The Truth About Bitcoin
The Beginner’s Guide
Chances are you stumbled across this page with the intent of changing your perspective on Bitcoin. There are definitely a lot of myths out there – so, let’s tackle them head on!
First off, let’s start with the basics.
Bitcoin is best described as an invention that, for the first time in history, enabled software users to manage a digital money supply outside the control of any government or bank.
Sounds simple enough. Still, it can be hard to come to terms with new inventions. In fact, history is littered with examples of how experts and pundits argued against everything from electricity to the refrigerator, suggesting their use would be bad for society.
Take this famous Newsweek article from 1995. If you’re reading this article from a mobile phone or desktop computer, you’re likely to find it amusing.
It reads: “No online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way the government works.”
Glad we listened to that advice!
Joking aside, before diving into this article, it is important for you to know that Bitcoin is perfectly legal in most countries around the world. However, there are exceptions, meaning you should read up on your local cryptocurrency laws before investing in them.
When in doubt, always consult a local lawyer or accountant before proceeding.
Bitcoin is not mostly used by criminals
As with any technology, Bitcoin can be used regardless of the intentions of the user.
The internet, credit cards, cell phones, even paper money are all used by good and bad actors around the world. This means Bitcoin is too.
Yet, a common misconception about Bitcoin is that criminals use it because it is anonymous and untraceable. This is far from the truth. While there are certainly ways to enhance the privacy of transactions, Bitcoin transactions are transparent by default.
This means that, with the right resources and know-how, malicious entities are traceable by governments and law enforcement agencies.
As an example, Kraken works closely with law enforcement to catch criminals, and we invest in teaching our users how to protect themselves from common crooks.
Bitcoin is not a Ponzi Scheme
Let’s start off with the definition of a Ponzi Scheme: a fraudulent investing scam involving the promise of high rates of return with little risk to investors.
Bitcoin doesn’t fit this for a variety of reasons:
- Bitcoin’s purpose is not to recruit new participants
- Bitcoin will continue to work regardless of how many participants are using the network
- New users joining the Bitcoin network do not fund the older users with new money
- There are no centralized bodies funneling money to the top.
Does Bitcoin still sound like a Ponzi scheme? We thought not.
Bitcoin is not a bubble
Bitcoin is going to $0! Whenever commodities go up in value at a never-seen-before rate, it’s common to see headlines blaring the word “bubble” popping up in the media.
The most popular recent examples are a series of 2010 media articles calling for the Apple and Amazon “stocks bubbles” to pop. You can look at where these companies are trading today to see how those predictions turned out.
The truth is, no one knows how big Bitcoin adoption will get.
One thing is for certain thus far, Bitcoin has rallied stronger after every correction, even as the mainstream media has perpetually called for its death.
Most governments are friendly to Bitcoin
Less than 1 percent of all countries have banned cryptocurrency (the very short list includes only Pakistan, Bolivia and Macedonia).
This means that the vast majority of the other countries are studying Bitcoin and blockchains to varying degrees, with the goal of identifying how they can leverage these technologies and assets to make their financial lives easier.
Since 2011, Kraken has developed close relationships with regulatory bodies and government officials to discourage, minimize and prevent criminal behavior.
Bitcoin is not bad for the planet
One of the greatest misconceptions is that Bitcoin is bad for the environment.
It is important to take this information with a grain of salt and to get differing perspectives on Bitcoin’s energy consumption. Many financial-related activities consume significantly more energy than Bitcoin mining, including gold mining and fiat currency production.
For example, according to a report from 2017, Bitcoin consumes around 8.27 terawatt-hours per year, compared to the 132 terawatt-hours per year consumed by the gold mining industry.
Further, the Bitcoin network can use renewable energy, meaning it can be as good for the environment as its source of electricity.
For more on the reasons why Bitcoin mining is valuable, read our “What is Bitcoin Mining” guide.
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Useful Resources
Looking to learn more about what makes Bitcoin so special? Head on over to the “What is Bitcoin” page located in Kraken’s Learn Center to further your education.
You can also learn about what cryptocurrencies are, and what different types of cryptocurrency exist, using the Kraken website.
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