11 Misconceptions About Cryptocurrency, NFTs, and More

Some folks love cryptocurrency and see a decentralized digital future because the pure evolution of banking. Others see crypto as a passing fad designed to bilk folks out of their financial savings. After which there are the remainder of us, nodding politely as we quietly marvel why anybody would make investments 1000’s of {dollars} right into a digital foreign money based mostly on a canine meme.

Beneath, we talk about Bitcoin’s pseudo-anonymity, clarify how these currencies relate to NFTs, and debate whether or not 99 p.c of Bitcoin is admittedly owned by a handful of customers.

1. Misconception: There’s an infinite supply of Bitcoin.
2. Misconception: Crypto is guaranteed to go up in value.
3. Misconception: All crypto has an equal environmental impact.
4. Misconception: Cryptocurrency always functions as a currency.
5. Misconception: All cryptocurrency is Bitcoin.
6. Misconception: 10 percent of Bitcoin owners own 99 percent of Bitcoins.
7. Misconception: Cryptocurrencies aren’t backed by anything.
8. Misconception: A dip in the crypto market proves the doubters wrong.
9. Misconception: All crypto transactions are eternally anonymous.
10. Misconception: NFTs are cryptocurrency.
11. Misconception: Governments aren’t recognizing (or taxing) cryptocurrency.

False impression: There’s an infinite provide of Bitcoin.

A part of what makes it so onerous for folks to even wrap their minds round cryptocurrency is that it’s not tangible. There isn’t a bodily cryptocurrency. The paper cash in our wallets and financial institution accounts holds a sure worth, and there’s solely a lot of that money in circulation at any given time. This, in idea, retains that worth in examine. Print an excessive amount of cash, and the worth drops and inflation rises.

However cryptocurrencies appear to be the alternative—they exist solely within the digital world and aren’t monitored or printed by a authorities. So, in idea, one thing like Bitcoin might be mined and acquired in perpetuity by people till it’s basically nugatory.

Effectively, that’s not fairly proper. Bitcoin was designed particularly to have a restricted provide with a purpose to forestall inflation and retain its worth. And the complicated system in place to keep up that restricted provide is fairly ingenious.

When the creators of Bitcoin—who function underneath the Satoshi Nakamoto pseudonym—thought up this complete enterprise, they knew they wanted to place a cap on their digital foreign money to protect its worth. They settled on a grand whole of 21 million units—that’s all of the Bitcoin that can ever exist earlier than the world hits the tip of the highway.

However these 21 million items weren’t given to the general public directly—every new batch of Bitcoin first must be mined earlier than being launched. That requires a high-end pc mining rig, or a number of rigs, to unravel a fancy math puzzle. These puzzles have been described as each guesswork and a lottery. It’s stated that every one may have as many as 4 billion possible solutions, and it takes an entire lot of computing energy to quickly guess all of these prospects.

The primary miner or group of miners to unravel a given puzzle is rewarded by the Bitcoin community with a set quantity of cash, which in April 2022 was round 3.125 coins, equal to about $248,000 as of April 9, 2025.

That reward is simply a part of it: The mining course of additionally creates new blocks for the blockchain, a form of digital ledger for all Bitcoin-based transactions to be recorded and saved. Round 144 blocks are added per day and every accommodates around 500 transactions. Including new blocks to the blockchain mainly works to verify any Bitcoin transactions in progress. Consider it as a alternative in your financial institution verifying all your bank card purchases. As a substitute of a government like JP Morgan, it’s a peer-to-peer system with out borders and with none one entity in cost.

There are tens of millions of miners on the market working across the clock, so transactions—like one individual sending Bitcoin to a different—are sometimes verified within 10 minutes or so, relying on the quantity. So, sure, mining does yield new Bitcoin, nevertheless it additionally makes the entire blockchain system go ‘spherical by verifying the transactions happening.

