Cryptocurrencies have exploded in popularity with investors, reaching over $2 trillion in 2021. Yet, many investors are still hesitant to invest in crypto due to mistaken beliefs and false impressions.
Examine seven common misconceptions about cryptocurrencies that old-school investors still believe.
1. Cryptocurrencies Are Mostly Used for Illegal Activities
Crypto skeptics often point out that cryptocurrencies are primarily used to fund illegal activities. For example, researchers released a study in 2018 claiming that illegal activity accounted for 46% of Bitcoin transactions. However, the total market cap of Bitcoin has increased by over 1,000% since 2018.
The rise of Bitcoin is due to increased interest from both retail investors and professional brokers. While crypto may still fund illegal activities, the portion of transactions used for illicit purposes is likely much smaller.
The same investors who claim crypto funds illegal activities also overlook the most used currency on the black market – the US dollar.
2. Cryptocurrencies Are Untraceable and Anonymous
Some investors are hesitant to invest in cryptocurrencies due to their perceived anonymity. They believe that Bitcoin transactions are untraceable, which is mostly untrue.
Most cryptocurrencies, including Bitcoin, depend on a publicly distributed ledger called a blockchain. Public blockchains are publicly available. As a result, anyone can search the entire history of Bitcoin transactions, making them more transparent than fiat transactions.
3. Cryptocurrencies Are a Scam
The previous misconceptions lead many investors to assume that cryptocurrencies are a scam. While several crypto scams have occurred in the past couple of years, most cryptocurrencies are legitimate projects.
Anonymous groups have created cryptocurrencies to illegally generate money. For example, in October 2021, a group developed a cryptocurrency based on a popular TV show. Within a few days, the price of the currency peaked at $2,861. The creators of the currency cashed out and made off with the money.
Despite a few negative news stories, the cryptocurrencies available on major crypto exchanges are not scams. On the contrary, Bitcoin, Ethereum, Tether, Solana, and other top cryptocurrencies are large-scale projects developed by IT experts for legitimate purposes.
4. Cryptocurrencies Are Unregulated
Some investors are hesitant to invest in crypto due to the lack of regulations. People tend to assume that governments allow cryptocurrencies and crypto exchanges to operate with no oversight. However, the truth is that most governments have started implementing cryptocurrency laws.
Cryptocurrencies are classified as legal property and subject to taxes in many countries, including the United States, Canada, Australia, Japan, and Europe. Regulators have also approved Bitcoin exchange-traded funds (ETFs) in the United States and Canada. ETFs are highly regulated securities.
5. Investors Cannot Easily Trade Cryptocurrencies
The process of buying and selling cryptocurrencies remains a mystery to many old-school investors. Individuals familiar with stock trading platforms offered through brokerage firms fail to realize that platforms exist specifically for trading crypto.
Binance, Coinbase, Kraken, and other crypto exchanges allow almost anyone to create an account and quickly buy cryptocurrencies. As with a standard brokerage account, users can transfer funds from a bank account and start trading.
6. Cryptocurrencies Are Bad for the Environment
News articles have promoted the narrative that cryptocurrencies are bad for the environment. They believe that the electricity needed to mine cryptocurrencies is wasteful.
While mining crypto requires lots of electricity, most cryptocurrencies limit the number of new tokens mined. As a result, many cryptocurrencies, including Bitcoin, have limited tokens available for circulation. After all the tokens are mined, the mining operations stop.
7. Cryptocurrencies Are Not Secure
Investors may worry about the security of investing in cryptocurrencies due to news stories about hacks and scams. However, the blockchain technology used to facilitate crypto transactions are incredibly secure. The security of blockchain technology is one of the main advantages of cryptocurrencies.
The security risks come from the exchanges and wallets used to trade and store cryptocurrencies. As with any online service, users are susceptible to hacks when they fail to follow basic security recommendations, such as using unique passwords.
