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8 myths about cryptocurrencies that you should know

Today we will introduce the 8 most common myths about cryptocurrencies and try to get to the real truth. Confidence in this inaccurate and misleading information can lead to misconceptions or even a loss of funds. Let's go!

1. Cryptocurrencies are mainly used by criminals

The worst thing about this myth is that in a way they are trying to label cryptocurrencies as something illegal, outlawed. This narrative is then passed on to individual users of cryptocurrencies. At the heart of this myth is the anonymity that digital assets can bring. However, this is only a matter of pseudo-anonymity.

Anyone who has been involved in cryptocurrencies for more than a day knows that blockchain (on-chain) analysis can help identify criminals that make even one small mistake. Again, the media contribute to the construction of the myth, which often writes, for example, about various hacker attacks, and they do not forget to note that the attackers demand a ransom in Bitcoin. In fact, the US dollar is still the most widely used currency among criminals - so are we going to ban it?

2. Cryptocurrencies and the environment

We have already written about the effects of cryptocurrency mining, and the king of cryptocurrencies, Bitcoin, which works on Proof-of-Work mining, is most often mentioned in this regard. The topic began to be addressed especially after it was opened by Elon Musk and subsequently taken over by many other personalities and politicians.

However, according to surveys, up to 74% of the energy used in Bitcoin mining comes from renewable sources. Bitcoin, therefore, uses up to 3 times more renewable energy than we use in global consumption (26.2%). Miners are economically motivated to use the cheapest possible energy. In addition, the reduction of cryptocurrency mining in China, which mainly used energy from coal power plants, will also contribute to greener Bitcoin.

3. Governments may ban cryptocurrencies

We hear this extremely often. I would invest in cryptocurrencies, but what if governments ban them? Based on many headlines of various articles, we are not even surprised that people think it is really possible. Some countries are even trying to do that, and we have seen similar initiatives in India, Nigeria, Turkey and Russia, for example.

Cryptocurrency ban conceptual Cryptocurrency ban conceptual, Source: shutterstock.com

The only problem with these plans is that it is not physically possible. As we have already explained, cryptocurrencies and blockchain are formed by nodes around the world. So what exactly would the government need to ban? China, which is literally a master of censorship of virtually anything, has been trying to ban cryptocurrencies since 2017. In fact, states can only complicate users' access to cryptocurrencies, through various regulations. The only way they could "shut down" cryptocurrencies would be to turn off the Internet around the world, but no one is likely to do that.

4. Bitcoin is centralized and controlled by China

This myth arose, because China historically had the largest share of hash rate, and we often encounter it to this day. It is also used as an argument in the debate on the decentralization of Bitcoin. However, we must be aware of the significant difference between the bitcoin network and the miners.

The fact that most miners are located in one country does not mean that the whole network is centralized. There are more than 13,000 nodes in the world and this represents decentralization. In addition, the centralization of mining will also be significantly reduced through new regulations in China.

5. Cryptocurrencies will make you a millionaire

This is one of the most common myths, and many people begin with cryptocurrencies with this "plan". The concept is simple - you will find the "future Bitcoin", you will invest some money and in a relatively short time you will become rich. However, the reality is quite different. The main problem is that you will encounter articles about how someone got rich on cryptocurrencies quite often. However, nobody writes that another 100 or 1,000 people lost their money due to a bad investment.

Excited crypto millionaire Excited crypto millionaire, Source: shutterstock.com

We are not saying that you cannot get rich thanks to cryptocurrencies, and there are many people who have managed to make millions in this way. But no one can guarantee you such success, and novices, in particular, should focus primarily on information gathering and education. There is one well-known rule - the more company entices you to become a millionaire thanks to their cryptocurrency, the greater the chance that you will actually lose your money.

6. You will earn the most from day trading

You can often come across the claim that you will earn the most from cryptocurrencies if you focus on day trading. In reality, however, it is an extremely time-consuming and psychologically demanding activity. It could be said that this way of trading is a full-time job. The cryptocurrency market is still quite unpredictable and it is very challenging in day trading.

A large group of investors and traders prefer longer-term trading strategies. On a weekly or monthly basis, they can predict future market development much more accurately and increase their value more efficiently. Of course, you don't have to hold cryptocurrencies indefinitely even with this type of strategy. Traders to whom day trading does not bring the expected profit often slip into the next myth.

7. It is not worthwhile without leverage trading

Leveraged trading poses a significant risk in itself, and cryptocurrencies, with their volatility, do not help. Various platforms offer leverage trading up to 100x. With cryptocurrencies, whose prices can fluctuate by tens of percent a day, this is literally a recipe for losing your money in record time.

Each ad will tell you that leveraging will multiply your profits. However, few of them pay attention to the other side of the coin and will not say that it will multiply your potential losses as well. Thus, most retail investors and traders often lose all their funds by liquidating the position.

8. The cryptocurrency market is dominated by retail

Many retail traders (ordinary people) think that the cryptocurrency market is dominated by the masses, they can even move prices. However, most of the traded volumes, especially for the largest cryptocurrencies, are large institutional investors, so-called whales. According to the survey, 4% of the largest traders make up 85% of all market liquidity.

It is precisely these investors and traders who essentially decide whether the market situation will be favourable or not. In addition, they can use their strong position to trade against the market and, to "play" with the retail. You can probably imagine how this fight turns out.

Slavomír is working in the field of cryptocurrencies since 2018. As a Co-Founder and Chief Marketing Officer of Dollero Technology, which is currently developing a crypto exchange ...

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