I’ve recently become extremely interested in and involved with bitcoins, and the more I research the topic the more misinformation I see. There seems to be a lot of confusion over what bitcoins are, how they’re used, and even whether or not they’re legal. I decided to put together a list of common myths about bitcoins, and debunk those that deserve debunking, and validate the ones that got it right. I will continually update this post with new myths, so feel free to send me an email or leave a comment with a bitcoin myth you’d like me to address.
Myth: Bitcoins are only used to buy drugs. BUSTED
While it is totally possible to buy drugs at sites like Silk Road and Atlantis (yes, they do exist. No, I won’t tell you how to find them) it’s not the only way to use bitcoins.
You can actually buy just about anything you might need with bitcoins. Bitcoinstore carries all sorts of stuff though it seems like their main focus is on electronics. You might even save a few
bucks coins by shopping with them instead of going to the store, or shopping on Amazon.
If you’d prefer to shop at Amazon, or some other store, Gyft has you covered. They’ll let you spend your BTC on gift cards from just about any retailer you’d like. You can then spend those gift cards as you see fit!
If you’d rather skip the gift card middleman and just spend your coins on your favorite shopping site, you’re in luck. Bitspend lets you spend your bitcoins on just about anything on just about any online store. You point them to the product you want, they send you an invoice for it with the price converted to bitcoins, you pay, and they place the order on your behalf.
It’s also wroth noting that a lot of smaller stores, bars, coffee shops, and freelancers (like me) have started accepting bitcoins. Essentially it’s the same as paying in cash, except instead of paper bills and metal coins you’re just trading digital money for goods or services. If you’re not sure whether someone takes BTC just ask!
Myth: Bitcoins have no real value. BUSTED
Right now, a bitcoin is worth approximately $120 USD depending on which bitcoin exchange you look at. But where does that value actually come from?
When bitcoin was first launched there were no stores that accepted them, no services that converted them to traditional currencies, and no one who wanted to be paid with BTC. The only value bitcoins had came from their nature. The idea of an anonymous internet-based currency that essentially acted as digital cash appealed to early adopters.
Those early adopters brought bitcoins into the realm of legitimacy through what I’ve come to refer to as the Tinkerbell effect. Those early adopters made so much noise about bitcoins that other people started to pay attention. Essentially, bitcoin advocates clapped their hands so hard that the fledgling currency was able to start expanding.
The first recorded purchase made with bitcoins was a pizza. On May 21st 2010 an intrepid bitcoin advocate successfully purchased $25 worth of pizza for 10,000 bitcoins. Today, that pizza would be worth approximately $1,218,000 USD based on the current market value of a bitcoin.
It was slow going for a while, but eventually, the anonymous nature of bitcoins combined with the low cost attached to transacting in bitcoins drew in more and more people and businesses. As I mentioned before, you can now buy just about anything you like with bitcoins, and it’s all thanks to the early adopters.
Myth: Bitcoins are illegal in the US. BUSTED
Over the past couple of weeks I’ve seen a lot of sensationalized articles about how the government is cracking down on bitcoins. I’ve seen headlines proclaiming bitcoin to be dead, and describing the government crackdown on bitcoin-based businesses.
The outlets publishing these stories have taken a tiny kernel of truth and warped it for the sake of driving traffic to their sites. FinCEN, the government agency responsible for regulating financial crimes has clearly stated that bitcoins and other digital currencies are not officially acknowledged as currencies, but companies exchanging BTC for USD do need to register as money service businesses.
Recently, Mt Gox, the most popular bitcoin exchange, had their Dwolla account frozen, and some of their funds seized by the DHS. Contrary to popular belief, this wasn’t because the government hates bitcoins, it was actually because Mt Gox neglected to correctly register one of their bank accounts in order to comply with the FinCEN regulations.
There was also some concern that the government might start coming after bitcoins when they went after Liberty Reserve. That’s not actually a valid fear – Liberty Reserve was shuttered for money laundering.
