Myth 1: Virtual currencies are all the same.
Globally, there are about 300 million cryptocurrency users and about 18,000 cryptocurrencies. People use the term “cryptocurrency” to refer to a diverse array of currencies, systems, and networks, each of which possesses unique characteristics, ownership structures, and ranges of volatility.
According to Julian Liniger, CEO and co-founder of Bitcoin investing software Relai, “one of the primary fallacies in mainstream media — and, as a result, popular understanding — is that Bitcoin and crypto are one and the same, whereas, in reality, this is far from the case.”
“Bitcoin has been around for a long time, but the crypto industry as a whole is still relatively young.
He advises looking at the market landscape, making sure you understand it, and researching the founders’ backgrounds, prior endeavors, and industry experience before investing in a cryptocurrency. In essence, you should approach a cryptocurrency investment the same way you would if you were thinking about investing in a start-up business.
He gives advice on whether this effort genuinely addresses a problem that requires a solution or if it’s only marketing hype.
Myth – 2: High returns are likely
Cryptocurrency is not a one-way path to wealth. The “crypto bros,” or eager male cryptocurrency investors, have spread the notion through Reddit threads, messages from influencers, and rap lyrics.
Liniger states that the second issue requiring attention is the myth of getting rich quickly Because of the prevailing “crypto bro” narrative, Bitcoin continues to have the stigma of being an all-or-nothing asset class that bullish investors chase in an effort to double their money.
Everyone participating with cryptocurrency will profit, according to Jeremy Cheah, associate professor of decentralized finance at Nottingham Business School.
“Like all forms of trading, cryptocurrency trading is a zero-sum game. You get wealth at the expense of other people, he claims.
Another misconception is that mining cryptocurrency may help you become rich quickly.
He continues, “The entrance (setup) cost can be very significant. Not everyone with a laptop can mine for cryptocurrencies because it is an expensive endeavor. The algorithm underlying the process demands an increase in processing power as more cryptos are mined.
Myth – 3: All stablecoins are backed by US dollars
Given the volatility of Bitcoin and other cryptocurrencies, there is a growing market for goods that offer some of the advantages of cryptocurrencies without the price swings and volatility that scare away many investors.
The creators of stablecoins aimed to combine the simplicity and speed of digital payment systems with the security of conventional financial exchanges. Stablecoins intend to provide a substitute for crypto and experience minimal price swings.
Some stablecoins are valued on a one-to-one basis and are pegged to conventional (fiat, or government-issued) currencies like the US dollar, euro, and yen. Others are backed by physical assets like real estate, gold, or other commodities.
The belief that all stablecoins are linked to tangible assets is held by many people. That is not the situation.
According to Cheah, not all stablecoins are backed by fiat money or valuable commodities but rather use an algorithmic method.
In these situations, algorithms that adjust the market’s supply or demand to match each other help stablecoins retain their price stability. To reduce price volatility, the market will introduce additional stablecoins if the price is rising.
Myth – 4: Blockchain is safe and secure
Investors’ knowledge that a sizable ledger of data stored in a block cannot be changed or tampered with in the past has led to the assumption that blockchain technology is impenetrable. Blockchain creates a secure database that many people hold, as opposed to a single third party. This does not imply that blockchain is impervious to well-planned and sophisticated attacks, though.
Cheah claims that the widely held belief is that blockchain security is strong. Attackers can still successfully assault blockchains. Although a blockchain cannot alter or remove transactions stored and recorded in it, attackers can still successfully assault it. For instance, user validation is essential to the continued security of the blockchain. However, the attacker may maliciously sway the verification process if they are holding the majority of users.
If hackers are successful in creating a large number of false identities or in gathering resources and controlling more than half of the network, such an attack may occur.
Human error is another cause of vulnerability. According to Sanjay Wadhwani, founder and CEO of blockchain media business MetaFrames, there is still a sense of the “Wild West” in the cryptocurrency scene.
According to him, investors are interacting with blockchain in a very incorrect manner. “They give away the password to their wallet, fall prey to phishing scams, and frequently have platform illiteracy.
“There are many dishonest people selling get-rich-quick schemes, and they take advantage of people’s fear of missing out. Many recent launches lack names and faces.
Myth – 5: Crypto is anonymous
Wadhwani states that regular investors seldom utilize cryptocurrencies built with anonymity at their core.
He asserts that cryptography’s primary usage is not for illegal, evil, or covert purposes. “There was a point when early adopters were using it on the dark web, but to suggest that the mobile phone system is flawed because just 1% of people use it for illegal activities would be absurd.
People believe that cryptocurrencies are anonymous and are a great way to hide money, but the blockchain makes everything open and visible, he continues.
Ben Reeve, a Partner at Oliver Wyman’s global financial services practice and digital assets platform, claims that analytics companies like Chainalysis and Elliptic are capable of mapping addresses on blockchains to uncover transactions that could be associated with criminal behavior. Governments and banks utilize this information to spot high-risk trades.
The downside of anonymity can also be dangerous for retail investors.
A private key is what completely secures a crypto asset, thus keeping it safe is crucial, according to him. “With traditional transactions, you can phone your bank if you forget your online banking credentials. Your private key is only accessible to you with cryptocurrency accounts, and you have no recourse if you lose it.