There are many misconceptions surrounding cryptocurrencies, especially when it comes to cryptocurrency value, prices, benefits, and purposes in today’s economy.
#1 Cryptocurrencies are a Get-Rich-Quick Scheme
The first myth is that cryptocurrencies are a get-rich-quick scheme.
While it is easy to see the appeal of this idea, it is vital to realize that there are no guarantees in the cryptocurrency space. You need to be patient and invest wisely if you want to earn money with cryptocurrencies—it’s not going to happen overnight!
Cryptocurrencies are risky investments, so you shouldn’t put all your eggs in one basket. If you do decide to dive into cryptocurrency trading or investing, try not to put more than 5% of your overall portfolio in this form of speculative investment.
#2 The Cryptocurrency Industry is a Scam
There have been some high-profile scams in the past, including one called BitConnect that reportedly cost investors $7 million. And you may have heard of Bitcoin Savings and Trust (BST), which was shut down by the SEC in 2013 after they determined it to be a Ponzi scheme.
However, these scams are not exclusive to cryptocurrencies; they can also happen with stocks or other financial products. The key difference between an investment scam and a legitimate cryptocurrency platform is regulation.
Regulated companies are required to follow certain rules for consumer protection when entering into contracts with customers or offering investments. Unregulated platforms are not required to do so and may be more susceptible to scams because there’s little accountability if things go wrong on their part.
So how can you distinguish between legitimate cryptocurrency platforms and those looking to take advantage of users? If it seems too good to be true—like you could make more money than investing in your 401k proceed with caution!
Many platforms offer high returns from profits generated from trading fees charged to tradespeople on their platform. These fees ultimately come out of your pocket since anything less than 100% return means someone else has profited off your efforts except for yourself (and maybe management). There’s also no guarantee that any particular token will retain its value over time since prices fluctuate wildly due to market forces beyond control.
#3 Cryptocurrencies Hold No Value
Cryptocurrencies are backed by their respective blockchains, the technology that enables them to exist. Cryptocurrency value is also derived from the number of people using it; if a cryptocurrency can be used for multiple transactions every day and has widespread adoption, then its value will increase. Similarly, if many people want to use your cryptocurrency but do not have enough capacity to support them (which could be caused by high transaction fees), your cryptocurrency loses value.
The supply and demand of cryptocurrencies also play a role in determining their worth. If demand for a certain currency rises (meaning people want more of it), then its price increases accordingly; conversely if demand falls (meaning fewer people are buying into it), then prices fall accordingly as well.
#4 Cryptocurrency Markets Have No Potential
Many people think cryptocurrency markets are a zero-sum game and that the winner takes all. However, the reality is that there is space in the market for multiple cryptocurrencies to co-exist. Bitcoin is the biggest cryptocurrency, but it is not the only one. Ethereum, Litecoin, EOS, TRON, and many others are competing for market share as well.
The concept can be illustrated by looking at how stocks work. Even though Apple has become one of America’s most valuable companies due to its iPhone sales alone (and an incredibly successful stock), other companies like Google still exist alongside them in their industry.
#5 Cryptocurrencies are Completely Anonymous
It is one of the most common misconceptions about digital currencies, and it can get you into a lot of trouble if you’re not careful.
The reality is that crypto transactions are public, but the identities behind them aren’t necessarily tied to those transactions — except for in cases where law enforcement agents have obtained warrants or subpoenas to discover an individual’s identity through their transaction history.
For example, if a bitcoin user wants to remain pseudonymous (meaning they do not want their real name associated with their address), they should be careful when sending coins from one account to another.
That can make it easier for someone watching your activity on blockchain explorers to figure out who owns which address by following the trail of outgoing transactions from one wallet address over time (if you do this often enough).
So, the next time someone says these things to you, you will know that you need to ignore them.