I’m covering huge topics in a small way here. If you’re interested in learning more about these stories, I strongly suggest you dig deeper on your own. If you’re not interested in digging deeper, suffice it to say that if you don’t break the law with your bitcoins no government agency is going to come after you just for having them.
Myth: Bitcoins can be stolen from you. CONFIRMED
Bitcoins are stored in digital bitcoin wallets, and just like a real wallet, your bitcoin wallet can be taken from you if you’re not careful. As I mentioned before, bitcoins are anonymous, so once that wallet’s gone, it’s gone for good. Fortunately, there are some steps you can take to keep your money safe.
First and foremost, take basic precautions to keep intruders out of your computer. That means you should be running an antivirus program, you should have a firewall set up and correctly configured, and you should run antivirus and antimalware scans on your computer regularly. In fact, I don’t care if you don’t have any bitcoins on your computer, you should still be doing those things.
Once you’ve got your wallet installed and set up the next thing you should do is encrypt it. Every piece of wallet software allows you to password protect your wallet, and you absolutely need to do that. In fact, you should be extra careful when choosing your password for your wallet; don’t use a password you have used anywhere else, and don’t use a short password. I’d recommend either using a password comprised of random numbers and letters that is over twenty characters long, or a passphrase consisting of no less than ten words, some of which should have numbers substituted for letters where applicable (put a 3 where an E ought to be, or maybe a 7 where a T ought to be). If someone does get access to your bitcoin wallet this will help to keep them from getting at the money in it.
If you plan to store a large number of bitcoins for any extended period of time you’ll want to create a paper wallet. A bitcoin wallet consists of two keys: a private key and a public key. The public key allows the wallet to receive bitcoins while the private key allows the wallet to send those coins and manage the wallet. Creating a paper wallet ensures that the private key never actually touches the internet, and as such, it’s impossible for a hacker to gain access to it. You can find a solid tutorial on creating a paper wallet here.
Myth: Bitcoin mining isn’t worth getting into. PLAUSIBLE
For those not in the know, bitcoin mining is the process of using a computer or other piece of mining hardware to do the math necessary to verify bitcoin transactions. The end result is that new bitcoins are generated, and you get some of them in exchange for your efforts. That’s an ultra-simplified description; if you want to know more, read this.
New bitcoins are currently generated at a steady rate of 25 BTC every ten minutes. In order to keep the ten minute interval steady the difficulty of mining bitcoins goes up as new miners come online. Currently, it’s possible to turn a profit mining bitcoins using miners made up of little more than a milk crate, a motherboard, a power supply, and several ATI graphics cards.
New ASIC mining hardware is now hitting the market, and that hardware mines DRASTICALLY faster than GPU’s are able to. As more of these speedy miners come online the difficulty of mining continues to rise, and eventually, it just won’t be profitable to run a GPU-based mining rig.
If you have the money to invest in ASIC hardware, and if you have the tenacity to keep up with current mining trends, then sure, you could potentially make some money mining bitcoins. There are a few factors to keep in mind before diving in.
First, you’ll want to keep an eye on both the current difficulty of mining bitcoins and the current value of a bitcoin. This calculator keeps track of both of those things, and it even lets you enter the hashrate of your mining hardware to see how many bitcoins you’ll earn in a day, a week, and a month.
With that calculator handy, head over to Minr and see who is currently offering ASIC hardware for sale. Find one that’s in your price range and find out how long it will be before the miner you want ships out. If the miner you’re looking at is up for preorder, make sure you’ll be able to cancel that order if you decide to do so.
With all of that info in hand, you are now prepared to determine whether or not mining is worth it for you. Just keep an eye on both the difficulty and the price of a bitcoin as they relate to the miner you want to purchase (or in most cases the miner you have preordered). If you see those numbers hit a point where your miner wouldn’t be profitable, then don’t buy it / cancel that preorder.
Send in more myths!
I intend to add to this post as time goes on (or maybe start a second post full of myths) so please, feel free to contact me with myths you’d like to see me tackle. You can shoot me an email or leave your suggestion in the comments.