What Is Bitcoin? Addressing Seven Most Common Misconceptions About Bitcoin

Bitcoin is the most popular cryptocurrency in the world. If you want to know which digital currency started the cryptocurrency craze, then the credit goes to Bitcoin. It is also the largest cryptocurrency in the world, leaving other digital currencies, like Ethereum, a distant second. You can call bitcoin the original digital currency that started it all.

There is a lot of buzz around bitcoin, and it has attracted a significant amount of interest from crypto-enthusiasts and institutional investors. However, despite the interest in cryptocurrency, there are several misconceptions about bitcoin and its nature, security, and technology. Even a simple question like “What is Bitcoin?” could evoke a confused response.

So, let’s tackle these misconceptions and dispel them, helping people understand Bitcoin a little bit better. But before we start, we must understand, what is bitcoin?

What is Bitcoin?

Bitcoin’s domain name, “bitcoin.org,” was registered on 18th August 2008. After a few months, a whitepaper titled “A Peer-to-Peer Electronic Cash System” was published. Bitcoin’s network officially came into existence on 3rd January 2009, when bitcoin’s genesis block was mined.

Bitcoin was created by a group of people or an anonymous person going by the name Satoshi Nakamoto. According to Satoshi Nakamoto, Bitcoin’s main goal is to create a decentralized, peer-to-peer, electronic cash system that would be free from the influence of a central authority or central bank. In 2010, Satoshi Nakamoto left Bitcoin, leaving it in the hands of a few prominent BTC community members.

Bitcoin is a virtual currency that works on a public ledger called the blockchain. The blockchain records every transaction on the bitcoin network. Every transaction confirmed on the bitcoin network is added as a block in the blockchain. Bitcoin miners verify each transaction on the network by solving a complex mathematical problem. Once the miners solve the problem, the transaction is confirmed and added to the blockchain. As a result of this process, new bitcoins are mined or created. This process is called mining.

Bitcoin miners are rewarded for verifying transactions and adding blocks to the blockchain. However, the reward is halved every 210,000 blocks. The current reward for miners stands at 6.25 BTC. New Bitcoins are released at a declining rate, and the total number of bitcoins is capped at 21 million.

One bitcoin can be further divided into smaller units, called Satoshis, and it can be divided further into eight decimal places.

Bitcoin is Blockchain

One common misconception that people believe is that bitcoin is blockchain. Bitcoin is a cryptocurrency that runs on blockchain technology. Yes, bitcoin wouldn’t function without blockchain technology, but that does not mean bitcoin is blockchain or blockchain is bitcoin. Blockchain is a technology that is used by several industries, and cryptocurrencies like bitcoin happen to be one of them.

To give an analogy, Bitcoin is a car, and blockchain technology is the road that the car runs on. Blockchain technology enables bitcoin to function. Bitcoin requires blockchain to function, but the two are completely different from each other.

Bitcoin is Not Secure

With bitcoin and other cryptocurrencies increasing in popularity, there has also been an increase in scams and thefts. In some cases, cryptocurrency exchanges were targeted, while in others, hackers targeted vulnerabilities in crypto wallets. Hackers and thieves also relied on human errors on the part of bitcoin users to steal cryptocurrencies. So obviously, investors and traders who buy bitcoin are worried about the security of the cryptocurrency. Does this mean bitcoin is not secure?

No, Bitcoin is among the most secure assets that you can buy. The technology behind bitcoin is among the most secure technology in the world, almost immune to attack. Hacker attacks on a cryptocurrency exchange do not reflect on the security of the cryptocurrency but the exchange’s security in question.

Bitcoin is Untaxable

Some countries don’t impose taxes on cryptocurrencies like bitcoin. But to say that bitcoin is un-taxable is plain wrong. Some tax havens charge an extremely low level of tax, but that does not mean we conclude that traditional fiat currency cannot be taxed.

However, each country has its own tax laws, and the same applies to cryptocurrencies like bitcoin as well. Countries like Canada, Netherlands, South Korea, and several others have already framed laws and alerted taxpayers who dabble in cryptocurrencies about the taxes they would have to pay.

The taxation of bitcoin depends on the tax laws in different countries and how each country perceives digital assets. Some countries consider them to be capital gain and tax them accordingly. If you want to know how to pay taxes on your crypto as a Canadian. Check out our guide here.

You Can Only Get Bitcoin by Mining

One way in which you can get bitcoins is through bitcoin mining. However, you can get bitcoins through other ways as well. If you want to buy bitcoins, you can create an account on a crypto trading platform like VirgoCX, and then buy bitcoin. You can also get them from peer-to-peer exchanges. You can also buy bitcoins directly using a Bitcoin ATM. Learn more about how to buy bitcoin here.

There are an Unlimited Number of Bitcoins

This is also not true. Bitcoin is a finite asset, and the total number of bitcoins has been capped at 21 million. Currently, there are 18,660,000 bitcoins in circulation. Bitcoin is an asset that is decreasing in supply. The reward for miners is halved every 210,000 blocks. The cap on the number of bitcoins there can also play a significant role in bitcoin price.

a person silhouette in front of a digital background
Photo by Chris Yang on Unsplash

Bitcoin is Anonymous

A lot of people describe bitcoins as anonymous because you can buy or sell bitcoin without having to disclose any personal information. However, that isn’t entirely true. The blockchain records each transaction, the wallet address is also recorded, which means that each transaction linked to a user public key can be traced. Technically, this information in conjunction with other accompanying information can be used to link transactions to your real identity.

Bitcoin is Not Scalable 

A general criticism of bitcoin is that the cryptocurrency is not scalable, with slow transaction speeds limiting its use in daily transactions and slowing down its adoption as a mode of payment. This was one of the key reasons for the hard fork that led to the creation of bitcoin cash. 

The creators of bitcoin cash wanted to increase the speed of transactions and increase the block size so that it could handle more transactions per second.

Even though other currencies like bitcoin cash can increase their transaction speeds and block sizes, they do so at the cost of less decentralization and lower security. This is why bitcoin can be thought of more as a store-of-value than a practical payment system.

Conclusion

For those of you who are early in the learning curve, check out our blog to learn more about bitcoin and other cryptocurrencies.

two bitcoin coins on rocks and leaves
Photo by Executium on Unsplash

Disclaimer:No Investment AdviceThe contents of this article are for informational purposes only and are not intended as, and shall not be understood or construed as, investment advice, financial advice or trading advice. There are substantial risks associated with the trading of cryptocurrencies and you should consult with a licensed financial advisor prior to making any trading or investment decisions.Content Not WarrantedThe contents of this article are provided “as is” and without warranties of any kind. You bear all risks associated with the use of the content provided including without limitation, any reliance on the accuracy, completeness or usefulness of any content available within this article. 


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