Crypto Myths Debunked

The creation of cryptocurrency, though relatively recent in the grand scheme of global finance, has led to explosive growth, particularly in the African market. Compared to many of the industries that exist today, the cryptocurrency space is still fairly new, which is why it's not entirely surprising that there are still a lot of misconceptions about the technology and how it works. In this article, we'll debunk some of the major myths about cryptocurrency as well as clarify some that are misconstrued.

But first, some context:

Since cryptocurrencies are both money and assets, the market to trade cryptocurrencies is similar to the market you trade stocks or fiat currencies in the foreign exchange (forex) market. Cryptocurrency exchange and trading platforms began to spring up to make it easy for interested users to easily buy, sell, and trade cryptocurrencies as they please.

One thing to note when considering trading and investing in cryptocurrencies is that they are quite similar; they both involve buying and selling crypto assets with the aim of making profits. The main difference, however, is usually in the duration between buying and selling.

Cryptocurrency trading usually involves buying and selling cryptocurrencies within a short time, while investing involves buying and keeping cryptocurrencies for a long time. There are different strategies involved in trading cryptocurrencies, and some may involve you buying an asset and holding for months, but compared to investing, that’s still a relatively short time.

Investors think long-term and would occasionally buy more of an asset without selling for years in some cases as they aim to get larger returns. In contrast, traders usually buy and sell to make frequent profits even though the return might be smaller.

Investors do not usually bother about market fluctuations because they are playing the long game. On the other hand, traders profit from these fluctuations by buying low and selling high.

The crypto market is relatively new and thus quite volatile. This has led to much confusion when talks about investing in cryptocurrencies arise. Misinformation has often spread, and scammers have also often attempted to dupe unsuspecting people by calling scams crypto investments. In this article, we will clear some of these misconceptions.

1. Cryptocurrency investments are scams

Wrong.

While scams exist in every sector, it's unfair to label the entire cryptocurrency domain as fraudulent. One of the most popular misconceptions about digital currencies is that they were created and used as a way to engage in scams and steal from people. This is not true. Investing in cryptocurrencies is similar to investing in gold, stocks or other commodities.

However, due to the high number of scams related to crypto investments and initial coin offerings (ICOs), prospective crypto investors need to be cautious. Experienced investors treat cryptocurrency investments with the same level of scepticism and caution and carry out a good deal of research; the same should be the case for anyone who wants to engage in any form of cryptocurrency investment.

Just like other investment options are susceptible to fraud and scams, cryptocurrency may also be used in an attempt to defraud unsuspecting people. Hence, similar to the way you would research and distinguish bad investments from good ones when faced with an investment opportunity, the same tactics should be applied before investing in the cryptocurrency space.

Fact: Cryptocurrencies are digital currencies that can be used as a medium of exchange and also traded as assets. While they are not scams, scammers often shroud their fraudulent activities with “crypto terms” to confuse unsuspecting people. To invest in cryptocurrencies, you should always do your own research and be cautious.

2. Cryptocurrencies are not safe

What?!

One of the reasons Bitcoin succeeded and emerged as the first official digital currency was because it solved the problem of security in transactions. Satoshi solved this problem by creating what we now know as the blockchain. Blockchain is a sort of database used for storing data. This data is stored in blocks that are arranged in chronological order preventing anyone from tampering with them. As seen in the case of Bitcoin, the blockchain is used as a ledger for transactions. 

When you transact with a digital currency, the transaction is broadcasted to a network of people around the world (known as nodes) who solve complex mathematical problems in order to verify your transaction and ensure its validity. Once this is done, the transaction is added to a new block which is then added to a long line of previous blocks. Once added to the chain of previous blocks, it becomes practically impossible to alter the details of the transaction.

Asides from being decentralised, the blockchain is also public, which means anyone can look at the transactions and be able to spot foul play.

Fact: Cryptocurrencies use a technology called blockchain, which ensures transaction security. Once a transaction is validated and added to the blockchain, it becomes nearly impossible to alter.

3. You need a lot of money to invest in cryptocurrency

It depends.

