From only being used by criminals to equating all cryptocurrencies to bitcoin, there are a lot of misconceptions floating around the new digital assets
People are increasingly taking cryptocurrencies more seriously. It seems as if you can’t go a day without reading about the value of bitcoin either skyrocketing or crashing. And if you’re an entrepreneur, you’ll sooner or later face the choice of using an initial coin offering to fund your startup. But no matter what your interest in cryptocurrencies is, you have to be alert to the many misconceptions surrounding these digital assets.
"As cryptocurrencies are very much the new kid on the block in terms of payment methods, there are bound to be many rumours surrounding them and trepidation around investing in them too,” says Sam Reed from IT experts Air IT, the IT support provider. Add to that the high level of anonymity surrounding digital assets like bitcoin, the complexities around blockchain technology, understanding the science of cryptography, which is what cryptocurrencies are based on, and it’s easy to see why misunderstandings happen.
Fortunately, we’ve enlisted the help of a few experts to help put the record straight about the six things people usually get wrong about cryptocurrencies.
(1) Cryptocurrencies doesn’t equate to bitcoin
Bitcoin is by far the most well-known digital asset, which means many people think all cryptocurrencies by definition are bitcoins. “This is of course not the case,” says Nicolas Van Hoorde who is the CEO and co-founder of Delta, the cryptocurrency portfolio tracker app. “While bitcoin still dominates over one-third of the market, there are hundreds of other cryptocurrencies that are promising and are being traded on a daily basis.”
(2) Cryptocurrencies aren’t really currencies
Despite what the name may suggest, cryptocurrencies aren’t really money. A better way to think of them would be in terms of crypto assets. “The term cryptocurrency leads particularly retail buyers into lumping all of crypto into the currency bracket when actually most of the growth in crypto value has been in the field of tokens, which are very different from currencies,” says Luke Shipley, co-founder of R_Block, the blockchain recruitment network.
(3) Cryptocurrencies aren’t always functional
"Bitcoin is often called the digital gold,” says Julian Zegelman, co-founder of TMT Blockchain Fund, the investment fund for blockchain startups set up by the VC firm TMT Investments. “This implies that it has intrinsic value or functionality. Although actual gold is largely an arbitrary unit of value, it does have important utilitarian functions – as raw material for jewellery and certain industrial applications. Bitcoin, unlike some other cryptocurrencies, has no function other than as unit of value. It does not function as a software code or platform for smart contracts, for example as does Ethereum." To avoid being hoaxed to invest in bad assets, Zegelman advises entrepreneurs to look for liquidity. “[How] widely used it is and how easy to convert particular cryptocurrency to other cryptocurrencies or fiat currency, the team behind a particular crypto currency and any actual utility – what can the crypto currency do other than transmit value?” he says.
(4) Cryptocurrencies aren’t just for criminals
If you look at some of the biggest breaches from the past few years it’s easy to see why cryptocurrencies have acquired a reputation of only serving criminals. For instance, when the Commissioner's Office’s website was hacked in February it was with the intent of turning it into a Monero mine. “Bitcoin emerged on the back of the cypherpunk movement with its anarchic and libertarian tendencies and it was then used by many on the dark web for drug deals and other unsavoury activity,” says Daniel Wolfe, CEO of Tradingene, the blockchain-based marketplace of trading algorithms. However, if you’re blinded by the reputation, there is a risk of missing out as the the financial world is transforming. “Providing access to investment and financial services to people all over the world is underway,” says Wolfe. “Those who disregard this will miss enormous opportunities to invest and participate.”
(5) Cryptocurrencies aren’t always anonymous
One of the reasons why cryptocurrencies are seen to be prevalent in the criminal world is because they are seen as being anonymous. However, the truth is that cryptocurrencies can often be fairly useless when it comes to laundering money. “Whilst there are specific privacy coins such as Monero and Dash that offer anonymity, other currencies such are bitcoin are not anonymous but rather pseudonymous,” says Emma Hoffman, CMO at Blockbid, the cryptocurrency exchange. “Transactions are linked and can be traced back to an online identity, with companies such as 'Elliptic' who specialise in blockchain forensics.” So no hiding behind the coin for the baddies.
(6) Cryptocurrencies will never catch on
While some may assume that cryptocurrencies won’t be adopted by the wider public, there are already signs that great things are coming. “In fact, it already has gone mainstream,” says Kevin Murcko, CEO of CoinMetro, the cryptocurrency exchange. “Bitcoin alone has a market cap of over $150bn, with banks increasingly interested in what cryptocurrency has to offer institutions as well as clients. Most recently for example, Goldman Sachs, announced that it will offer cryptocurrency trading to its clients.”
Getting to grips with new ideas isn’t always easy but hopefully this list can help you make a better choice on how to use cryptocurrencies in your startup.