Let there be cryptos! The mailing series explores the world of cryptocurrencies by solving myths and sharing information. In the first part of the series, myths are broken
Myth 1 – Twilight is funded by crypts
It is often heard that cryptocurrencies are used for nightmares. This may give the false impression that there is something obscure in the crypts themselves. (By twilight I mean all illegal activities such as money laundering, arms, drugs, and human trafficking.)
Cryptocurrencies are indeed used for nightmares. But so are the euros, dollars, yen, and other fiat currencies that states have long defined as money.
The role of cryptocurrencies in twilight is exaggerated. According to Forbes, the use of cryptocurrencies in criminal activity fell to 0.34 percent ($ 10.0 billion) in 2020. Traditional currencies spend about 2-5 percent of global GDP ($ 1.6-4.0 trillion) on criminal activity. The use of cryptocurrencies in twilight jobs is minimal compared to traditional currencies.
Many cryptocurrency trading venues require knowledge of the customer, i.e. KYC (Know Your Customer). With the help of KYC, store locations and other actors identify and know their customers by systematically documenting their customer information. This is to ensure that the customer does not use the service provider’s platform for criminal activity.
Myth 2 – The cryptocurrency is an electrical cancer
The electricity consumption of Bitcoin and other cryptocurrencies has been widely criticized for using a large amount of electricity. It has been reported that the extraction of Bitcoin and the maintenance of the network consume almost as much or even more electricity than several states.
As I mentioned in my previous post, cryptocurrencies can be acquired in two ways: by buying or by mining. Mining refers to the use of the computing power of a computer to solve mathematical calculations. In return for his work, Louhija receives cryptocurrency. Mining cryptocurrencies and maintaining a network, that is, strengthening transactions, requires energy.
More than 70 percent of miners use renewable energy sources at some point in the mining process. Many miners have moved to countries where electricity prices are affordable and production is efficient. For example, China’s Sichuan Province produces a lot of extra energy in hydropower plants. The use of hydropower in mining is less harmful to the environment than many other forms of energy production.
In total, 39% of the energy used to extract Bitcoin is derived from renewable energy sources such as hydropower, solar, and wind energy.
What about the traditional currency? We can compare Bitcoin, i.e. digital currency, to traditional currencies, physical banknotes, and coins. Banknotes and coins have a life cycle that is some months or years long. Before long, the life of the banknote and coin will come to an end, causing them to be destroyed.
At the same time, new physical money is issued, coming directly from the printing house. The process requires a lot of raw materials such as cotton, linen, various metals, ink, and water. Also, the issuance of traditional currencies requires a lot of logistical action in both transport and distribution.
Digital cryptocurrencies, on the other hand, need energy, but not special raw materials. To set them in motion, all you need to do is keep your crypto wallet. Cryptocurrencies can be transported and sent around the world without any physical activity.
Myth 3 – Bitcoin is worthless, slow, and clumsy
Bitcoin is not unnecessarily called digital gold. It has been the best investment of the last decade, and its pace does not seem to be slowing down in the future either. Many major investors, such as Michael Saylor, Ray Dalio, Michael Novogratz, and more recently Elon Musk, have publicly expressed their belief in Bitcoin and its future.
The value of Bitcoin is based on supply and demand. In addition to supply and demand, value is also affected by many other factors, such as usability, quantity scarcity, and portability. There are only 21 million pieces of Bitcoin, and there are no plans to increase that number. The value of Bitcoin cannot, therefore, be altered or reduced by the release of more Bitcoins.
In a traditional fiat economy, more money can be put into circulation, leading to a fall in the value of money, i.e. inflation. An example of inflation is the weakening of annual purchasing power alongside wage increases.
The availability of Bitcoin and other cryptocurrencies is constantly improving. This is facilitated by various services that enable the daily use of cryptocurrencies, for example, in the purchase of coffee and other goods and services.
Paying in Bitcoin and other cryptocurrencies is much faster than paying in traditional currencies, although paying with a traditional debit card is easy for the customer, and the charge is immediately visible in the payer’s online bank.
The reality isn’t quite as straightforward – and next, I’ll tell you why.
When you buy coffee with your debit card, you can see the charge has been deducted from your account. However, money paid for coffee will not be transferred from your account directly to the cafeteria account. The bank and the café consciously take the credit risk: the money paid for the coffee does not appear in the café’s account until the payment terminal has sent the transaction to the bank, which confirms the payment. The bank will transfer the amount paid for the coffee to the café within a few banking days (in international transactions, it can take up to a week to receive the payment!).
Even cash payments are quite slow. For purchases paid for in cash, the café does not receive the money in its account until the money is transferred from the cash register to the bank, and the bank transfers this money to the café’s bank account.
If the payment is made with Bitcoin or other cryptocurrencies, the payment does not require a large credit risk-taking from either party to the transaction, as the transactions are settled securely between about 10 minutes and an hour.
Thus, the worthlessness, slowness, and clumsiness of Bitcoin and other cryptocurrencies are myths. Bitcoin has anti-inflation features, as its offerings are limited, it is faster than traditional currencies in making a payment, and it can be as easy to use as downloading a new application to your phone.
Myths after myths
There are many different myths and misunderstandings about cryptocurrencies and Bitcoin. These myths are worth comparing to the challenges of the traditional monetary economy – few remember to think that making euro coins also costs and, above all, pollutes.
We are inevitably moving into a more digital age, the same old traditional ways no longer work. Cryptocurrencies have proven time and time again that they have come here to stay. Let there be cryptos!