Many people think that to truly invest in cryptocurrency, you need a huge sum of money to get started. This is not necessarily true. Just like with any fiat currency, cryptocurrencies are divisible. That is, the same way the US dollar can be subdivided into 100 cents, the British pound into 100 pence or the Nigerian naira into 100 kobo, bitcoin can also be subdivided into its units. The smallest unit of bitcoin is known as satoshi, and bitcoin can be divided down to 8 decimal places. That means 100 million satoshis make 1 bitcoin. The significance of this is that you do not need to buy a whole bitcoin before you can own bitcoin. Just like you can buy a small amount of any traditional currency, you can buy a small amount of any cryptocurrency.

And, as the value of Bitcoin increases, you will still be able to buy bitcoin with as little as $2 or its equivalent in your local currency. To invest in cryptocurrency, all you need is a trusted cryptocurrency exchange platform -- preferably one that provides you with a wallet, so you don’t need to get one yourself, a connection to the internet and a method of payment. Create an account on your chosen platform, connect your payment method, buy your desired amount of digital currency and store it in your wallet.

Fact: While you may buy bitcoin with a lot of money, you do not need to have a lot to start investing in bitcoin. You can start small at any level convenient for you.

4. You can invest in cryptocurrencies without any knowledge

Risky!

Contrary to what a lot of people might think, cryptocurrency investments are not simply get-rich-quick schemes. They require the same deliberate education and caution as other investment vehicles do.

Before you make the decision to invest in stocks, you do your research. You read articles, check out the companies, follow the trends and news and then use all of that to make an informed decision on what stock you would like to buy and how much money you would be putting in. It’s the same for investments with cryptocurrency:

Fact: Cryptocurrency investments require careful research, just like any other investments. Never invest in something you don't fully understand.

5. It’s too late to invest in crypto

Not true.

If you are one of the many people who only recently learned about cryptocurrency, you probably wonder why you didn’t get in on it soon and if it is too late to invest in cryptocurrencies. However, the truth is that there is no perfect time to invest in cryptocurrency; there is only your time.

Since cryptocurrencies like bitcoin serve as a medium of exchange, a helpful way to look at it is to see it as money. And just as there is no right or wrong time to save your fiat money, the same is true for cryptocurrencies. In fact, cryptocurrencies are relatively new, and if you bought some 5 years ago or plan to start 5 years from now, you would still be early. 

It is essential to remember that investing in digital currencies is a process that runs on your own time, and that time is when you are ready when you fully understand the risk and the rewards and decide to put some money into it.

Fact: Just as it isn't too late to start a business or learn a new skill, there's no 'perfect' time to invest in cryptocurrencies. With proper research and risk management, anyone, anywhere can start at any time.

6. Crypto trading platforms are not safe

Not always.

With the adoption of cryptocurrencies on the rise, it is understandable that many people have this fear. The rising popularity of digital currencies makes them a target for hackers and attackers, and since most of these transactions are handled on crypto trading platforms, it would seem that they are prone to attacks. While this is true, crypto trading platforms follow several security practices to ensure that all transactions and digital currencies in their care are safe. They keep the currencies in encrypted offline storage (or cold storage), and those in online storage are insured.

However, even with these security measures, it is advised that you also take precautions in keeping your cryptocurrencies safe. Choose the platforms you use carefully, make sure that you enable 2-factor authentication on your accounts to prevent unwanted access, keep very strong passwords and store cryptocurrencies not needed for trading in a crypto wallet off an exchange.

Fact: While crypto platforms can indeed be targets for hackers, just like banks or other financial institutions, they also follow stringent security practices to protect your investments. It's also essential for you as an investor to take precautions such as enabling two-factor authentication and creating strong passwords.

7. The price of crypto will always go up

Again, not always.

The cryptocurrency market is relatively new, so as adoption increases, demand increases which, consequently, will lead to price increase. However, it is important to remember that because the cryptocurrency market is young, it is still prone to high volatility. It is not unusual for prices to go up fast, but they can also come down just as fast.

