Following on from last week, we continue to bust some of the most prolific myths surrounding the emerging development of cryptocurrencies.
Myth #5: Cryptocurrency is only a currency
Actually, cryptocurrency at its most basic level is a form of technology that allows applications to be developed, while it does have some characteristics of a currency, its potential can take it far beyond that. The cryptographic based math problems that comprise a bitcoin are a series of algorithms that enable cryptocurrency to function as a public ledger. This comprehensive public ledger records transactions going in and out of the network at rapid speeds with a time stamp. The ongoing reliability of the ledger is crucial, if the ledger were to stop working, be changed or altered in any way, even for just a few moments, the entire block-chain could collapse. The immunity of the ledger from possible interruption or adaptation gives greater potential value as a system that records masses of data with a time stamp. Other industries that could benefit from such a comprehensive public ledger, include home and car titles, stocks and bonds, notary public documents, voting, registration of domain names and copyrights or patents.
Myth #6: Cryptocurrencies have no intrinsic value
A major myth undermining the value of cryptocurrencies is the perception that it has no inherent value. In order for any currency to have value, it must meet the following criteria;
- Be a means of exchange
- Able to represent value
- Able to represent a unit of value
- Divisible
- Durable
- Fungible (exchanged with something else of equivalent value)
- Verifiable
The reality is that no currency has inherent value, money is merely a medium that allows people to trade goods and services in an efficient manner. All commerce is merely a series of trades where I might sell gold if you were willing to pay for it with a Picasso painting. In this sense, cryptocurrencies have value like all currencies have value to the extent that it can be used as a medium of exchange.
Myth #7: Cryptocurrencies are too volatile to be used for purchasing
Indeed the value of cryptocurrencies are extremely volatile, to the extent that it is not uncommon for the price of bitcoin to change by 10%, 20% and even 30% in the course of just one day. Yet there are already solutions in place that have made the high levels of volatility irrelevant. Bit-Pay, one of the largest bitcoin payment processors, developed a system where the instant a cryptocurrency transaction takes place the bitcoin payment is converted into a fiat currency. So that the merchant receives $10 of bitcoin value, irrespective of how bitcoin performs in the moments after the purchase transaction. This solution of incorporating some artificial stability into the currency has contributed to over 90,000 merchants now accepting Bitcoin and a growth in the bitcoin ATM industry. Some brands that now accepting bitcoin payment include Expedia, Dell, Overstock and Virgin.
The motivation for merchants to accept cryptocurrency are numerous. Cryptocurrencies tend to have smaller processing fees of approximately 1% while credit cards tend to incur a fee of around 3-5%. The payment times are faster, where the time of a transaction can take 24-48 hours as compared to 7 to 21 days. Cryptocurrencies do not allow for any chargebacks and it allows for international customers with the ease and speed that is equivalent to sending an email.
Myth #8: Cryptocurrencies are unresponsive to real world issues
Deemed as being tied to the world of cyber reality, Bitcoin surprisingly comes up as an ideal solution to numerous global problems. Here are just a few;
Remittance – Reportedly every year $500 billion is sent across the world via international remittance payments. Take for example an Indian immigrant working in Australia, who has family in India that rely on the portion of his income that he sends back home. Using companies such as Western Union will see a critical 10-20% cut from the payment sent home in conversion fees and transaction costs. By using Bitcoin, the Indian worker is able to send funds to his family instantly, with the equivalent ease of sending an email, plus there is no remitter or middle man taking a slice.
Volatile global currencies – Countries such as Zimbabwe, Argentina and Venezuela, suffer from extremely volatile local currencies to the extent that workers in Zimbabwe insisted on being paid in the morning, because by the time they were paid after work in the evening, they knew the currency would be worth far less. The benefit of using cryptocurrency instead of a local currency is that its value is calculated on a global basis. Furthermore as a decentralized technology no one government is able to manipulate its value.
At the end of the day, if you’re thinking about trading this currency, the best solution might well be to take an approach of “wait and see”. The relative volatility of cryptocurrencies means the associated spreads are currently enormous. Once the spreads come down, it not only makes it a more economical currency to trade but it’s also a strong indicator that the currency is normalizing into the market. With benefits for everyone to enjoy.