Dubai: Gulf Tech News
Since blockchain technology is still in a relatively early stage, there are still many myths and misconceptions surrounding cryptocurrencies. It remains an unknown territory for many people who are not very familiar with the topic. An issue that is both exciting for the public and widely misunderstood presents fertile ground for various misconceptions and false beliefs. That’s why Binance, the world’s leading blockchain ecosystem and provider of cryptocurrency infrastructure, aims to debunk four of the most common myths associated with cryptocurrencies.
Myth 1: Cryptocurrencies have no intrinsic value
False. The value of a currency, whether fiat or digital, comes from its widespread acceptance and adoption, and in the case of digital assets, these metrics are constantly increasing.
New users who are introduced to the world of cryptocurrencies often argue that most digital assets are not backed by anything tangible or any form of “hard” fiat currency. In their logic, “not being backed” is synonymous with “having no value.”
However, most fiat currencies that we are familiar with are also not backed by physical assets; they are simply issued by governments, and it is the “faith” in the respective government that constitutes a large part of the value of a fiat currency.
Similarly, just as people see value in fiat money because they trust the governments that issue it, more and more users value digital currencies because they trust the underlying technology. In this case, the value comes from open-source code, available for anyone to see and verify for themselves, eliminating the need to trust a third party that may have its own interests. These are two quite different foundations of trust, but both can be considered reasonable.
The other component of a currency’s value is its level of acceptance and adoption. Although the adoption of digital currencies as a payment tool may still be limited, their acceptance and use for payments are growing every year. The uses of cryptocurrencies go far beyond payments and facilitating trade. Cryptocurrencies can be used as a store of value, similar to commodities like gold, with Bitcoin being the prime example.
So the next time someone says that digital currencies have no intrinsic value, it may be worth pointing out that disintermediation, payments, the ability to store value, and technological innovation are all intrinsically valuable.
Myth 2: Cryptocurrencies are not secure
False. With proper regulatory frameworks, blockchain technology and cryptocurrencies can offer superior security benefits compared to traditional finance.
As a general rule, blockchain technology makes transactions public and traceable. This is different from traditional financial institutions, where transactions are hidden and require a subpoena or judicial intervention to be revealed. Additionally, some cryptocurrency exchanges may also monitor customers’ IP address changes to ensure that their users are not in sanctioned jurisdictions.
Transactions on the blockchain function as a public ledger, where the complete history of each transaction is monitored, validated, and recorded. This makes it easier for authorities to trace the origin of funds. If any phase of the transaction goes unchecked, it is immediately blocked.
In essence, blockchain technology provides superior oversight of transactions, proposing a new financial model that is open to scrutiny by users, regulators, and security forces worldwide, in many ways even more so than the traditional financial system.
On its part, Binance, like many other crypto exchanges, does not allow user anonymity on its platform and has a strict KYC policy that enforces a zero-tolerance approach to duplicate records, anonymous identities, and opaque sources of money.
Binance helps address the “anonymity problem” by using these tools to track and monitor activity on the blockchain, ensuring that all transactions are legal and compliant with regulations. The exchange also employs high-level tools such as Refinitiv World-Check, a comprehensive database of Politically Exposed Persons and high-risk individuals and organizations.
In June 2023, Binance was awarded the coveted International Organization for Standardization’s (ISO) 27001 and 27701 certifications for information security governance and privacy information management in France, Bahrain, and the UAE following a thorough and comprehensive evaluation of the security and privacy domains of the company’s operations. These certificates recognize that Binance meets ISO’s high standards in information security governance and privacy information management, respectively, and are a testament to the company’s consistent efforts on building robust security and privacy measures.
Myth 3: Cryptocurrencies are for criminals.
False. Cryptocurrencies are primarily used by regular citizens (currently, around 300 million ordinary people worldwide).
As with any emerging (or existing) technology, criminals seek to use it for illicit purposes. However, according to data from Chainalysis, a leading blockchain analysis company, this activity accounted for only about 0.15% of cryptocurrency transactions in 2021 – down from 0.62% in 2020 despite the exponential growth of the industry.
Blockchain is inherently transparent. Everything is recorded in a public ledger. This allows for examination of the entire underlying code at any time. The use of cryptocurrencies for illicit purposes leaves a clear record for prosecutors to secure convictions.
Europol and the Basel Institute on Governance have stated that cryptocurrencies are key to combating organized crime. In fact, cryptocurrency exchanges remain one of the main allies in the fight against criminal activity. For example, Binance recently helped dismantle a $500 million ransomware gang.
Myth 4: Cryptocurrencies are a Ponzi scheme.
False. Cryptocurrencies have a wide range of use cases, applications, and benefits beyond investment, and their risk profile is comparable to other “risk assets”.
To provide context, a Ponzi scheme is a type of financial fraud similar to a pyramid scheme, where early “investors” are paid with funds contributed by new participants, perpetuating the appearance of profitability as long as there is a sufficient number of new victims. Ultimately, the operator of the scam pockets most or all of the collected funds.
The key to debunking the current myth is understanding that a Ponzi scheme cannot encompass an entire asset class or industry. It is simply a model used by malicious actors to defraud victims, which can exist in any environment that allows investment activity. The technology powering cryptocurrencies does not contain any attributes that make this asset class inherently more or less prone to Ponzi schemes. Therefore, claiming that “cryptocurrencies are a Ponzi scheme” is false. A large number of cryptocurrencies have complete and sophisticated technological foundations, strong teams and human capital supporting them, and real utility that makes them valuable as both technological and commercial entities. That being said, it is important to always be vigilant against potential scams, something to which no industry is immune, and to always do your own research (“Do Your Own Research”) to make informed and solid decisions.
