Cryptocurrency has been making headlines for some time now, and many have profited from the industry. However, due to its complexity, there are many myths and stigmas around cryptocurrency. People have been scrutinizing the ecological impact of crypto mining, as well as the potential for the facilitation of illegal activity. On top of that, many don’t even believe cryptocurrency has any intrinsic value. Today, I am debunking these top three myths.
MYTH NO. 1
The most common myth is that cryptocurrency is only used by money launderers and drug dealers. Fact: While it’s true that the first use case was for a dark web market, cryptocurrency has shown its usefulness and potential to solve traditional banking problems across almost every segment. In fact, companies that do blockchain analytics, such as Chainalysis and CipherTrace, have proven that illicit activity in cryptocurrency today is equal to or even less than in traditional banking systems. Companies involved in cryptocurrency are held to the same regulatory standards as other financial institutions, and are subject to all Bank Secrecy Act, Anti-Money Laundering (AML), and Know Your Customer (KYC) regulatory procedures. To ensure standards are in place, digital currency companies are independently audited by external companies and regulators, and so are we at CoinMover.
Approximately 2% to 5% of global GDP, or about $800 billion to $2 trillion, is used for illicit and criminal purposes globally, according to the United Nations. Chainalysis, the top blockchain analytic firm used by the IRS, FBI, and DHS, shows that criminal crypto usage is only 0.3% of volume or about $10 billion in 2020. While cash is anonymous, cryptocurrency can be tracked through blockchain analytics. It is becoming tougher for criminals to use cryptocurrency as an avenue for their illicit activities, and this will only continue as new laws are implemented to keep everyone safe.
MYTH NO. 2
Many believe Bitcoin is a huge waste of energy and consumes as much energy as some entire countries. Fact: The energy consumption of blockchain technology can be concerning, but steps are being taken to upgrade networks to reduce this. For example, Ethereum recently updated its network to reduce energy consumption to 1/10,000th (yes, one ten-thousandth) of its 2022 usage, according to the Ethereum Foundation.
One report cited in the Harvard Business Review shows that 73% of Bitcoin’s energy consumption was carbon neutral. Many miners have moved to countries where power is cheap (e.g., Iceland for geothermal power) or to locations with cheap hydroelectric power. Steps are being taken to reduce the environmental impact of mining crypto, but at the end of the day, we all need to weigh the risks against the rewards.
Lastly, we should all try to understand that it’s the energy consumption that makes blockchain technology unhackable. By some measures, the internet itself consumes almost 20% of the power on the planet, yet that fact is never a headline.
MYTH NO. 3
Finally, people commonly believe that Bitcoin isn’t backed by anything and has no intrinsic value. Fact: The U.S. dollar left the gold standard in 1971 and isn’t backed by anything other than the “full faith and credit of the United States government.” While that was enough when wars were fought with tanks and aircraft carriers (today, wars are fought with information), that doesn’t hold the same standard in 2022 when the Treasury can simply print new trillions of dollars when needed.
Value exchange between two people existed long before governments were around to regulate or “back” it with something. You’re simply seeing things revert to their most basic functions. The barter system pre-dated currency. All any currency ever needs is for people to believe it’s worth something. “Value” is a consensus agreement among people that anything is worth something. As of today, people worldwide have agreed that 1 Bitcoin is worth $16,800.
We believe cryptocurrency will continue in this trajectory as more people adopt it for daily use as something of value for exchanging goods or services. That said, using cryptocurrency for investment is not for everyone. Wild market swings can cause an investor to lose 10% or even 20% of their investment in a single day. There are also security risks with storing a large amount of value without a trusted third party.
Cryptocurrency allows the possibility of equal opportunity for everyone in the world. Anyone with a cell phone and internet connection can participate. I’ve traveled to the most remote parts of the Namibian desert, and every single village had a small satellite dish, a cell phone tower, and solar panels. When a teenager in sub-Saharan Africa can sell his wares to a shop owner in Chicago, everything becomes possible.
In the not-too-distant past, most people reading these words witnessed the internet consume practically overnight every piece of human knowledge in existence. Today, we’re in the very early stages of witnessing a similar revolution in money and finance.
Mike Scanlan, an early adopter of cryptocurrency, is the Founder and CTO of CoinMover, a leading digital currency exchange provider.