3 Things People Get Wrong About Bitcoin

3 Things People Get Wrong About Bitcoin

In 2009 Bitcoin was released as an open-sourced software currency. It wasn’t until 2012 that it began seeing popularity, however, when WordPress made the bold move of accepting payments in the currency towards the end of the year, and exchanges began actively comparing it to other currencies such as the dollar. While it still gets lots of fringe usage despite the mainstream attention being given to it, the concept behind Bitcoin is something novel that could change the way we think about currencies, inflation, banks, and whatnot. Without getting into politics, let’s look at Bitcoin as a technology product and analyze the misconceptions both naysayers and fans have about it.

bitcoinmyth-tracing

For many, Bitcoin presents the ability to make anonymous transactions without the scrutiny of their local country’s government. Since the government is not in control of the currency, it’s not traceable, right? Not really. An exchange can still receive a subpoena for the transaction history of any particular wallet address.

“But wallet addresses aren’t registered to a name, right? What are they going to do with a simple number? It’s not like they can tie the transactions to you specifically!” 

Actually, they can. If you input your name as the recipient of a product for which you’ve made a purchase online, authorities can also subpoena the online retailer to get details on your name. By having both bits of information, one can “put two and two together” and come to the legal conclusion that the Bitcoin wallet used is yours, therefore uncovering your anonymity. I’m not saying this because I want to discourage you, but you really shouldn’t be doing anything pernicious with Bitcoin.

Even if what you’re doing is not wrongly-intended (like protecting your wealth by keeping it untraceable), just know that you’re still subject to the same scrutiny as anyone using a credit card. All you do by using Bitcoin is add one more very small step to the hunt.

There is some truth to this. Shortly after Bitcoin opened its gates, people were using an underground “deep web” website known as the Silk Road to purchase various quantities of hard and soft drugs along with black market pharmaceuticals banned in several countries. There’s reason to believe, however, that the amount of people using Bitcoin for these purposes is shrinking considerably. They are being phased out by legitimate buyers who want to use the alternative currency to buy “white market” products such as PC parts and lingerie. The number of services that accept Bitcoin is growing at an increasing rate, as can be seen in this list.

I can even provide an example in my local area. A Romanian PC vendor known as PC Garage has recently begun accepting Bitcoin from its customers for orders. My suspicion is that this trend will keep going.

bitcoinmyth-theft

There’s a prevailing notion among Bitcoin fans that they can’t be stolen because transactions are peer-to-peer, decentralized, and untraceable. We’ve already debunked that last myth. As for being peer-to-peer, it is (sort of) true. But it’s not decentralized entirely. You still have to go through a Bitcoin exchange, and that exchange will store and update your transaction information through a central registry. The mechanism of Bitcoin simply does not allow decentralization.

Because of all these factors, yes, they can indeed be stolen!

Don’t get me wrong. This currency is awesome no matter which way you look at it. But if you’re going to use it, you should be properly informed about it before you take the plunge and make an investment.

How have these things changed your perception of Bitcoin? Tell us in the comments!

4 comments

  1. My problem with Bitcoin is its variable value. Just before the MtGox debacle 1 Bitcoin was worth close to $1300. Couple of weeks later the value dropped by nearly 50%. To me Bitcoin (and other Internet currencies) seems like a Ponzi scheme. The early adopters are the ones that made out like bandits by selling Bitcoins to later buyers at a much inflated prices.

    And of course there is the MtGox fiasco where millions of dollars worth of Bitcoins just vanished into the thin air.

    • Anything new goes through a period of instability and chaos, culturally the lawless ‘wild west’ to technologically cryptocurrencies. Look at the price in the first six months of this year and you’ll see increasing stabilisation, but the price only matters to investors. What really matters for the general population is usage. Look at the past year and you will see steady consistent growth in the number of transactions taking place making it less a store of value (like a commodity) and more a currency. The more transactions there are, the more stable the currency becomes.

      Here are the transaction figures:
      https://blockchain.info/charts/n-transactions-excluding-popular

  2. So if “hackers” stole the MtGox bitcoins…. Why does the US government still own over 100,00 bitcoins ? and this is after the Silk Road auction from the seized $20 million in bitcoins from Ulreicht….

  3. This all correct except for one par in number three, you don’t need to go through an exchange if you have an offline wallet unless you’re buying/selling currency – same as with fiat currencies.

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