Fallacies and Conventional Wisdoms about Bitcoin and Cryptocurrency

There are many people that don’t know much or have heard false information about Bitcoin. Bitcoin is a cryptocurrency which takes advantage of a Peer-to-Peer (P2P) connection. A P2P connection is a type of connection that utilizes a direct link between both parties without going through a central server or administrator. Everyone should support the use of Bitcoin because both Bitcoin and any physical currency is used for criminalistic activities, the government supports its use and has organizations in place to keep it under control in terms of legality, and the government can’t get rid of Bitcoin.

Bitcoin has been around since 2009 when the creator, Satoshi Nakamoto, mined the first block of bitcoin which yielded a reward of 50 bitcoins. The block of coins contained text that read “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” (Nakamoto). This was a significant point in the history of online transactions because it was the start of the first decentralized cryptocurrency. Bitcoin is important because of the technology that it uses. Bitcoin uses blockchain computing. Blockchain computing is a decentralized, public ledger that is used to keep a record of transactions across multiple computers so that any involved record cannot be altered. This prevents it from being stolen because every transfer is documented digitally.

Bitcoin is a type of cryptocurrency that is designed to allow a single transaction to be mined in around 10 minutes. Bitcoin uses a special encryption that allows control over the generation of coins and confirming the transaction. Another feature of Bitcoin that makes it different from physical currency is the fact that normal financial systems use physical money, while Bitcoin is completely electronic. Bitcoin doesn’t use physical money because it can be stored in virtual wallets and then transmitted electronically to someone else’s wallet through online transactions, which is the main difference between Bitcoin and physical currency.

Governments create currency to allow the buying and selling of goods. Governments release a specific amount to stimulate or reduce buying in a country. Cryptocurrency also is a form of currency. But it isn’t controlled by any organization or government. Bitcoin is designed to share digital information through cryptography. Using advanced cryptography techniques, cryptocurrency is used to secure transactions and control the creation of new coins, like Bitcoin and other cryptocurrencies. “Cryptocurrency is electricity converted into lines of code with monetary value” (Graydon). Since the coins value is not regulated by any organization or government, they are fully decentralized. This means the value of Bitcoin or other cryptocurrencies is dictated by the amount created through mining.

Bitcoin doesn’t get its value like a regular currency. Cryptocurrency uses a proof-of-work system. This is a type of system that prevents people from spamming the system because it requires work from each user which requires processing power from each system. This means that no one person can control the mining of Bitcoin. In the U.S., gold gets its value from the U.S. Dollar. Gold is a rare resource and requires lots of effort to obtain and then to refine. The rarity of this resource is exactly what gives gold some value which in turn is what gives value to the U.S. Dollar. In contrast, Bitcoin gains it values from “the supply of Bitcoin and market demand for it, the cost of producing a Bitcoin through the mining process, the number of competing cryptocurrencies, and the exchanges it trades on” (Bloomenthal). Bitcoin’s value isn’t based off of another source of value but more based on the people who use it.

Many people believe that Bitcoin shouldn’t be used because it is untraceable and could be used in criminalistic activities. But this doesn’t make sense as official currency is already used for such activities. So taking it away wouldn’t necessarily put an end to its potential use in felonious acts or crime itself. Another reason that Bitcoin should be used is that it is traceable because of the use of the Blockchain network explained earlier. Where traditional currency is only traceable if the holder registers its serial number into a website and another person enters it in then creating a route between the two, Bitcoin is fully traceable. Bitcoin uses a digital ledger stored across multiple devices that logs every transaction. This makes it easy for any person to identify the details of the transaction. There are actually government organizations in place that help slow and stop the use of Bitcoin being used illegally. In conclusion, the fact that Bitcoin is untraceable is a very common misconception and in fact it is safer than any physical currency because it can be traced and the user can be identified. In the case that it was used illegally then the government could trace the origin and person who initiated the transaction.

