Crypto is nearing its 14th birthday, and yet its fundamentals remain hazy for a big chunk of potential adopters. As it is, crypto is now poised to be a legitimate currency that can go toe to toe with the traditional finance system — with some pundits already declaring it mainstream.
That means grasping crypto can be helpful — whether you’re a complete beginner, a prospective user, or a dilettante. Today we highlight three things that newcomers often get wrong about crypto.
1. Cryptocurrency Is the Same as NFTs
A couple of years ago, you rarely saw chatter about NFTs on social media. Fast forward to 2022, and almost everyone is talking about NFTs. However, for someone new to anything blockchain, NFTs and cryptocurrency might as well be the same thing.
In a way, that assumption is not wide off the mark. Both NFTs and crypto are offshoots of blockchain technology. Blockchain is the tech that underpins cryptocurrencies and is the brainchild of Bitcoin creator(s) Satoshi Nakamoto, who designed it to support the trailblazing cryptocurrency.
After Bitcoin, the developer community saw the currency as a fascinating alternative to fiat money. There was a form of money that the government did not call shots on and was inherently quicker and more secure. Thanks to Bitcoin, thousands more cryptocurrencies are now in existence.
NFTs, short for non-fungible tokens, are digitized assets. Non-fungible tokens are the opposite of fungible tokens, wherein fungibility implies the ability for one kind of token to be substituted for another token of the same kind. For instance, 1 BTC = 1 BTC, and any 20-dollar bill is fungible to another 20-dollar bill.
Accordingly, an NFT is the only one that exists, making it unique. It possesses three main qualities: scarcity, indivisibility, and uniqueness. NFTs can represent digitized versions of real-life items, such as domain names, tickets, art, and even tweets.
NFTs are usually traded for crypto or cash in NFT marketplaces such as OpenSea, Rarible, NFT Binance, and so on. The US’ largest crypto exchange, Coinbase, is also preparing to release its marketplace.
NFTs are currently the latest trend in the blockchain universe, thanks to high-profile people like Jack Dorsey NFTing his first-ever tweet, which brought them further recognition. Another reason is the jaw-dropping figures that have exchanged hands, such as a whopping $69 million raked in by the artist Beeple for his visual piece of art ‘Everyday — The First 5000 Days.
2. You Can Make More Money With Crypto Than Stocks
This notion is partly born of the idea that crypto is the land of overnight millionaires, Lamborghinis, etc. The truth is that while crypto typically yields better returns than traditional investments like stocks, the risk can be equally dramatic.
When it comes to crypto investing, enthusiasm is often not matched by knowledge. A study by market research company Cardify revealed that established investors were increasingly showing a preference for crypto more than stocks — with novice traders primarily driving that trend. What’s more, most investors surveyed said they were still new to crypto.
Does any of this mean crypto is better or more lucrative than stocks? Not necessarily. First, stocks are also prone to price fluctuations. This can be due to a company’s change in policy or market sentiment soaring. Cue Twitter’s current legal tangle with Elon Musk after the Tesla CEO backed out of a deal to buy the micro-blogging platform. The push and pull have caused Twitter share prices to nosedive, leaving investors at the whim of the market.
At the same time, stocks have historically been a go-to for investors and are a tried and trusted way to put your money to good use. Crypto has also yielded satisfying profits for many investors, but only when done with due diligence.
As such, crypto investors shouldn’t feel they need to put all their eggs in crypto. A hybrid investment approach — which involves diversifying your portfolio, can be more rewarding in the long run. The important thing is to remember the golden rule of investing: never put in more money than you’re willing to lose.
3. Crypto Transactions Are Untraceable, Anonymous
Did you know crypto transactions are not anonymous? Not even people who’ve interacted with crypto for years realize that. Indeed, the belief that crypto transactions are anonymous and untraceable is one of its biggest appeals and source of criticism. But what crypto is pseudonymous, which is an important distinction.
The Bitcoin website notes: “Bitcoin is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Bitcoin is not anonymous and cannot offer the same level of privacy as cash.”
So how is it that crypto offers privacy but is not fully and completely anonymous?
First, crypto transactions utilize “addresses,” which are the virtual locations where funds are sent. Unlike conventional payment systems, addresses are not tied to the sender or receiver (and hence their identity) — they’re randomly generated. Also, transaction data in a cryptocurrency’s network follows a specific path that can be tracked and traced. That makes it easy to trace the source and destination of funds within a transaction.
Crypto transactions can be de-anonymized by anyone with resources and determined enough. Here are two ways that could happen:
1. If an address can be linked to the real identity of a user in some way, e.g. if you’re utilizing a centralized exchange. Such an exchange will cooperate with the authorities to provide details about which accounts sent funds to which addresses.
2. Since blockchain transactions are public and transparent, anyone can capitalize on that and identify a user through clustering.
Indeed, the pseudonymity of crypto is why uber-successful blockchain surveillance companies like Chainalysis exist. The United States government has often contracted the company to follow the trail in crypto crime.
Conclusion
In the beginning, crypto can be puzzling, and that’s okay, seeing as 15 years ago, no one had ever heard of ‘cryptocurrency’ or ‘blockchain.’ It’s a new concept of money that is revolutionary, and that’s why they’ve caught on.
We hope this guide debunked a few myths about crypto.