining, nodes, etc) is focused on security and maximum censorship resistance (ie; nobody can control it). As a result, it is designed to only process up to 1m transactions per day on it’s “base layer”.

There was ALOT of speculation and capital flowing into cryptocurrencies at the end of 2017, fueled by a media mania — and as a result, it overloaded the base layer’s transactional capacity for a couple of months.

This is perfectly normal in a growing network — and the internet went through the SAME growing pains throughout it’s life.

The amount of data we process on the internet is orders of magnitude greater than what we ever thought we could do 10yrs and especially 20yrs ago.

The same is true for Bitcoin as “layer 2” solutions come in and move that 1 million transactions per day to 1 billion, then 10bn, then 100bn and beyond.

This will happen as the network grows. Right now, Bitcoin is in the “accumulation” phase.

And for the record, as it stands, without the mania of last year, Bitcoin transactions have cost between 3c — 50c per transaction, whether you’re sending $5 or $5 million dollars, to anyone, anywhere in the world for about 98% of it’s existence.

There is nothing else in the world quite like it.

5. Bitcoin is not “scale-able”

Very similar to the above; Bitcoin was not designed to have “scaleable” throughput on the base layer.

The base layer was designed to be incorruptible.

As a result, it can act as a source of truth / reserve layer.

If Bitcoin continues to prove that it is the most secure digital network every created (which it is), then we can build “layer 2” solutions on top of it and have a source of truth that we can anchor to at any time.

This is how Bitcoin will scale, whilst maintaining it’s core security & decentralization.

So Bitcoin is very, very scalable.

6. You have to buy “One” full Bitcoin

This is not true.

Just like $1 can be broken down to 1c (ie; it’s divisible by 100), 1 bitcoin can be broken down to 1 satoshi, which is a tiny fraction of a bitcoin (0.0000000001 of a Bitcoin).

This means that it’s MUCH more divisible and useful as a form of “money” because it can be used for transactions very very small, very large and anywhere in between.

And as a holder of Bitcoin, you’re able to have maximum flexibility with how much you want to buy, hold, spend, send or sell.

It’s a truly modern, digital form of money.

7. Bitcoin is Anonymous

Ummm….nope.

Bitcoin operates on an open, public ledger — that anyone can look at or query at any time.

It’s like a list of transactions, available for anyone to see. That’s not very anonymous.

But….Bitcoin is pseudonymous.

Which means it’s not associated with YOU personally, but a public key (like an address), for which you hold a private key (like a password).

If that Public key (address) can be associated with you, then it’s easy to see work out where you got it from and where you spent / sent it.

This is a great attribute for a world where transparency is important, but also something that people need to understand when thinking about fungibility.

8. Bitcoin is money for Drug Dealers

Bitcoin may have been used for crime in the early days, but that’s just no longer the case.

Less than 1% of Bitcoin transactions are related to so-called “illicit” activity*

In fact, when you calculate the amount of money that’s been defrauded and used / abused by and for illegal purposes in the “normal” world via normal dollars, there it’s like comparing an ant with the solar system.

Enron, Bernie Madoff, The Panama Papers, The Wolf of Wall Street (Jordan funnily enough called Bitcoin a scam..haha), The Wall Street Bankers, CBA & ANZ here in Australia:

Ex-Citi, Deutsche heads charged in cartel case_The former country heads of Citigroup in Australia, Stephen Roberts, and Deutsche Bank, Michael Ormaechea, are among…_www.afr.com

CBA to pay record $700m fine over money laundering breaches_Updated June 04, 2018 23:30:35 The Commonwealth Bank has agreed to pay the biggest fine in Australian corporate history…_www.abc.net.au

The “Shadow Economy” in the US has been estimated at 12% of GDP^. This is $2 Trillion per year. That’s alot more than any illicit activity that has occured in all of Bitcoin’s lifetime, combined

Furthermore, when you compare the amount of crime being done using cash, it far far outweighs anything that Bitcoin has ever represented.

Lastly — The thing to keep in mind is that every new technology, that offers a significant advantage is often initially adopted by the criminal elite. Cars were first adopted by Bank Robbers — but we don’t see the world trying to ban cars. If shoes were invented for the first time tomorrow, I bet criminals would be the first to use those too — then they could mob you, take your wallet and run away faster..

Technology is agnostic. It’s how humans use it that counts — and when we begin to adopt it as a society, and legitimize it via fair, accessible & equitable regulation, the proportion of it used for criminal purposes falls dramatically.

9. Ethereum is a better Bitcoin

This one always makes me laugh.

It’s like comparing a Ferrari with a Tank, just because they’re both forms of transport.

Bitcoin was designed to function like Digital Gold. It’s primary function is to be a global, digital network that reaches consensus (agreement) on a state of transactions every 10min, which cannot be manipulated or controlled by anyone.

