Common fears and misconceptions about cryptocurrencies
In this article I will cover the most common objections and arguments against cryptocurrencies. My goal is to encourage more people to learn about and use cryptocurrencies.
Why buy cryptocurrencies, how can they even be worth something? They are just numbers on the internet!
This is the most common argument I encounter when I talk to people about Bitcoin or Ethereum. It is a very reasonable argument because it is not easy to grasp the concept of evaluation of an asset.
My first response is always: Why is money worth anything? It is just a piece of paper or digits in your bank account. It has no utilities, you cannot eat it, drive it or sleep beneath it (unless you are very rich).
Money is worth something because we simply acknowledge its value and mutually agree that it is a means of trade, with which we can exchange goods or services.
Similarly, cryptocurrencies are worth something because we agree that they are. In many ways, cryptocurrencies are much more practical than traditional storage of value, such as gold (which by the way is totally useless). As Bitcoin has a fixed volume, at one point no more will ever be made, and thus they will not be subject to inflation and risk of devaluation. Bitcoin and Ethereum are anti-fragile, it is impossible to destroy them. Every single Bitcoin created since 2009 still exists today.
Who is controlling it, how can I trust them not to steal all my money or simply print more?
Decentralization is crucial for cryptocurrencies. Decentralized means that every user on the network has a vote in what direction the currency will develop and no single entity holds all the power. Traditionally computing power determines how many votes you have. Proof of work is the most common way blockchains work. It means that the more computing power you provide to the network, the more votes you will have. No single entity has the ability to control more than 50% of the computing power in a developed cryptocurrency but in theory blockchains are vulnerable to 51% attacks.
Because of this, the users are in power of the currency and can democratically take actions that benefits the majority of the users. Cryptocurrencies and blockchains are in theory truly democratic.
Another fundamental cornerstone of a good cryptocurrency is an opensource code. Every user should have the ability to review the code to make sure that the original developers haven’t created code allowing them to print more of the cryptocurrency or act in a malicious manor.
How is my money kept safe, how can I stop hackers from stealing all of my cryptocurrency?
There are multiple ways you can store your cryptocurrency, some more safe than other.
The simplest way to store you cryptocurrencies are in an online wallet (you can see our guide on how to create your own online wallet under our learn section). In this case, you rely on a third party to store your currency for you. to access your currency, you will need to login over a web browser to see your currencies.
This opens up for some hazards, such as hacking through keyloggers or Trojan horses on your computer. An easy way to additionally secure yourself is to use a 2-factor authentication which every serious online wallet will offer. This will unable hackers to access your account without your secondary device (usually a smart-phone) on which you will receive a temporary code you can use to login.
Of course, sites are also vulnerable to being attacked. This is more rare these days as encryption has gotten better and most sites store the majority of their currencies offline.
A more secure way to store your cryptocurrencies is in a paper or hardware wallet. My personal preference is using a hardware-wallet which will allow you to securely store your Bitcoin or Ethereum offline and out of reach for any hackers. The only way to access them is through a hardware device which you can carry on yourself and can only access through an 8-digit pin-code. The hardware wallet I personally use to store my cryptocurrencies is the Nano Ledger S.
The only people using Bitcoin are criminals, why should I use them?
Indeed, Bitcoin has been used to buy drugs and other illegal services of websites such as Silkroad for a long time.
But simply because something enables the use of criminal activities, should we not use it? Criminals will use it whether we use it or not. What about the internet? Even if it enables a lot of illegal activities, it is still the greatest technological advancement ever. The internet has provided us with tons of possibilities and cryptocurrencies are about to do the same, if we let them.
The utilities of cryptocurrencies are endless, but I will mention some of my personal favorites.
Immediate cheap money transfers – Previously there has been people working overseas in order to support their families in their home country. Banks charge high fees for the transactions, money that may have the ability to change the families future. Through blockchain technology, the third party (in this case the bank) is no longer needed and the worker can provide more money for their family.
Smart contracts allow conflict-free trade without a third party. Smart contracts are programmable contracts to facilitate a trade between two parties. Once the contract has been signed, it is irreversible and thus there is no ability to break it. An example I like to use for this is Uber.
- You want to order an Uber from point A to point B.
- You agree through a smart contract with the driver that the price for this service is 1 Ethereum.
- The smart contract can now be set to pay 1 Ethereum once both yours and the drivers GPS has moved together from location A to location B. Unless this action occurs, there will be no payment.
Storing information – In a blockchain, every single user has access to the full ledger which contains every single transaction ever made. This results in full transparency and zero risk of ever losing the information. Every transaction is easily proven and word-again-word situations are avoided.
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