To struggle towards inflation, blocks are designed to yield 50 percent fewer Bitcoins after each 210,000 blocks are launched. That normally takes round 4 years or so. Mainly, the extra we squeeze the orange, the much less juice we’re getting.

The creators had been apparently considering many years forward when arising with this technique as a result of, whereas we’ve already mined greater than 19 million Bitcoins, it’s estimated that all the provide received’t be absolutely accessible to the general public till 2140, because of the lowering yields.

And that’s simply the way in which Bitcoin works—different cryptocurrencies function utterly otherwise, from the way in which the blockchain is verified to the real-world property that again them. However we’ll get to all of that in a minute.

False impression: Crypto is assured to go up in worth.

Whereas Bitcoin’s self-imposed shortage is designed to protect its worth over the lengthy haul, it’s not a assure that costs will go up, regardless of what passionate crypto evangelists may say on social media. If there’s no demand for a coin—say, if it by no means turns into a common cost choice, or if speculative curiosity dries up—it received’t admire in worth, regardless of how tightly the availability is managed. Shortage alone doesn’t assure worth.

False impression: All crypto has an equal environmental impression.

Bitcoin mining is an extremely fascinating system, however its impression on the atmosphere can’t be ignored: These tens of millions of crypto miners out on the earth all use beefy pc rigs that must carry out complicated computing. That requires time, space for storing, and, most significantly, power. It’s estimated that the mixed power utilization of Bitcoin miners is 91 terawatt-hours of electrical energy yearly, which is greater than what’s utilized by all the nation of Finland yearly, according to The New York Instances.

However not all cryptocurrencies are created equal. Bitcoin’s system of utilizing miners to unravel math equations to confirm and add to the blockchain is known as Proof of Work. It makes for an especially safe foreign money, nevertheless it’s additionally a big-time power drain. Different cryptocurrencies—like Solana, Terra and Cardano—use a system known as Proof of Stake. On this system, people who personal a specific amount of a particular cryptocurrency can provide to validate blocks of transactions so as to add to that foreign money’s blockchain. Just like the identify suggests, they do that by becoming a member of a gaggle of randomly selected validators and placing their very own cash at stake, like collateral, till the validation is confirmed. As soon as confirmed by the consensus, the validators may get some cryptocurrency or a portion of the transaction charges related to the transactions within the block as a reward. If a validator doesn’t do their job—in the event that they go offline or attempt to assault the community, for instance—some or all of their stake might be taken away in a course of known as “slashing.” By relying on people with precise pores and skin within the sport, it’s alleged to be an sincere system.

Each strategies use pc algorithms to validate transactions on the blockchain, however since Proof of Stake doesn’t require tens of millions of miners competing with one another with the largest machines attainable, the power utilization is way decrease. Some estimates put it at 99 percent lower.

Even amongst proof-of-stake cryptocurrencies, although, there might be important deviation in power consumption. The way in which networks are arrange and the precise {hardware} used to validate transactions can all have an effect on the environmental impression of a given coin.

False impression: Cryptocurrency at all times features as a foreign money.

When Bitcoin first hit the mainstream, the final thought was that it will ultimately stake a declare as a real digital foreign money that reduce out banks and allowed folks to simply make transactions anyplace on the earth. However regardless of gaining in worth through the years, it hasn’t fairly grow to be that—no cryptocurrency has. It nonetheless isn’t a readily accepted technique of cost within the U.S. or across the globe.

Even in El Salvador, the place Bitcoin is authorized tender, solely one-fifth of companies settle for it. In case you’re seeking to spend your Bitcoin or Ether on real-world items or companies, you’re in all probability caught going by way of a third-party app like Flexa. And even then, you’ll doubtless be hit with excessive charges and transaction instances of as much as 10 minutes or extra. Proper now, essentially the most handy factor to do with crypto is to purchase extra crypto, or to liquidate it for a extra conventional foreign money.

