Many have heard about Bitcoin, yet very few truly understand how Bitcoin works.
Because of the nature of this new technology, there are many so-called BTC facts that are shrouded in mystery, but not necessarily true.
In the next few paragraphs, you will ready about this myths and what’s the truth behind them. Is Bitcoin anonymous? Is the blockchain 100% secure and hack-proof? Most importantly, is BTC money? Let’s find out in the latest Bitcoin Myths vs Bitcoin Facts 2019 article!
For ten years, anonymity has been Bitcoin’s main selling point. Everywhere you go in the cryptocurrency world, you will read or hear: BTC enables anonymous transactions of value/wealth between parties.
For quite some time, this has really been the case. The earliest adopters were actually dark web users. You may have heard about Silk Road – the online black market where you could buy a variety of illegal products. After the marketplace started accepting Bitcoin as payment, transactions on the blockchain spiked and so did the price. From a fraction of a cent (in 2010, one user paid 10,000 BTC for two pizzas), the price jumped to actual dollars and tens of dollars, in 2011.
Everybody was using Bitcoin for its anonymity. You could make as many wallets as you wanted to and not link a single one to your real-world identity. There were only random sets of letters and numbers as your ‘addresses.’
In time however, as Bitcoin earned more credibility and as price became more relevant to the real world, people started to see flaws in this ‘anonymous’ network.
For example, if you bought a product or a service with BTC on a legal online store, you would basically link a BTC address with an account that contained sensitive data about your real identity.
Nowadays, to remain anonymous on the web is much harder. To buy or sell BTC, you would have to register to an exchange. That exchange is likely KYC (Know-Your-Customer) and AML (Anti-Money Laundering) compliant, therefore, it will ask for personal information like real name, address, ID card or passport, selfie, etc. Since the blockchain is a public and verifiable ledger, anyone can link your real identity with all the addresses you own by just keeping track of transactions between the exchange account and all other addresses.
To make things more difficult, you could use mixers or tumblers. Mixers or tumblers are third party services that deletes any connection between the sender and the recipient of BTC. Thus, if you want to delete all tracks on the public ledger or any links between an exchange account and other BTC addresses, just mix it up. In hours and for a fee, your funds will be anonymous.
You can also use privacy-centered cryptocurrencies like Monero, Dash, ZCash, or the latest Grin. All those coins will guarantee you a much higher degree of anonymity and privacy than Bitcoin.
Another interesting assumption widely used, revolves around security. Bitcoin’s blockchain is 100% secure and no single entity can shut the network down.
The myth is actually true if you look at it from a single angle and compare it with the other databases of the world.
Indeed, Bitcoin’s inventor Satoshi Nakamoto made the network much more secure than traditional databases. To avoid oligarchy or letting a few have absolute control, he decentralized the system. There is no central power in Bitcoin; there are only participants with specific roles in the blockchain.
Moreover, since the ledger is spread around the world, a malicious actor would have to attack all computers running Bitcoin.
Many major hacks were possible because of the Single Point of Failure problem. The attacker had to breach only one server location. In Bitcoin’s case, the attacker would have to breach uncountable server locations, from all around the world.
Another innovation was the use of incentives to encourage the major actors to play fair. Bitcoin is based on the Proof-of-Work (PoW) algorithm. The PoW involves the existence of a group (miners) who must solve complex mathematical problems. When a specific participant finds the solution, he or she gets to include a block of transactions into the blockchain and is rewarded a number of BTC, for his/her efforts.
Nakamoto created the system so that the miners are much more profitable if they play by the rules than the case when they actually break the rules.
Nevertheless, PoW has one major flaw: if the malicious actor has the majority of the mining processing power (51% or better), the whole network is compromised.
The latest Ethereum Classic (ETC) case is the best example.