It’s attributes make it a great store of value and long term a great candidate for a new form of “money”.

Ethereum’s claim to fame is completely different.

They’re attempting to use the same “recipe” of Bitcoin, and apply it as a substrate for people to build programs on top of, that no central party can manipulate or control.

This means that Ethereum has a much much larger set of variables to contend with, and is who so much more can go “wrong”. It’s much more of an experimental platform for people to “build things” on.

It’s theoretically more versatile than Bitcoin, but their mission is most definitely NOT to be a store of value.

Bitcoin does one thing and does it very very well:

“Make sure that the network stays up, and that the value held on the network is never compromised.”

Bitcoin cannot do everything that Ethereum can — and rightly so.

The more you tamper with something and the more you make it “do”, the less secure it becomes.

Here’s a short article explaining the differences a little further:

Bitcoin VS Ethereum_What the hell is the difference?_medium.com

10. Bitcoin is “backed by nothing”

Bitcoin is backed by Math.

It is the latest iteration of Money — a shared fiction, unique to the human (Homo sapiens) species, that has evolved over time from Barter, to sea shells, to metals, gold, coins, gold backed paper money, government backed “fiat” paper money, plastic and most recently digital numbers stored on a Bank’s database.

Modern money is backed by the promise of governments & banks — who throughout history have consistently shown that they’re not the most trustworthy or competent bunch out there (with all due respect). And it’s not entirely their fault; (a) humans are flawed, and (b) humans attempting to centrally manage money & economies with so many variables is way too hard — and we get it wrong. Just take a look at Zimbabwe, Venezuela, Wiemar Germany, and even 2008.

In fact, the last 10yrs since 2008 has seen the creation of more credit than ever before, and in a bid to fix the previous disaster, the “money managers” of the world have created bubbles across more asset classes in global financial history.

Bitcoin is the only form of free-market “money” that is not centrally managed, cannot be controlled by any one group, and has all the attributes needed for a modern, globe, interconnected world.

I’d suggest reading this article to understand the underlying principles further:

https://hackernoon.com/homo-sapiens-evolution-money-bitcoin-33f69701de

11. Buying Bitcoin is Risky

There is a concept in portfolio theory called the “efficient frontier”, and that is basically a ratio derived from analyzing the correlation of different asset classes, their volatility and their historic returns in order to make a judgement on how best to structure a portfolio.

Adding Bitcoin to a diversified portfolio (1% — 5% of the value) has been proven to lower the risk profile of the entire portfolio because it is an uncorrelated asset.

Coupled with being a nascent asset class, with a finite supply, that more global capital is flowing into every year — it actually makes for an intelligent, low risk investment opportunity for a modern portfolio.

Bonus Myth: Elon Musk invented Bitcoin

Highly unlikely. Elon is a brilliant mind & an amazing human (possibly…human) — but I don’t think he was in a position around that time to have been working this out — nor do I believe that it’s in his area of core expertise.

Elon is definitely not Satoshi…let’s cut the conspiracy theories shall we

I have my theories on “who” or “what” invented Bitcoin — but overall, I don’t really care — because the bets thing about it is that it DOES NOT matter.

Whoever or whatever Satoshi was, the less we know, the better.

It’s part of what makes Bitcoin special, and the most organic form of money ever conceived (since Gold…because I guess we also don’t know how ‘created’ gold).

Conclusion

So there you have it folks.

Bitcoin is much more than it seems, especially at first sight.

It’s more than just internet funny money, and in fact; it’s more than just “money”. It represents a new way for our strange lightly hairy ape-of-a-species to come to consensus on something, on a global level, in a digital form.

The internet is a way to make the most fundamental of human attributes, ie; complex communication, global & anti-fragile.

Bitcoin is a way to do that with the next most fundamental aspect of our societal fabric: Value transfer & exchange.

It may well be replaced with something better, but I don’t see that happening anytime soon.

I hope you enjoyed this article & were able to learn something important as a result.

Aleks Svetski

CEO @ Amber

www.getamber.io

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You can find somore more of my work here:

Aleksandar Svetski — Medium_CEO at Amber Labs + Co Host of decentralizedpodcast.com.au. Outlet for all things Bitcoin, Money, Philosophy, Business, Startups & Entrepreneurship_medium.com

Aleksandar Svetski — Hacker Noon_Read writing from Aleksandar Svetski in Hacker Noon. CEO @ www.getamber.io + Co Host @ decentralizedpodcast.com.au…_hackernoon.com

And you can reach out & connect with me here:

Aleksandar Svetski | Professional Profile | LinkedIn_View Aleksandar Svetski’s professional profile on LinkedIn. LinkedIn is the world’s largest business network, helping…_www.linkedin.com