As a result of crypto doesn’t precisely act like a foreign money, the U.S. authorities has settled on classifying it as a commodity [PDF]. The definition of commodity is fairly broad, however crypto does meet sure necessities: Like different exhaustible sources, it has a fixed supply and you may have interaction in futures trading with it, that means you’ll be able to have a contract to purchase or promote a particular crypto when it hits a sure value at a future date.

To many individuals, crypto is solely an funding like a inventory. And a extremely speculative one at that, topic to massive swings. All that stated, do not forget that a commodity right now may evolve right into a foreign money down the highway, and there’s nonetheless a risk that crypto will ultimately grow to be a handy manner for folks world wide, particularly in growing international locations, to have interaction in conventional purchases with out the necessity for a centralized financial institution.

False impression: All cryptocurrency is Bitcoin.

We’ve talked rather a lot about Bitcoin to date, and that’s solely pure as a result of it’s by far the most well-liked cryptocurrency. However there are millions of totally different cash on the market, every with their very own quirks and guidelines. Some have a restricted provide, some don’t. Some have extra attention-grabbing capabilities, like Ether, which is known as after the blockchain it lives on that can be utilized to create NFTs. And a few are simply gimmicks, just like the unauthorized Coinye modeled on Kanye West that was largely cease-and-desisted out of existence. Then you definitely’ve obtained the less-litigious Cthulhu Choices, based mostly on the general public area character from H. P. Lovecraft. The world isn’t prepared for a season 2 of Lovecraft Nation all about crypto bros.

False impression: 10 p.c of Bitcoin homeowners personal 99 p.c of Bitcoins.

One extremely publicized report from Bloomberg again in November 2020 acknowledged that researchers at Flipside Crypto discovered that 2 p.c of accounts management 95 p.c of all Bitcoin. Different sources have listed these 10 p.c and 99 p.c figures talked about above. If true, these whales may manipulate costs at will with shady pump-and-dump schemes and completely management all points of the market.

However these figures are vastly overstated, according to Rafael Schultze-Kraft, a researcher for Glassnode, which describes itself as a “blockchain knowledge and intelligence supplier.“

Schultze-Kraft argues that the report Bloomberg referenced checked out Bitcoin addresses, that are totally different from a person individual’s Bitcoin account. A single trade deal with, for instance, may maintain the funds for tens of millions of customers, that means much more people concerned than you may understand.

You may debate how significant that distinction is. Theoretically, in an unregulated market, a big trade may unilaterally transfer its customers’ crypto round if these customers weren’t holding their property in regionally saved {hardware} “wallets.” The dangers of hackers having access to a web based pockets system are actual, as you may need seen in tales of crypto theft.

In observe, although, massive exchanges like CoinBase don’t actually function like a single energy person in the way in which the Bloomberg stat may counsel. A major share of a token being held by tens of millions of various customers on CoinBase isn’t actually the identical factor as one individual proudly owning half of all bitcoins.

That being stated, crypto whales are on the market, and Bitcoin is definitely no exception. These whales purchase up an inordinate quantity of those currencies and do play an enormous half of their worth. When Schultze-Kraft went by way of the info, he discovered that whale exercise is certainly rising however the determine is extra like 2 p.c of community entities controlling 71.5 p.c of all Bitcoin. It’s nonetheless rather a lot—nevertheless it’s not as dire as some experiences would have you ever consider. And for what it’s price, the focus of possession isn’t an issue distinctive to crypto. For comparability, it’s estimated that the wealthiest 10 p.c of People owns 89 p.c of all U.S. shares.

False impression: Cryptocurrencies aren’t backed by something.

In case you’re involved that cryptocurrencies aren’t backed by any property to assist them keep their worth, you could have an interest to study Stablecoins. These cryptocurrencies are normally backed by some kind of real-world commodity, like conventional foreign money or treasured metals. Essentially the most notable examples are Pax Gold and Tether Gold. These are gold-backed cryptos which can be price the identical as one troy ounce of gold, according to Fortune. A troy ounce is a unit of measurement courting again to the Center Ages when it was utilized in Troyes, France. One troy ounce equals about 31 grams or so, and when the worth of gold goes up in the true world, so does the Stablecoin.