The good thing, though, is that despite short-term fluctuations, cryptocurrencies have been known to increase in value in the long-term. This doesn't make cryptocurrencies good or bad for investment, it just helps you take into consideration your risk appetite and how much of an investment you would like to make in the short-term or long-term.

Also, some cryptocurrency projects will not endure as it usually depends on public adoption and perceived utility. Tokens of unsuccessful projects may end up almost worthless over time. But there are over 5000 cryptocurrencies with a good number receiving decent adoption and providing utility. CoinMarketCap has a list of current cryptocurrency.

Fact: Much like the stock market or foreign exchange rates, cryptocurrency prices can also fluctuate. It's crucial to remember that like any investment, cryptocurrencies come with the risk of market dips, and a wise investor should be prepared for all market climates.

8. Cryptocurrency is too complex (you have to be tech-savvy to understand crypto)

False.

Because of the digital nature of cryptocurrencies and the fact that they are built on recent technology, many assume that you have to be tech-savvy to invest in cryptocurrencies. This is not necessarily true. Cryptocurrencies have readily available learning materials online to help everyone, regardless of their technical background, understand how they work and what they need to know before investing in them.

For instance, Informational BIPs, as well as other cryptocurrencies’ improvement proposals, are aimed at educating the public. This article you’re reading on Yellow Card Academy as well as several blog posts online, are written for the same purpose - to provide necessary information about cryptocurrencies.

Fact: Cryptocurrencies are built on advanced blockchain technology, which might seem intimidating at first. However, this doesn't mean that only the tech-savvy can engage with it. Think of it like driving a car - you don't need to know how the entire engine works to drive safely and effectively.

9. Always wait for a dip before you buy

It depends.

Popularly referred to as "buying the dip", this is when a person buys a large amount of crypto when the price falls and then sells it off for short term profit as soon as the price goes back up. While this seems like a great plan and a super quick way to make money off your investments, it is important to know that there are different trading strategies. Your trading and investment goals as well as risk tolerance are some of the things that should inform which strategy you employ at any point.

Fact: This is a strategy, not a rule. While "buying the dip" might seem like a foolproof method for instant profits, one must remember that different trading strategies exist for different goals and risk appetites.

10. Cryptocurrency is too volatile to trade

Well...

It’s not news that cryptocurrencies are extremely volatile in nature. However, this does not make them a poor asset for investment or trading. Many traders take advantage of this volatility to make high returns on their investment because it provides easy entry and exit. Some buy and hold until the price of bitcoin increases before they sell while others try to predict the market trends in a short period of time so they can use this to make short-term profits. The bottom line is that cryptocurrency’s volatility doesn’t make it unfit for trading. What matters is how well you understand the market and the currency that you wish to trade, this is what will determine how you make profits.

Fact: It's true that cryptocurrencies can see drastic price changes in very short periods. But far from making them unattractive for trading, this volatility makes them attractive to investors because of the profit opportunity.

11. The government can shut down cryptocurrencies and your money will be lost

Not possible.

It’s been over a decade since the cryptocurrency space came to be and not once in all of the years has it been heard that cryptocurrencies were shut down even by powerful governments. For instance, Chinese and Nigerian governments are some countries whose governments have placed bans on aspects of cryptocurrency operations in their countries, however, as cryptocurrencies operate on decentralised networks and are not managed by the government of any country, they cannot be shut down.

Usually, nations can ban regulated financial institutions like banks from facilitating cryptocurrencies because they are not legal tender in most countries but cannot stop citizens from owning cryptos.

Fact: This is a misunderstanding. Though governments can, and have, restricted traditional financial institutions from dealing with cryptocurrencies, they can't entirely stop individuals from owning or trading them.

Cryptocurrency investments have their pros and cons but most times, unverified information and fear can lead to taking wrong steps. As a rule of thumb, do not invest in anything you don't understand; take time to understand what you're putting your money into. We have taken the time to provide useful information on Yellow Card Academy to help you understand the crypto space and make informed decisions. You can start here to find your way around.