My (mis)conception of blockchain amongst many other misguided beliefs
Take a moment to recall the first instance that you came across Bitcoin, Ethereum, blockchain or something related to cryptocurrency. What was it like? What was your first impression of it?
It was around this time in 2017 when I first came across Ethereum. As more articles relating to it proliferated across Medium, I thought that it was a new technology. It sounded like a new programming language that I can pick up.
Over the next couple of months, I gradually understood how blockchain worked, and how wrong I was about the programming language. It was also the meteoric rise in Ethereum’s price that sustained my interest. A year on, I sure know a bit better about distributed ledger technology (DLT) and cryptocurrencies.
Today, with a whole lot more attention and hype surrounding Bitcoin and blockchain technology, I expected greater interest in cryptocurrencies. Yet, when I surveyed my friends about it, many of their answers were a mix of half truths, based on what they came across online or heard from others.
Here are some of the (mis)conceptions and my attempt to debunk them.
Cryptocurrency is damn complicated
You trade it like stocks? You need to buy it from somewhere online and store it somewhere in your computer, but you do not actually see it? How do I even know where to get started?
Indeed, it can get quite technical when it comes to sending your coins from one address to another. Furthermore, you have to set up a private wallet to store it, for maximum security. It is no wonder some people shun cryptocurrencies and consider it something techy and geeky.
The usability aspect of cryptocurrencies definitely needs to be improved on, which is why I am highly looking forward to the Trinity wallet. I believe that will resolve some usability issues. *Trinity is a storage wallet for a particular cryptocurrency, nothing too interesting.
The technology and the usability of cryptocurrencies can be confusing and requires some learning, but it is definitely worth your time.
Prices are based purely on speculation
While there are balance sheets, profitability and different ratios to evaluate stocks, there is no way to evaluate cryptocurrencies. Who is to say a Bitcoin is worth $10 or $10,000? The market.
And the cryptocurrency market is extremely volatile. A few pieces of news or some rumours, and prices can swing by over 20% in an hour. This trend has been apparent, and there are no signs of stopping.
Unfortunately, this is true and will remain this way for as long as the general market remains uninformed. People buy the rumour and sell the news, and when no one can be absolutely right, herding behaviour drives the prices.
To be more specific, the people and institutions who hold a substantial supply of coins can drive the prices of cryptocurrencies. It is the herding behaviour of the general public that accentuates the upwards or downwards movement.
There is no underlying product
Some people say that there is no physical product behind it. Unlike gold, cryptocurrency is not tangible. You do not get an equity stake either. You are just putting money into some computer code, and hope that others do too.
It is an interesting thought because there was a time people paid to own a software, a piece of music, a digital game. Well, they are buying a piece of code, and paying for the rights to consume it. I believe that will be the case for cryptocurrencies too.
There is an underlying product, and there are teams working on the software and hardware of cryptocurrencies. I cannot say for sure if paying early will mean a discount for me or cost me a premium. I do hope it is the former.
It is a pyramid scheme
There are plenty of scams and bogus ICOs (Initial Coin Offerings) out there for you to pledge some money or coins to. You put the money in, others put in too, the value rises, and everyone wins right?
It is a zero sum game, and the ones who get out early before the majority wins. There are legitimate uses for cryptocurrencies, but there are many who have unscrupulously used cryptocurrency as a tool to make money.
So please do your due diligence. If it sounds too good to be true, it probably is. Bitconnecctttt… But really, there are many others to be wary of.
It is used for illegal transactions
Cryptocurrencies can be used by anyone, and almost anonymously. It is thus a prime choice for illegal transactions to be conducted in.
Some say that it is easy to launder money, and transfer large sums of money from one place to another with cryptocurrencies. Well, all the governments have to do is to monitor the point of entry and exit where cryptocurrencies are converted to and fro fiat currencies.
That is also why KYC (know-your-customers) measures have been so strictly enforced by all governments. It is a necessary implementation to protect the inflow and outflow of fiat currencies, and also for taxing purpose.
It is a bubble that will burst
The bubble has already burst. Each time, it rose higher. Each time, it fell harder. Some people say that it is just the market cycles.
You should avoid cryptocurrencies if you are worried about the burst, because it has and it will burst. Neither should you be investing because you “believe in the technology”. You can just adopt it when it is widely available and when it has hit a secure and scalable stage.
Cryptocurrencies may be widely adopted. It may become the next stock market. It may flop spectacularly. More use cases may arise like how ICOs became a tool to raise funds, and how smart contracts came about. We are just getting started.
There is a lot of noise and misinformation about cryptocurrencies, because it really is a complicated topic. I hope this article debunks some myths for some people, but please do not take any of it as trading advice.
I always find it amusing to look back at my first impression and misconception about blockchain, but I am glad that it has brought me to where I am. If you are looking to get started somewhere, do check out Dr Julian Hosp’s Cryptocurrencies Simply Explained. He wrote it in a digestible and affable manner.
Now I know that blockchain is not simply a programming language, and yes, Solidity is definitely on my learning list. What about you, what was your first impression about Bitcoin or any other cryptocurrency? Feel free to share this article or comment below!