Myth – 1: All cryptocurrencies are the same

Myth 1: Virtual currencies are all the same.

Globally, there are about 300 million Cryptocurrency users and about 18,000 Cryptocurrencies. The phrase “cryptocurrency” is used to refer to a wide range of currencies, systems, and networks, many of which have unique characteristics, ownership structures, and volatility ranges.

According to Julian Linger, CEO and co-founder of Bitcoin investing software Relai, “one of the primary fallacies in mainstream media — and, as a result, popular understanding — is that Bitcoin and crypto are one and the same, whereas in reality this is far from the case.”

“Bitcoin has been around for a long time, but the crypto industry as a whole is still relatively young.

He advises looking at the market landscape, making sure you understand it, and researching the founders’ backgrounds, prior endeavours, and industry experience before investing in a cryptocurrency. In essence, you should approach a cryptocurrency investment the same way you would if you were thinking about investing in a start-up business.

Is this effort addressing an issue that genuinely needs to be addressed, or is it just marketing hype?, he advises.

Myth – 2: High returns are likely

Cryptocurrency is not a one-way path to wealth. The “crypto bros,” or eager male cryptocurrency investors, have spread the notion through Reddit threads, messages from influencers, and rap lyrics.

The get-rich-quick myth is the second issue that needs to be addressed, according to Liniger. Because of the prevailing “crypto bro” narrative, Bitcoin continues to have the stigma of being an all-or-nothing asset class that bullish investors chase in an effort to double their money.

Everyone participating with cryptocurrency will profit, according to Jeremy Cheah, associate professor of decentralised finance at Nottingham Business School.

“Like all forms of trading, cryptocurrency trading is a zero-sum game. You get wealth at the expense of other people, he claims.

Another misconception is that mining cryptocurrency may help you become rich quickly.

He continues, “The entrance (setup) cost can be very significant. Not everyone with a laptop can mine for cryptocurrencies because it is an expensive endeavour. As more cryptos are mined, the algorithm underpinning the process calls for increasing processing power.

Myth – 3: All stablecoins are backed by US dollars

Given the volatility of Bitcoin and other cryptocurrencies, there is a growing market for goods that offer some of the advantages of cryptocurrencies without the price swings and volatility that scare away many investors.

Stablecoins were created to bring together the simplicity and quickness of digital payment systems with the security of conventional financial exchanges. They provide a crypto substitute and are intended to experience minimal price swings.

Some stablecoins are valued on a one-to-one basis and are pegged to conventional (fiat, or government-issued) currencies like the US dollar, euro, and yen. Others are backed by physical assets like real estate, gold, or other commodities.

As a result, many people believe that all stablecoins are linked to tangible assets. That is not the situation.

According to Cheah, not all stablecoins are backed by fiat money or valuable commodities but rather use an algorithmic method.

In these situations, algorithms that adjust the market’s supply or demand to match each other help stablecoins retain their price stability. In order to reduce price volatility, additional stablecoins will be introduced to the market if the price is rising.

Myth – 4: Blockchain is safe and secure

Investors’ knowledge that a sizable ledger of data stored in a block cannot be changed or tampered with in the past has led to the assumption that Blockchain technology is impenetrable. A secure database that is held by many people as opposed to a single third party is created via blockchain. This does not imply that blockchain is impervious to well-planned and sophisticated attacks, though.

Blockchain security is a widely held belief, claims Cheah. “While it is true that transactions that have been stored and recorded in a blockchain cannot be altered or removed, assaults on blockchains can still occur and be successful. For instance, user validation is essential to the continued security of the blockchain. However, the attacker may maliciously sway the verification process if they are holding the majority of users.

If hackers are successful in creating a large number of false identities or in gathering resources and controlling more than half of the network, such an attack may occur.

Human error is another cause of vulnerability. According to Sanjay Wadhwani, founder and CEO of blockchain media business MetaFrames, there is still a sense of the “Wild West” in the cryptocurrency scene.

According to him, investors are interacting with blockchain in a very incorrect manner. “They give away the password to their wallet, fall prey to phishing scams, and frequently have platform illiteracy.

“There are many dishonest people selling get-rich-quick schemes, and they take advantage of people’s fear of missing out. Many recent launches lack names and faces.

Myth – 5: Crypto is anonymous

Even while some cryptocurrencies are built with anonymity at their heart, Wadhwani claims that regular investors rarely use these.

Cryptography is not primarily employed for illegal, evil, or covert objectives, he claims. “There was a point when early adopters were using it on the dark web, but to suggest that the mobile phone system is flawed because just 1% of people use it for illegal activities would be absurd.

People believe that cryptocurrencies are anonymous and are a great way to hide money, but the blockchain makes everything open and visible, he continues.

Partner at Oliver Wyman’s global financial services practice and digital assets platform Ben Reeve claims that analytics companies like Chainalysis and Elliptic can map addresses on blockchains to discover transactions that might be connected to criminal behaviour. Governments and banks utilise this information to spot high-risk trades.

The downside of anonymity can also be dangerous for retail investors.

A private key is what completely secures a crypto asset, thus keeping it safe is crucial, according to him. “With traditional transactions, you can phone your bank if you forget your online banking credentials. Your private key is only accessible to you with cryptocurrency accounts, and you have no recourse if you lose it.