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Bitcoin has become frequently talked about in the financial media. Despite this the general public is still relatively under informed when it comes to this digital currency.
In a January 2014 poll it was found that only 25% of US adults were familiar with Bitcoin. This means that there is still significant room to educate the general public about the advantages of using a peer-to-peer digital currency. To address some of those knowledge gaps here are some of the most common myths about Bitcoin as well some of its key benefits.
Myth #1: Bitcoin is no different to any other digital currency
There have been many other digital currencies in the past, including Beenz, Liberty Dollars and eGold. However these digital currencies are not the same as Bitcoin. These digital currencies were subject to control by financial regulators, governments and central banks. As a consequence they could only be issued according to the permission of these third parties. These third parties could destroy the currency or impose their own controls. Bitcoin is decentralised and therefore it is not subject to these types of controls.
Myth #2: Bitcoin is a Ponzi scheme
One of the most common attacks on that coin is that it is some type of Ponzi scheme. A Ponzi scheme uses funds from new investors in order to pay out the original ones. The nature of the Ponzi scheme is that at some point it must inevitably collapse. Bitcoin is different in that any investor in the currency can benefit. Bitcoin is not an investment scheme but a rather a decentralised peer-to-peer currency that is useful both as a store of value and as a means of exchange. As Bitcoin rises in value relative to other currencies both early and later adopters benefit.
Myth #3 : There are no benefits to Bitcoin beyond its investment value
This is quite untrue as Bitcoin has a number of advantages over both fiat currencies and gold. Compared to a fiat currency, such as US dollars, Bitcoin is anonymous, faster to transfer, not based on debt, limited in supply, and not controlled by central authority. As a consequence governments cannot simply print more Bitcoins when they want to stimulate the economy.
Because of the dangers of a Fiat currency many people have called for a return to the gold backed system. However Bitcoin has a number of advantages over gold including being easier to secure, verify and to transfer.
Negatives associated with Bitcoin
Most of the negative press that has been associated with Bitcoin has to do with Bitcoin exchange platforms. These are places where but coins can be exchanged for sovereign currencies and other digital currencies. The largest of these exchanges was Mt Gox which was based in Japan. By 2013 it was handling 70% of all Bitcoin transactions.
In February 2014 it suspended trading and close its website. At the time 850,000 Bitcoins which had the equivalent value of US$450 million went missing. Since that time 200,000 of these Bitcoins have been found but the rest remain missing. It’s important to note that the dangers in the system lay with Mt Gox which was insecure and poorly managed, rather than than Bitcoin itself.
It is important that all citizens understand what Bitcoin is and its implications for the economy. As Nobel Peace Prize nominee Leon Louw has noted:
‘Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.’
