Crypto for Beginners, Must Read

What Is Bitcoin? Addressing 7 Most Common Misconceptions About Bitcoin

Bitcoin is the most popular cryptocurrency in the world. If you want to know which digital currency started the cryptocurrency craze, then Bitcoin deserves all the credit. It is also the largest cryptocurrency in the world, leaving other digital currencies, like Ethereum, a distant second. 

You can call Bitcoin the original digital currency that started it all.

There is a lot of buzz around Bitcoin, and it has attracted a significant amount of interest from crypto-enthusiasts and institutional investors. However, despite the interest in cryptocurrency, there are several misconceptions about Bitcoin and its nature, security, and technology. 

So, let’s tackle these misconceptions and dispel them, helping people understand them a little bit better. But before we start, we must understand, what is Bitcoin?

What Is Bitcoin?

Bitcoin’s domain name, “Bitcoin.org,” was registered on 18th August 2008. After a few months, a whitepaper titled “A Peer-to-Peer Electronic Cash System” was published. Its network officially came into existence on January 3rd 2009, when its genesis block was mined.

Satoshi Nakamoto

The cryptocurrency was created by a group of people or an anonymous person going by the name Satoshi Nakamoto. According to them, its main goal is to create a decentralised, peer-to-peer, electronic cash system that would be free from the influence of a central authority or central bank. In 2010, Satoshi Nakamoto left Bitcoin, leaving it in the hands of a few prominent BTC community members.

Blockchain

Bitcoin is a virtual currency that works on a public ledger called the blockchain. The blockchain records every transaction on its network. Every transaction confirmed on the network is added as a block in the blockchain. Bitcoin miners verify each transaction on the network by solving a complex mathematical problem. 

Mining

Once the miners solve the problem, the transaction is confirmed and added to the blockchain. As a result of this process, new Bitcoins are created or mined, and that is what Bitcoin mining stands for. 

Halving 

Bitcoin miners are rewarded for verifying transactions and adding blocks to the blockchain. However, the reward is halved every 210,000 blocks, which so far has been roughly every four years. 

Bitcoin Halving Time TableThe current reward for miners stands at 3.125 BTC. New Bitcoins are released at a declining rate, and the total supply is capped at 21 million.

Reward Scheme for Verifying One Block

Satoshi 

The last halving will take place in more than 100 years and the miner’s rewards will bre extremely small: 0.00000001 Bitcoin. This is also called a Satoshi and is the smallest number a Bitcoin can be halved into. After this, there are no more halvings and no more new Bitcoins mined. 

  1. Bitcoin Equals Blockchain

One common misconception that people believe is that Bitcoin is blockchain. 

But that’s not true, it is a cryptocurrency that runs on blockchain technology. 

Yes, it wouldn’t function without blockchain technology, but that does not mean Bitcoin is blockchain or blockchain is Bitcoin. Blockchain is a technology that is used by several industries, and cryptocurrencies like Bitcoin happen to be one of them.

To give an analogy, it is a car, and blockchain technology is the road that the car runs on. Blockchain technology enables it to function. The cryptocurrency requires blockchain to function, but the two are completely different from each other.

  1. Bitcoin Is Not Secure

With cryptocurrency increasing in popularity, there has also been an increase in scams and thefts. In some cases, cryptocurrency exchanges were targeted, while in others, hackers targeted vulnerabilities in crypto wallets. Hackers and thieves also relied on human errors on the part of users to steal cryptocurrencies. 

So obviously, investors and traders who buy Bitcoin are worried about the security of the cryptocurrency. Does this mean it is not secure?

No, it is among the most secure assets that you can buy. The technology behind Bitcoin is among the most secure technology in the world, almost immune to attack. Hacker attacks on a cryptocurrency exchange do not reflect on the security of the cryptocurrency but the exchange’s security in question. 

Virgo takes security extremely seriously and constantly updates our safety protocols in order to ensure our user’s assets are safe. 

Additionally, users should be aware of hot and cold wallets and store their assets on a cold wallet in the long-term as these are even more safe as they are not connected to the internet. 

  1. Bitcoin Is Untaxable

Some countries don’t impose taxes on cryptocurrencies like Bitcoin. However, to say that crypto is untaxable is completely wrong. 

Each country has its own tax laws, and the same applies to cryptocurrencies like Bitcoin as well. Australia has already framed laws and alerted taxpayers who trade with crypto  about the taxes they would have to pay.

Virgo’s Ultimate Guide to Crypto Tax in Australia explains the situation in Australia in more detail. 

  1. You Can Only Get them by Mining

Mining is only one way to get Bitcoins.

However, there are also other ways to get Bitcoin: 

  1. There Are an Unlimited Number of Bitcoins

Not true. Bitcoin is a finite asset, and the total number of Bitcoins has been capped at 21 million. 

Percentage of Bitcoins Mined April 2024

At the last halving in April 2024, 93% of Bitcoins were mined since its inception in 2009. The remaining 7% will take in 2140. This might seem extremely long for a small percentage, especially considering that it only took about 13 years to create 97%. However, taking into consideration the principle of Bitcoin Halving this makes a lot of sense. 

  1. Bitcoin Is Anonymous

A lot of people describe Bitcoins as anonymous because you can buy or sell it without having to disclose any personal information. However, that isn’t entirely true. 

The blockchain records each transaction including the wallet address. This means that each transaction linked to a user public key can be traced. Technically, this information in conjunction with other accompanying information can be used to link transactions to your real identity.

  1. It Is Not Scalable 

A general criticism of Bitcoin is that the cryptocurrency is not scalable, with slow transaction speeds limiting its use in daily transactions and slowing down its adoption as a mode of payment.

This was one of the key reasons for the hard fork that led to the creation of Bitcoin Cash. 

Its creators wanted to increase the speed of transactions and increase the block size so that it could handle more transactions per second.

Even though other currencies like Bitcoin Cash can increase their transaction speeds and block sizes, they do so at the cost of less decentralisation and lower security. This is why Bitcoin can be thought of more as a store-of-value than a practical payment system.

Conclusion

Bitcoin is the largest and best-known cryptocurrency in the world. However, not everything out there is also true, that is why it’s always incredibly important to Do Your Own Research, or DYOR. 

Check out Virgo’s Learn Blog to learn even more about crypto and the different coins. 

Photo by Executium on Unsplash

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