7 Blockchain and cryptocurrency myths debunked

Blockchain and cryptocurrency
Image | Revix

Sean Sanders, CEO and co-founder of Revix, debunks popular myths and misconceptions about the blockchain and cryptocurrency to reveal their immense investment and every-day real-use potential beyond simply being a digital asset.

Myth: The blockchain and Bitcoin are one and the same
Fact: Bitcoin is one of more than 4 000 cryptocurrencies. The blockchain is the distributed ledger technology upon which Bitcoin, and most cryptocurrencies, are built.

Cryptocurrencies are digital assets or currencies that can be transacted, by means of the blockchain, between two or more entities to buy physical or digital goods and services. 

The blockchain is a secure digital distributed ledger that records and stores all transactions in real-time indefinitely and is available to the public.

Myth: There is one blockchain
Fact: There is one blockchain for each cryptocurrency (but not only)

Each cryptocurrency is coded differently and therefore has its own blockchain, that records transactions by adding a new ‘block’ of information particular to its ‘chain’ every 10 minutes. 

However, blockchains also vary in nature based on their intended purpose and industry, some are public others are private, and they may be open- or closed-source. For example, Bitcoin strives to be digital cash, whereas Ethereum allows developers to build peer-to-peer applications that don’t require intermediaries and operate on top of its blockchain. Their use cases are very different. Therefore, you can’t undertake a Bitcoin transaction on the Ethereum blockchain, as these different blockchains do not interact with one another. It would be like trying to pay for dinner in the United States with South African rands. The restaurateur would expect you to exchange your currency for US dollars in order to pay. 

Read More | With more and more cryptocurrencies out there, how do you know which ones to invest in?

Myth: The blockchain is only used for digital assets or cryptocurrencies
Fact: Blockchains also have real-use cases beyond digital assets, across various industries and are helping to solve everyday problems

Because the blockchain is transparent by its very nature and is accessible to the public, it has a broad range of applications in the physical world. Digital voting by means of blockchains can help to eliminate electorate and voter fraud. Similarly, non-profit organisations are using the blockchain to record their funding campaigns, so as to remain transparent to donors and illustrate how donations are being utilised. The blockchain can also revolutionise how electronic medical records are safely stored and shared through a private peer-to-peer network, no matter where in the world the patient finds themselves. In the same way, the blockchain can help to track the fair and equitable distribution of Covid-19 vaccines. And soon enough, all contracts, whether for the sale or rental of a home, will be housed on the blockchain to ensure contractual consistency. 

Myth: The cryptocurrency bubble is about to burst
Fact: In the last decade, cryptocurrencies breached the $1.3 trillion mark making them the world’s top-performing asset class.

Blockchain and cryptocurrency have been around since 2010. In early 2021, cryptocurrencies breached the $1.3 trillion mark making them the top-performing asset class and the world’s fifth-most circulated currency by value over the last decade. Experts have heralded Bitcoin as the “digital gold” of the digital age, as they help to drive the digital economy and spearhead the Fourth Industrial Revolution.

Between 2020 and 2021, cryptocurrencies, as an asset class, saw a 3 800%+ value increase. This is far higher than the gains seen in traditional commodities and financial markets, such as the S&P 500 Stock Index and JSE Top 40 Stock Index. In comparison, gold saw year-on-year gains of no more than 25% in the same period.

Myth: Cryptocurrencies have no intrinsic value
Fact: Cryptocurrencies do not need to be backed by a commodity to hold value

Many sceptics claim that cryptocurrencies have no intrinsic value because they are not backed by a commodity such as gold or silver, however, most fiat currencies are not backed by commodities either. Instead, their value lies in the fact that they have been issued by a government and that there is an agreement in place that allows consumers to exchange it for goods or services of a similar value. Hence, its value is agreed upon by all parties. 

The same goes for cryptocurrencies, though they are not government-issued, there is an agreement in place in the form of willing buyers and willing sellers – demand and supply – that they can be exchanged for value in the real world. Consider Facebook, which is valued at over $760 billion, it has value due to its networks, data and consumer base. Not the servers it runs or land it owns.

Additionally, if a commodity is limited in nature, according to the principle of scarcity, then its value fluctuates with time due to supply and demand. Bitcoin, as an example, is a limited digital currency as only 21 million Bitcoins will ever be able to be produced. 

Myth: Cryptocurrencies are only used for illicit and dubious activities
Fact: Far more Dark Web transactions are undertaken with fiat currencies than cryptocurrencies

The blockchain keeps a public record of each transaction and although it offers a certain amount of anonymity, users and their details can be identified, which means that this anonymity is in no way absolute. There are some cryptocurrencies designed for anonymous transactions such as Monero but they make up less than 0.01% of the overall crypto markets value.

And though in the early days there were records of cryptocurrency being used for nefarious transactions on Silk Road, part of the Dark Web, there were far fewer transactions using cryptocurrencies than fiat currencies. Only 0.5 per cent (approximately $829 million) of Bitcoin transactions undertaken in 2019 were transacted on the Dark Web, according to the “Bitcoin Laundering: An Analysis of Illicit Flows into Digital Currency Services” report. 

Global digital asset exchanges are also being proactive in extinguishing the misuse of cryptocurrencies by implementing mandatory know-your-customer (KYC), anti-money laundering (AML) policies, and know-your-transactions (KYT) policies where transactions that are sent to users who partake in illegal activities are stopped. 

Myth: Cryptocurrencies are unregulated 
Fact: Cryptocurrency regulation is on the rise 

In the early days of cryptocurrency, there were fears that they would be banned, however many governments are increasingly willing to adopt them as cryptocurrencies create business within their jurisdiction and once regulated become taxable. 

Today, cryptocurrencies are considered legal tender in 13 countries, ranging from various European Union nations, G7 nations, Australia and Japan. The latter has already introduced over 30 blockchain and cryptocurrency bills, while the Australian Securities Exchanges (ASX) will transition to using a blockchain system by April 2022. And we’ll continue to see this number rise in the coming years.

Multinational organisations such as Amazon (via Purse.io), Microsoft, Dell, Expedia, Twitch and Fiverr accept Bitcoin as legal tender. In South Africa, we’re seeing the rise of cryptocurrency being accepted as a form of payment across various platforms, such as Takealot, Superbalist, bidorbuy.co.za, Shopify, among numerous other retailers. 

Read More | With more and more cryptocurrencies out there, how do you know which ones to invest in?

Though late to the game and after years of talk, the South African Reserve Bank (SARB), the Financial Conduct Authority (FCA) and the Financial Sector Conduct Authority (FSCA) are playing catch up as they draw up regulatory compliance requirements for cryptocurrencies within South Africa. At present, cryptocurrencies are not considered legal tender in South Africa and are not guaranteed or backed by SARB, hence they operate independently of the central bank.

To date, as per the “Currency and Exchanges Manual for Authorised Dealers”, South Africans may purchase cryptocurrencies from abroad by using their single discretionary allowance of up to R1 million and/or their individual foreign capital allowance of up to R10 million with a tax clearance certificate per calendar year. As per the SARB, South Africa’s Exchange Control Regulations prohibit transactions where money is exported from South Africa without permission from National Treasury and is a criminal offence.

Though still somewhat misunderstood, the blockchain and cryptocurrencies have immense potential to positively transform developing countries, such as South Africa, in helping to streamline various public and private sectors across numerous industries.

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This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing please take into consideration your level of experience and investment objectives, and seek independent financial advice if necessary. 

Read More | With more and more cryptocurrencies out there, how do you know which ones to invest in?

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