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The world of crypto is complex and sometimes overwhelming. You may encounter a variety of differing arguments and opinions which can make it challenging to sort out the signal from the noise. Let's sort out the five biggest misunderstandings when it comes to cryptocurrency.
Misconception #1: Crypto Is Always Great for Criminals
Crypto is often touted as a hideout for criminal activity. However, because crypto isn't generally private, it's a poor choice for concealing your financial transactions.
People might believe that crypto is the land of scammers and thieves because there are often hacks that make headlines in mainstream media. But the fact is that many of these hackers were unsuccessful in getting away with their plunder because their actions were broadcast to the world on public blockchains.
In reality, many of these hackers or criminals were unable to move their stolen funds---or were eventually caught. Blockchain networks and their transparency allows for crime to be spotted and rooted out in real time, making them a poor venue for illicit activities.
Misconception #2: Crypto Will Always Use Lots of Energy
There are different mechanisms used by blockchains to secure the network. The most common solutions are Proof of Work and Proof of Stake. Proof of Work uses complex math problems that require lots of computational power, meaning more energy is used to verify the chain.
However, Proof of Stake uses about 99% less energy than Proof of Work because users stake some of their tokens as a deposit for being a good actor in verifying transactions. There's no complicated computation to validate the chain.
Many newer blockchains are using Proof of Stake for securing their networks, like Solana, Avalanche, Terra, and Tezos. Additionally, there's a growing trend to build sustainability and environmental stewardship into the core infrastructure of blockchains.
Misconception #3: All Cryptocurrencies and Blockchains Are The Same
There are crucial differences between blockchains. The crypto world consists of a kaleidoscope of networks and communities with a wide range of core values and use cases. The way that a blockchain network is designed has lots of implications for its applications and users.
One source of variance in blockchains is that there are often trade-offs in performance or decentralization that need to be made in balancing the security, execution, and data storage layers of a blockchain. The choices the engineers make when creating the architecture of a chain have significant downstream effects on the culture and applications that develop around a blockchain.
Some blockchains are built for maximum security and uptime and have no ability to host apps, while other blockchains are more agile and fluid but leave more vulnerabilities on the table as a result. Smart contract blockchains like Ethereum or Solana give developers the ability to build apps on top of them, while other chains are focused on specific use cases like NFTs or gaming. It's important to remember that the code that's employed influences the behavior of its users and the communities that end up coalescing around a given blockchain.
Misconception #4: All Blockchain Networks Are Expensive and Inefficient
You may have heard that fees are expensive to transact using blockchain networks and it takes a long time for transactions to settle. While this may be the case at times with certain blockchains like Ethereum, it is not the entire truth. Many blockchain networks are quite cheap and efficient like Solana where it costs less than a nickel to transact and transactions settle in seconds.
Because of the way that blockchain networks are designed with security as a priority, they collect transaction fees from users which are distributed to miners or validators who help secure the blockchain network. Fees vary widely depending on a specific blockchain's design and fees also fluctuate based on how busy the network is at any given time.
There are also solutions to reduce gas fees on Ethereum with a second layer of infrastructure, called Layer 2s, which share the security guarantees of the base layer Ethereum chain but allow for a higher throughput of data and thus reducing fees.
Misconception #5: Cryptocurrencies Are a Fad
Innovations in digital asset technology are still in their early stages, but their impact will be broad and deep. While some cryptocurrencies go in and out of bull or bear markets, the overall growth and expansion of the decentralized finance and cryptocurrency ecosystem seems here to stay. Money is a human coordination tool that has changed forms many times throughout human history, and crypto is another stage in this evolution.
The shift to cryptocurrencies and digital assets is already transforming many aspects of culture. The technology of blockchain on which cryptocurrencies are built is a marked improvement in security and payments because they remove the middlemen that often cause bureaucracy, inefficiencies, and overhead expense that can be eliminated by shifting to blockchain solutions. Using smart contract technology, code can act as a trusted intermediary to ensure the secure and verifiable transfer of assets from one party to another rather than a law firm or other third-party business.
By offering more efficient ways to conduct business, share ideas, and coordinate, cryptocurrency technology gives greater access to more opportunities for humanity at large. The benefits gained by adopting this technology are significant enough for some form of cryptocurrency to persist into the future.