On January 7, 2019, a Chinese security firm alerted the crypto world about an ongoing attack on a cryptocurrency based on the same PoW algorithm, called Ethereum Classic. According to the initial data, an attacker gathered enough mining power (51%+) to control the whole ETC blockchain. As a result, the attacker ‘reorganized’ the ledger by including fake transactions that would otherwise be rejected. By using this method, the actor effectively stole over $1 million worth of ETC.
The same thing could happen to Bitcoin IF the attackers gathers enough resources to initiate the takeover. Worth mentioning is that ETC 51% attack was fairly cheap in terms of resources spent, compared to a potential BTC attack.
Bitcoin is a much bigger network, therefore much more participants are involved in the mining process. As a result, the BTC blockchain is much more resource-intensive than ETC, making a potential 51% attack much more expensive.
Most importantly for you though, is this: just because the Bitcoin network is fairly secure, it doesn’t mean your BTC are secure also!
Hackers’ focus is not attacking the blockchain, is actually attacking you, the average user. He or she is most prone to mistakes and much more easily to fool. That’s why you need to be extra-careful when you deal with BTC.
Firstly, be sure to control your own private keys – not your keys, not your Bitcoin. Secondly, use secure wallets like hardware wallets, and take advantage of extra security layers whenever possible, like 2FA. Check the sites you are accessing, check the addresses you are copying and pasting, and best avoid spreading information on the web, about your Bitcoin holdings.
Since you can bet with bitcoins at BetBTC Casino, you must assume BTC is money, like USD or EUR.
Yes, Satoshi Nakamoto created Bitcoin as an alternative to all fiat currencies and did a very good job implementing the properties of money into the blockchain.
What are the main properties? Unit of account is one of them. BTC can and is used to measure the market value for goods and services. BTC is also divisible; its smallest unit is a satoshi worth 0.00000001 BTC (one BTC has 100 million satoshi). You will also encounter microbitcoin, which is 100 satoshis and milibitcoin, worth 100,000 satoshis.
Medium of exchange is another property. Bitcoin can be used to intermediate the exchange of a wide variety of goods and services. It can also be used to bet at BetBTC Casino, right?
Store of Value is another essential feature of money. If we have in mind a bigger enough timeline, then, we can confidently say Bitcoin is a reliable store of value.
BTC was worth a less than a cent one year after the launch (two pizzas were worth 10,000 BTC in 2010). In 2011, the value raised sharply to over $17. Two years later and BTC was already making new all-time highs to over $100. The end of 2013 marked the first time BTC passed $1,000. After a collapse to $200, 2017 brought the cryptocurrency above $1,000 and even more, to almost $20,000 in December 2017. Now, in January 2019, BTC is worth just under $4,000.
It may not be much considering the all-time high, but, if we consider the last 10 years, the rise is impressive, to say the least.
If we take into consideration a shorter timeline though, we now have a serious problem.
To be reliable and trusted by the majority, money have to be stable, in the short and medium run, at least. Most definitely, Bitcoin hasn’t been stable. On the contrary, it is a very volatile asset, compared on many occasions with risky equities like stocks.
Nowadays, most people see BTC as a long-term investment and instead of using it, they safe-keep it (or HODL in crypto slang) like gold, thinking in the foreseeable future, the price will explode. In fact, many use the term ‘digital gold’ when they define Bitcoin.
Moreover, 2017 taught us scalability (the ability to handle a great number of transactions per second) is still a big problem. With Bitcoin’s major blockchain updates, it can now process around 10 transactions per second; VISA, on the other hand, can process around 2,000 transactions per second.
The Lightning Network – a payment layer built on top of Bitcoin’s blockchain – can scale the network even more (we still don’t know how much more as the project has been live for only a year and hasn’t been used at all).
All in all, Satoshi envisioned his/her/their creation as money, but it still needs time, upgrades, not to mention stability for the majority to start using BTC as money.
Until then though, we must use it and not just HODL it. Remember, Bitcoin’s store of value derives from its medium of exchange potential (hope that in the future, the world will use BTC as money in a trustless and safe manner).
Without being a medium of exchange, what’s Bitcoin’s value, anyway?