Another common misconception is that the government has no control over Bitcoin, but the government can actually control Bitcoin indirectly in a couple ways. The first way is by controlling the assets of fiat currencies. A fiat currency is a government issued currency that doesn’t gain it’s value and isn’t backed by gold or silver. They can affect the price by buying and selling in international markets. The second way is by increasing the cost of doing business by putting regulations on it. This is achieved by some states requiring a surety bond or a payment equivalent to the Bitcoin transaction in a fiat currency to insure that they will be paid the full amount. This would make it hard for people to use Bitcoin for transactions which would cause less people to use it. In conclusion, even though the government doesn’t directly control the value and use of Bitcoin they do at least have an influence over its value.

Some people believe that a government can easily get rid of Bitcoin in its entirety. But the truth is, the government can ban its use in the country but it can’t get rid of Bitcoin in the country. China has already made a step against Bitcoin by banning all trade of it in their country, but this one act doesn’t simply get rid of it. Bitcoin is so widely used that it would be very hard to get rid of it completely. Andreas Antonopoulos, a bitcoin enthusiast, said this in response to a question someone asked him if he thought that Bitcoin could be completely gotten rid of, “I don’t worry about that at all, this cannot be done with Bitcoin anymore… Bitcoin has achieved a level of computing that no single nation-state can overthrow it through computation alone.” He is stating that because Bitcoin has so many users that it would be impossible for one nation to overthrow it.

Jay Clayton is the U.S. Securities and Exchange Commision Chairman and he supports Bitcoin. “We have seen historical instances where such a rush into certain investments has benefited our economy and those investors who backed the right ventures,” he said in testimony before the Senate banking committee. “But when our laws are not followed, the risks to all investors are high and numerous –- including risks caused by or related to poor, incorrect or non-existent disclosure, volatility, manipulation, fraud and theft” (Clayton). He supports his opinion because of his position with the SECC. He is correct in everything he is saying. People in high positions in a career that has to do with money and investing agree with Bitcoin which puts a good reputation on Bitcoin itself.

Nicholas Weaver is a Security Researcher who publish an essay talking about flaws with Bitcoin. He says that he admires Bitcoin because of the science and engineering behind it. “It's an incredibly clever piece of cryptographic engineering, especially the proof-of-work as a way of maintaining an indelible history and a signature scheme which, when properly used, can limit the damage that might be done by an adversary with a quantum computer” (Weaver). “Without an undo/back button, it's only possible to prevent fraud. With an undo, it would also be possible to detect and mitigate fraud; to see that something bad happened and then actually do something about it” (Weaver). He is saying that Bitcoin needs a way for its users to undo purchases if they change their mind about the purchase.

Weaver first brings up the point of Bitcoin not having a “back button” when it comes to purchases. He believes this because he did research on the Bitcoin system. While this is true that transactions cannot be reversed, there are certain places that will allow you to reverse a transaction. They do this by simply having you return something or show proof of the order and then they either give you a partial or full refund depending on the items involved. While Weaver is technically correct his answer doesn’t fully consider all circumstances. His answer only looks at the core function of Bitcoin and not what the individual miner could do. With these businesses that do these return, this system could spread and be used in more and more places as Bitcoin grows and advances.

Weaver brings up another point about Bitcoin being very easy to steal. “To steal a million dollars hidden under mattresses, a thief needs to break into thousands of homes, to steal a million dollars from a typical business's bank account, thieves need to transfer it to a network of roughly 100 money mules” (Weaver). He is saying that to steal real currency you have to do actual work, whereas when you want to steal Bitcoin all you have to do is get the owner’s wallet code. Bitcoin is stored in an online wallet which is linked to a string of numbers and letters used to make purchases. In reality it would actually be very hard to steal Bitcoin from someone. Even if you have their wallet code you have to first figure out which service they use for their wallet. Then you would have to figure out their login information and then approve the transaction. In theory the steps to steal someone’s Bitcoins would be easy, the chances of someone other than the owner being able to do this is very slim.

In conclusion, Bitcoin is good for the economy and should be used by more people. The technology behind it is very important not just for cryptocurrencies but for computing as a whole. People say Bitcoin can be used for felonious activities but we have to keep in mind that the U.S. dollar and other currencies can be as well. Whether people want to use Bitcoin or not, it will always be around and one country wouldn’t be able to get rid of Bitcoin completely. There are many people who have been falsely informed about Bitcoin which results in people not liking or agreeing with Bitcoin with false info.