Cryptocurrency Facts vs. Fiction
With so much chatter swirling around in the media about cryptocurrency, it can be difficult to separate the falsehoods from the real cryptocurrency facts. The talking heads on the news very often have little or no idea how cryptocurrency really works.
For a touch of light relief, watch this video from 1994. It features the co-hosts of America’s Today Show debating what the Internet is. They fumble around and make several blunders along the way – all of which culminates in a confident declaration that a phone line is not needed! The kinds of mistakes in this video are similar to the ones that are often trotted out when journalists report on cryptocurrency.
So, here are 7 important cryptocurrency facts. By reading them, you can clear up a few points of confusion, once and for all.
1. Payments Cannot Be Reversed
When a cryptocurrency payment is submitted to the blockchain, there is no going back. Unlike credit cards and PayPal, there is no possibility of reversing the charge. This is one of the reasons that merchants are excited by the prospect of cryptocurrency. When a customer makes a chargeback claim (from credit card or PayPal), the customer will end up being able to keep the goods, and their money back!
If you think this sounds terrible from the customer’s point of view, realize that customers ultimately pay the price too – merchants are forced to up their prices to compensate themselves for chargeback claims. Cryptocurrency works a lot more like cash. It belongs to whoever has possession of it.
2. Payments Are Not “Instant”
You may have heard it said that crypto payments are instant. But cryptocurrency facts show that this is not the case – at least not for the time being. Yes, payments can be sent instantly, but because of the nature of the blockchain, it takes several minutes for the network to verify the transaction. The Bitcoin blockchain creates new blocks once every 10 minutes, and if the network is crowded, it may take several blocks before the transaction is confirmed.
Several minutes is a lot better than a check or a bank wire, which can take many days. But several minutes is worse than credit card payments, which go through instantaneously at the point of sale. It’s one of the challenges that crypto must surmount.
There are solutions on the horizon (e.g. the Lightning Network), and some crypto is faster than others (e.g. Litecoin is faster than Bitcoin), but just realize that calling crypto payments “instant” is not correct.
3. Payments Are Not “Free”
Bitcoin payments (and many other cryptocurrencies) include fees as a way to provide an incentive for miners to include the transaction in the block. When the network was new, the transaction fees were really close to being free – but over the years, as the Bitcoin network grew more crowded, transaction fees have been growing substantially. Now it’s at the point where small payments (such as buying a cup of coffee) are not really suitable for Bitcoin because of the high transaction fees. Other cryptos represent better solutions for small payments.
4. Whole Units Aren’t Necessary
Don’t be scared when you see the price of Bitcoin at many thousands of dollars. Many people assume that this high price means that they could never afford to buy one.
But this ignores the cryptocurrency facts. You don’t have to buy one Bitcoin – you can deal in fractions of Bitcoin (and all the other cryptocurrencies) You can buy 0.1 Bitcoin, or 0.01 Bitcoin – or even as little as 0.00000001 Bitcoin. The latter figure is known as “1 Satoshi” in tribute to Bitcoin’s anonymous founder. This means you can start very small. Even 1 US dollar can be used to buy a small sum of Bitcoin.
5. It’s Much More Than Just Bitcoin
For years, cryptocurrency and Bitcoin were nearly synonymous – Bitcoin was the only form of cryptocurrency of any reasonable size. Recently, that has all changed with the rise of other coins. The cryptocurrency facts show that different cryptos have their own use cases. Bitcoin is now well under 50% of the total market value – see coinmarketcap.com for the latest “Bitcoin Dominance” figure.
6. Cryptocurrency Can Be Regulated
Some people get alarmed when news headlines appear that seem to portend increasing regulation. They sell their crypto in a fit of panic. While the blockchain cannot be regulated, and nor can the open-source software that runs it, there are certain other touchpoints that can be. Regulation can make it harder for cryptocurrency exchanges to accept payments from its customers, and electricity companies can be ordered to stop giving access to large crypto mining farms.
7. The Blockchain Doesn’t Get Hacked
When the news reports a “Bitcoin hack”, in almost every case, this news signifies that one of the exchanges has become hacked. It is nothing to do with the blockchain itself. The cryptocurrency facts are: Bitcoin’s network may well be the most secure computer network in the history of the world. As open-source software, anybody can inspect the code and test it for bugs. The world’s greatest hackers have repeatedly tried to find a weakness – but to no avail. All of this is just another reason to store the vast majority of your crypto off-exchange.