Crypto myths - fact or fiction?
Crypto has exploded since its introduction in 2009. The total circulating value of the global digital asset market was US$1.2 trillion as of April 3rd, 2023, and is predicted to be around US$6.7 trillion by 2025. Despite tremendous growth over the past 14 years, cryptocurrency is still seen as an interloper shrouded in mystery, the source of myths and legends. The truth, however, is that people’s lack of knowledge about the industry makes it a breeding ground for misinformation, and we’re here to debunk some of those myths.
Crypto is a fad
With 320 million crypto users worldwide and US$103 billion traded daily, it’s hard to argue that crypto is a fad. Once only accessible to techies and coding enthusiasts, crypto is now traded daily by individuals, banks, hedge funds, and more. Countries such as El Salvador have made crypto legal tender, and there are crypto ATMs across the globe. Governments have recognised that crypto is here to stay and are looking to introduce regulations to offer consumers protection similar to what’s in place for traditional finance.
Crypto isn’t subject to regulation
Crypto is very much on regulators' radar. Although it doesn’t yet have a dedicated framework to protect consumers, countries worldwide are introducing measures to regulate digital assets. Most seem to be piggybacking on regulations in place for traditional finance (TradFi). However, to offer adequate protection, regulators need to look at the unique elements of crypto not covered by traditional regulation, such as private key management, which requires its own rules.
Crypto is only used for illicit activity
As with any financial system, the crypto market is subject to its fair share of unlawful activity. Where there’s money to be made, you can be sure that criminals will look for a way to misappropriate funds or launder money. However, illicit crypto addresses make up only 0.12% of the total cryptocurrency transaction volume in 2021 and 0.24% in 022 – so criminals are a weak minority when compared to the total number of crypto users. Crypto is mainly used to send and receive payments in real-time and at a lower cost than TradFi, investments, and trading.
Crypto is a scam
Crypto gets a bad rep from the press due to its decentralised nature and lack of governing body like the government or traditional banks. However, it’s a lawful investment, albeit high risk and often subject to volatile price changes. Around US$10 billion is traded daily on Binance, the world’s largest crypto exchange.
Admittedly, people fall victim to scams as they do with TradFi, with get-rich-quick scams prevalent across both industries. Investors should take the same precautions to protect their funds, whether it’s invested in crypto or other investments like stocks, bonds and property.
You can’t trace crypto
Possibly the biggest myth about crypto is that it can’t be traced. Crypto uses the blockchain, which provides a secure and decentralised record of all transactions in a digital format. The blockchain is an immutable ledger, meaning its record can’t be changed or deleted once a transaction has taken place. In addition, all transactions on a public blockchain can be viewed by anyone, so you can track crypto wherever it travels.
Crypto isn’t real money
Despite not being issued by a central governing body like most currencies, crypto meets the criteria of the dictionary definition of money: something generally accepted as a medium of exchange, a measure of value, or a means of payment.
While most of us think of money as a tangible coin or note, according to the Bank of England, 96% of the UK’s money is stored in banks electronically for security purposes. Crypto is 100% digital. It can be used to buy goods and services and, through exchanges, be traded for legal tender.
Crypto is exempt of tax
Another indicator that crypto is indeed money is that the gains made on investing it are subject to tax. In the US, the IRS considers crypto property, and investors must pay tax on any gains the same way they would for other assets like stocks and shares. In the UK, crypto is treated like shares for tax purposes. So if you sell, exchange, use crypto to pay for goods and services or gift it to someone, you may have to pay Capital Gains Tax.
Protecting your investments is essential whether you’ve invested in traditional financial instruments or digital assets. Coincover offers technology solutions to help businesses and consumers safeguard their crypto investments. Let us know if you’d like to speak to one of the team about working together to keep your crypto safe.