The attention-grabbing factor about gold-backed crypto is you could trade it for actual gold. That is harking back to the many years the US spent on the gold standard, the place you would commerce in $20.67 for an oz of gold. FDR put the kibosh on that in 1933 and all remaining ties to the gold normal had been put to mattress in the 1970s. Since then, the U.S. has operated on a fiat money system, which mainly means the U.S. greenback is backed by the property and energy of the federal government itself.

Having a digital foreign money backed by a bodily commodity may sound counterproductive, however asset-backed cash like this exist to chop down on the unpredictable nature of crypto. That’s the speculation anyway. In Might 2022, as crypto values dropped throughout the board, Tether, a Stablecoin that’s alleged to have a one-to-one value with the U.S. greenback, dipped all the way down to 95 cents in worth. Others fared far worse. terraUSD, an algorithmic stablecoin with an identical $1 peg, sank beneath 30 cents.

False impression: A dip within the crypto market proves the doubters incorrect.

In November 2021, the crypto market was valued at $3.1 trillion, and enthusiasm world wide for digital foreign money had by no means been greater. Quick-forward to May 2022, and the underside dropped out, leading to a $2 trillion loss throughout all the trade on the again of inflation woes and different assorted financial fears. It was a staggering crash, one which many cryptocurrencies doubtless received’t ever absolutely recuperate from. So, is that it? Did the bubble that so many individuals had been ready to burst lastly blow?

Whereas nobody is aware of for positive what crypto will appear to be even a yr down the highway, all it’s a must to do is return to 2018 to understand {that a} risky market like crypto has bounced again from crashes earlier than. That yr, Bitcoin shed 37 p.c of its worth at one level, losing $70 billion and falling beneath $4000 per coin within the course of. It was declared useless then, simply because it was declared useless in Might 2022. However in case you had put cash into Bitcoin when it hit all-time low in 2018, you would have taken benefit of a historic bull market that rose from the crash’s aftermath and peaked in November 2021, when Bitcoin topped out at $68,800 a share. Anybody transfer in a coin’s value—even a dramatic transfer that causes very actual monetary hardship for many individuals—isn’t essentially a loss of life sentence.

Now, let’s be 100% clear: simply as a significant dip isn’t a assure of a coin going to zero, it’s additionally not a assure that previous recoveries are going to repeat themselves. You may suppose you’re shopping for low, solely to see costs proceed to drop all the way in which to zero. There aren’t any ensures in investing and a really clever rule of thumb is that you just shouldn’t put in something you could’t afford to lose. (If it wasn’t apparent to you already, we’re not monetary advisors.) Whether or not the supply you’re listening to is bullish or bearish on crypto, be cautious of anybody who says they know for positive what the longer term holds.

False impression: All crypto transactions are eternally nameless.

Opposite to clichés, your crypto transactions are all considerably publicly seen on the blockchain, which, once more, is sort of a digital ledger. In case you transfer your funds to a special account or purchase something with it, there’s a document of it.

Crypto’s anonymity pertains to the digital wallets used to ship, obtain, and retailer foreign money. Let’s use Bitcoin once more for example: To make a transaction, you’ll ship the agreed-upon crypto to a recipient’s digital Bitcoin wallet by way of a digital deal with created by the pockets. The addresses themselves use a mixture of numbers and letters—no names—and so they element the transaction and the remaining stability. This transaction is public, nevertheless it solely reveals the nonsensical deal with, not a username. That stated, if anybody may link your wallet to an address, by way of hacking or different means, they’ll be capable to see your transactions out within the open on the blockchain.

