3 Myths Surrounding Bitcoin

Myth 1: divider Bitcoins are not backed by anything!

This may seem true on the surface. If you have oil or something physical, it’s easy to attach a value to it. For digital currencies however, that’s where it becomes complicated, because it’s not something we can see or touch.

This is exactly the same as traditional, or fiat currencies. A currency justifies its value through how much it’s used. The fundamental nature of time within economics is not that everyone accepts BitCoins because everyone else accepts BitCoins today. Rather, everyone accepts BitCoins because everyone else accepted BitCoin yesterday!

As long as BitCoin is perceived as valuable even only for a short period of time, BitCoin like any other currency has the potential to remain valuable forever.

Myth 2: divider BitCoins are not infinite and will eventually run out!

There is some truth here; Bitcoins are NOT infinite. There will only ever be 21 million BitCoins in circulation. What if it runs out? What if the price deflates severely?

If you’ve studied basic economics, you’ll be familiar with the concept of Supply & Demand and its effects on price. In short, if half of the 21 million BitCoins are lost, then the rest of the BitCoins will become twice as valuable.

If this continues to happen, then half will become quarters, then eighths, then sixteenths. This progression will never hit zero, and the BitCoin protocol can be modified to add more decimals, but even then it’s extremely unlikely that that will be the case.

Myth 3: divider BitCoin is a Ponzi scheme

Most people, when introduced to BitCoin for the first time, tend to associate it with being a Ponzi scheme; where BitCoins are viewed as investments that increase in value only when more people participate.

This is NOT true. A Ponzi scheme runs on a centralised system and members are rewarded for bringing other people in. BitCoin on the other hand, has none of the aforementioned traits of a Ponzi scheme while also having revolutionary properties in the way that we view technology from both a start-up and large-scale perspective.