With fascinating innovations, such as Bitcoin, one can expect a lot of media attention. Authors have difficulties writing elaborate articles about Bitcoin (the protocol) because it consists of many concepts that are difficult to grasp. Mainstream media focuses on attention and clicks these days; short articles from journalists that lack sufficient time to research the topics they’re supposed to write about.This context delivers articles that stretch the truth and start all kinds of myths. On top of this, Bitcoin disrupts some vested business models. This encourages incumbents into preserving these myths by deliberately spreading them as misinformation. Here are the worst:
1. Bitcoin uses too much energy
The amount of energy used for securing the Bitcoin network for an entire year by miners is comparable with the amount of energy needed for Christmas lights and decorations in the United States, for just a couple of weeks. Waste isn’t a given, but depends on the valuation by the people involved. Often the energy used by the Bitcoin network is deceptively compared to energy used by a household. This comparison makes no sense whatsoever. Compared to the thousands of (central) banks, and related businesses, that open for business daily around the world to deliver similar services, Bitcoin uses a fraction of energy. And then you get an improved service (arguably). More importantly, Bitcoin’s network validation by miners runs for over 74% on renewables and naturally supports innovation in green energy production. Something not one corporate from the traditional financial industry can honestly state.
2. Bitcoin is only for criminals
Every effective store of value is used in legitimate and in illicit transactions, with Bitcoin being no exception. Let’s put that into perspective. After one decade the entire market capitalisation of the Bitcoin network is about 150 Billion American dollar. This means the entire Bitcoin economy is smaller than the amount of dollars used – every two seconds – for buying and selling drugs. Not mentioning the amount of dollars used in money laundering, through regular financial institutions. Bitcoin transactions are highly traceable, especially when compared to other methods of value transfer. Bitcoin uses an immutable ledger and a versatile technology stack law enforcement agencies can expand to analyse, audit and scrutinise illegal activities and track down criminals the following decades.
But what about ransomware and tumblers?
Similar to changes that occurred when criminals started to use mobile phones and email in the past, law enforcement needs to stay vigilant. We did not prohibit mobile phones and email in the past, and this time it is not different. Justice departments simply need to step up their game. For example by learning how to trace stolen bitcoins through mixing services in order to catch criminals in the 21st century.
3. Bitcoin payments are slow
Innovations of the Bitcoin protocol currently allow for direct non-revocable payments in milliseconds to seconds. Its usage is increasing every day, for example in the gaming industry, which adds to the system’s reliability.
4. Bitcoin won’t scale
Today Bitcoin scales up to billions of transactions per day. Imagine the possibilities after its second decade of innovation, when new technologies add to the robustness and user friendliness.
5. Governments will crackdown on Bitcoin
A growing number of governments choose to embrace digital innovation and play a role in the industry. Some officials even started to try bargaining with champions in the Bitcoin space. Jurisdictions which oppose the emerging industry are at risk of being left behind. Ironically, these countries already are some of the poorest nations in the world, and widespread Bitcoin and cryptocurrency crackdowns seem to yield no favourable results to improve the situation. With the need for innovation in economics and finance we even saw some countries support citizens paying taxes in Bitcoin. If jurisdictions nevertheless decide to try and ban Bitcoin, regulatory arbitrage will guarantee future availability of services for users.
6. Bitcoin will be out-competed by CBDC or corporates
Digital currency introduced by corporates, such as Facebook’s Libra, face resistance from governments and corporates as well. The general conviction is that monetary policy is a sovereign matter, a responsibility of the government, not businesses. The challenges central banks face, on the other hand, are not related to the used money-technology, but are related to monetary policy. Central Bank Digital Currencies are unlikely to solve these problems, that emerge from devaluation and the inflation-tax coming from (non-)quantitative easing. As interest rates on savings in Bitcoin already out-compete that of fiat currencies, with interest rates exceeding 1,5% at the moment, the competition expected from CBDC is negligible.
7. Bitcoin is centralised in China
Currently most transations are validated in China as energy is cheap and the transport time of mining hardware – from hardware factories to mining farms – is short. If something would happen in China, for example the introduction of tight regulations, mining farms can quickly move to other jurisdiction. As energy gets greener globally (read: cheaper) this movement already increases. At the same time the innovation speed of mining hardware plateaus. This allows miners to transport hardware cost neutral over longer distances, in order to find cheaper energy or better operational circumstances.
Then there are some geopolitical factors. Bitcoin has a negative effect on the price and monetary policy controls of the American dollar. As long as the Chinese government is better equipped to coerce citizens into using local fiat currency, compared to the American government, it is unlikely China will start a crackdown on Bitcoin. If this improbable event does arise somehow, a User Activated Soft Fork (UASF) can prevent (Chinese) miners from plotting against the majority of Bitcoin users, as it has in the past.
There is a lot of other myths and misinformation about Bitcoin being published beyond these seven. Fortunately misinformation tends to fade away over time. Let’s see what new myths the next decade will bring.