Bitcoin has been around since 2009 and it introduced a decentralized and automated financial network that enabled verified online transactions. Bitcoin has gained massive popularity among retail and institutional investors during the last decade.
However, there are also many investors who are still skeptical about the digital currency. This article takes a look at common myths about Bitcoin.
Some investors have dubbed Bitcoin a bubble or highly speculative investment. Bubbles are the markets where investors continue to take new positions during massive price appreciation.
However, the bubble eventually pops and the investors are left with massive losses. Investors sometime draw parallels between Bitcoin and other market bubbles such as Dutch Tulip Mania in 17th Century.
Bitcoin has experienced various price cycles over the course of last 12 years. During each Bitcoin Bull Run the coin hits a new ATH. Following the dot com bubble, most companies went down while shares of Amazon also dropping substantially.
However, Amazon was among the few companies to survive the period and morphed into one of the top companies in the world in subsequent years.
Another major criticism of Bitcoin is that the token does not have any real world application or use case. Many politicians have argued that Bitcoin is used for illicit transactions.
Bitcoin was created as a way to address the issue of secure online transactions across the world. At present every country has a unique legal tender and people can face real issues and limitations when they have to transfer funds from one place to another.
However, Bitcoin is an international network that allows investors to perform seamless international transactions.
At the same time, Bitcoin has incorporated supply management mechanics such as halving that make it deflationary product. Therefore, investors add Bitcoin as digital gold or hedge against inflation in their portfolios.
At the same time, Bitcoin is an open-sourced and permissioned network meaning that law enforcement agencies can retrace any illegal activities with relative ease in comparison to traditional banking.
Bitcoin naysayers often claim that Bitcoin does not have any intrinsic value. This criticism is fueled by the fact that Bitcoin is not backed by physical gold reserves or any other assets.
Gold standard for fiat currencies was abolished in 1930s. It means that Central Banks can print more fiat currencies at their discretion based on their monetary and fiscal policy directives. However, the total value of Bitcoin is capped at 21 million. It means that the total supply of Bitcoin cannot exceed more than 21 million tokens.
New tokens are added to the supply after an intricate mining process using Proof-of-Work consensus model. At the same time, Bitcoin has incorporated additional supply control mechanisms such as halving to make it deflationary and preserve its value.
Some investors speculate that Bitcoin can be replaced by competitors.
Bitcoin has maintained 50% market dominance throughout the year. Bitcoin is decentralized and community driven project that is operated by nodes and miners spread across the globe.
Skeptics who are worried about the price volatility of Bitcoin retain that investing in this virtual currency is a gamble.
Returns in gambling have 50/50 odds of profit or loss. Meanwhile, based on the price history of Bitcoin the expectations for substantial returns are almost warranted. Since its introduction, Bitcoin prices have continued to increase.
Bitcoin is a digital entity and an open-sourced distributed ledger that is stored among nodes rather than a single private server. Therefore, people who are new to the concept fear that Bitcoin is susceptible to cybersecurity-attacks.
Since its introduction, Bitcoin has remained an open-sourced, decentralized, and permissioned network. However, the project has never been hacked till date. This blockchain has been examined by institutional investors, IT experts, computer scientists, hackers around the world and remained hack-proof to date.
Environmental Impact of Bitcoin
There are some pessimists who retain that Bitcoin is harmful for the environment on account of its energy consumption and carbon footprint readings.
Ark Investment report suggests that Bitcoin is more energy efficient in comparison to traditional banking network. At the same time, Bitcoin miners have continued to switch to renewable power sources such as hydro, wind, solar etc.
Bitcoin is the first cryptocurrency and it also has the biggest share of market cap. Bitcoin investors usually opt for dollar-cost averaging method to increment their investment over time and gain considerable profits overtime.