This type of visibility is a crucial device when the federal government pursues crypto-related crimes. In February 2022, Ilya Lichtenstein, 34, and his spouse, Heather Morgan, had been arrested in Manhattan on conspiracy fees that they meant to launder $4.5 billion in stolen cryptocurrency. This was one of many highest-profile crypto-related arrests within the U.S., and in an announcement, Assistant Legal professional Common Kenneth A. Well mannered Jr. of the Justice Division’s Felony Division careworn that “we will comply with cash by way of the blockchain, and that we are going to not permit cryptocurrency to be a protected haven for cash laundering or a zone of lawlessness inside our monetary system.”

So, sure, it’s far tougher to trace crypto transactions than conventional digital banking transactions, but when the proper of knowledge ever obtained out, then each transfer you make is open for the world to see. Particularly the federal government.

False impression: NFTs are cryptocurrency.

NFTs and cryptocurrency typically get conflated into one complicated digital stew, however they don’t seem to be interchangeable phrases. The NF in NFT stands for non-fungible, which is the entire purpose individuals are drawn to them. A fungible asset might be changed or traded for one more of equal worth: A $1 invoice might be changed by one other $1 invoice and it nonetheless stays price $1. It could actually then be cut up into 4 quarters or 10 dimes. NFTs are digital property—most famously photographs, however generally music, domains, or virtually the rest you’ll be able to dream up—and so they all have distinctive digital signatures, so each holds a particular worth.

The simplest strategy to equate it to one thing in the true world is to take a look at baseball playing cards. Say you have got a mint-condition 1973 Carl Yastrzemski baseball card when he had the massive sideburns. You could possibly promote it for an estimated $1300 or so. However you loaned it to a good friend for just a few days, and so they got here again with two playing cards that includes gamers with normal-sized sideburns. Even when the financial worth of the 2 playing cards combines to be $1300, it’s not the identical as the unique card. Even a special copy of the identical card may not have the identical worth. They’re not interchangeable property with a set worth—similar with NFTs. A Bitcoin, then again, will at all times be price simply as a lot as some other Bitcoin. In that manner, it’s fungible.

False impression: Governments aren’t recognizing (or taxing) cryptocurrency.

Governments world wide are nonetheless feeling out the entire cryptocurrency factor, and that’s led to a whole lot of confusion over what’s authorized to do with crypto and the place you are able to do it. In some locations, like China, Egypt, Morocco, and Bangladesh, cryptocurrencies are banned outright. In the meantime, in Europe, many international locations are embracing them. Within the Swiss metropolis of Lugano, for instance, now you can use Bitcoin and Tether to instantly pay taxes and for items and different companies. It’s a small experiment, nevertheless it could possibly be a glimpse at how these currencies might be built-in by governments at a bigger scale throughout the continent.

In the US, cryptocurrencies are authorized however are not legal tender, that means the federal government doesn’t acknowledge them for settling money owed. Nonetheless, that doesn’t imply the U.S. doesn’t nonetheless need in on the motion. In 2022, Colorado grew to become the primary state to just accept crypto funds for taxes and different charges like searching licenses. To truly get the cash, the state had an middleman convert the crypto to {dollars}.

Different states, like California, have proposed related payments that might permit folks to pay for DMV charges and different government-associated bills utilizing sure cryptocurrencies.

Because the states determine how they need to make the most of crypto, Uncle Sam is sticking to his traditional playbook: He’s going to tax it. Within the eyes of the federal authorities, any good points you see from promoting crypto might be handled like some other inventory or property you promote. It must be reported in your federal earnings tax, and you can be charged by the IRS accordingly.

And in case you occur to run a enterprise that accepts Bitcoin as cost, you’d should understand how a lot Bitcoin was buying and selling at on the times you had been paid in it and convert it to U.S. {dollars} in your tax return [PDF]. In brief: Put together to do an entire lot of paperwork in case you’re absolutely embracing the crypto life-style.