The world of cryptography is complex and sometimes overwhelming. You can find a variety of different arguments and opinions that can make it difficult to separate the signal from the noise. We solve the five biggest misunderstandings when it comes to cryptocurrencies.
Misconception # 1: Crypto is always great for criminals
Cryptography is often promoted as a hiding place for criminal activities. However, because encryption is generally not private, it is a bad choice to hide your financial transactions.
People may believe that cryptography is the land of scammers and thieves because there are often hacks that are headlines in the mainstream media. But the fact is that many of these hackers failed to get away with their looting because their actions were transmitted to the world in public blockchain chains.
In fact, many of these hackers or criminals were unable to move the stolen funds, or were eventually captured. Blockchain networks and their transparency allow them to detect and eradicate crime in real time, making them a poor place for illicit activities.
Misconception # 2: Crypto will always use a lot of energy
There are different mechanisms used by blockchains to protect the network. The most common solutions are Proof of Work and Proof of Stake. Proof of Work uses complex mathematical problems that require a lot of computing power, which means that more energy is used to verify the string.
However, Proof of Stake uses approximately 99% less energy than Proof of Work because users bet some of their tokens as a deposit for being a good player in verifying transactions. There is no complicated calculation to validate the string.
Many newer blockchains are using Proof of Stake to protect their networks, such as Solana, Avalanche, Terra, and Tezos. In addition, there is a growing trend to incorporate sustainability and environmental management into the core infrastructure of blockchains.
Misconception number 3: All cryptocurrencies and blockchains are the same
There are crucial differences between blockchains. The cryptographic world consists of a kaleidoscope of networks and communities with a wide range of core values and use cases. The way a blockchain network is designed has many implications for its applications and users.
One source of variation in blockchains is that performance compensation or decentralization often requires balancing the security, execution, and data storage layers of a blockchain. The choices engineers make when creating the architecture of a chain have important subsequent effects on the culture and applications that develop around a blockchain.
Some blockchains are built for maximum security and uptime and lack the ability to host applications, while others are more agile and fluid, but leave more vulnerabilities on the desktop as a result. Smart contract blockchains like Ethereum or Solana give developers the ability to build applications on top of them, while other chains focus on specific use cases like NFT or games. It is important to remember that the code used influences the behavior of its users and the communities that end up coming together around a certain blockchain.
Misconception # 4: All Blockchain networks are expensive and inefficient
You may have heard that fees are expensive to make transactions using blockchain networks and that transactions take a long time to settle. While this may sometimes be the case with certain blockchains like Ethereum, this is not true. Many blockchain networks are quite cheap and efficient like Solana, where it costs less than a nickel to make transactions and transactions are settled in seconds.
Because of the way blockchain networks are designed with security as a priority, they charge user transaction fees that are distributed to miners or validators who help protect the blockchain network. Rates vary greatly depending on the design of a specific blockchain, and rates also vary depending on how busy the network is at any given time.
There are also solutions to reduce gas tariffs in Ethereum with a second layer of infrastructure, called Layer 2s, which share the security guarantees of the Ethereum base chain but allow for higher data performance and therefore reduce tariffs.
Mistake number 5: Cryptocurrencies are a fad
Innovations in digital asset technology are still in their infancy, but their impact will be wide and deep. Although some cryptocurrencies enter and exit bullish or bearish markets, the growth and global expansion of the financial and decentralized cryptocurrency ecosystem seems to be here. Money is a tool of human coordination that has changed shape many times throughout human history, and cryptography is another stage in this evolution.
The shift to cryptocurrencies and digital assets is already transforming many aspects of culture. The blockchain technology in which cryptocurrencies are built is a significant improvement in security and payments because they eliminate the intermediaries that often cause bureaucracy, inefficiencies, and overhead that can be eliminated by switching to blockchain solutions. Using smart contract technology, the code can act as a trusted intermediary to ensure the secure and verifiable transfer of assets from one party to another rather than being a law firm or other third party company.
By offering more efficient ways of doing business, sharing ideas and coordinating, cryptocurrency technology gives greater access to more opportunities for humanity in general. The benefits of adopting this technology are significant enough for some cryptocurrency to last into the future.