BLOCKCHAIN, Blockchain, blockchain. An emergent technology shrouded behind a lack of understanding yet promising to deliver wealth and freedom to those who use it. Some tout it as the innovation of the millennium. Some dismiss it as a scam. Most people don’t even really understand what it is or how it works. As with most buzzwords, the original meaning was lost somewhere between analogies aiming to explain the concept and the promises of what the technology could potentially accomplish.
Because of this, many misguided beliefs often make their way into mainstream thought and confuses the conversation even more. Below are several common misconceptions about blockchain and cryptocurrencies and some facts to set the record straight.
Blockchain is a Revolutionary Technology
Many companies are launching new blockchain products and promising to revolutionize the way people do business. People who are not informed about the technology may tend to believe them, since the word has only recently entered common parlance. But the technology itself isn’t new. Some people estimate that blockchains have been around since the nineties, but there wasn’t a real innovative breakthrough with the technology until 2008, when Satoshi Nakamoto solved the double-spend token with Bitcoin.
Blockchain by itself is a slow, inefficient excel sheet.
What I mean is that blockchain is simply a type of database; a ledger system, in which, to make a change, a new “block” with the change (i.e. transaction) information is added, tethered to the last block creating a chain. This chain of blocks functions as a historical record of all information stored on the blockchain. The real innovations were when this database was paired with a Proof of Work algorithm and trustless consensus.
Cryptocurrencies are for Criminals
Most people are content to use fiat currency in its many available forms, whether that’s a credit card or paper money. So, who is using cryptocurrency and why? Many assume the only reason must be to engage in unscrupulous behavior and a need to hide transactions from others.
These beliefs are backed by news stories that report on people purchasing drugs or other items on the dark web using Bitcoin, but this cannot be blamed on the technology. Criminals have also utilized automobiles and rubber masks that look like Presidents to aid them in crime, but people do not demonize these things because they are easier to understand, and they can see immediate benefits from their use.
Virtually any technology that can help someone do something easier, can help a criminal do something easier as well. Humans will not stop innovating, so it is better to find the utility in a technology and enjoy it’s benefits as well, rather than fighting it.
Blockchains are Investment Vehicles
A person can make money from blockchains or cryptocurrencies, but that is not the inherent function behind them. I’ve heard people compare cryptocurrencies to stocks and, at first, I was extremely resistant. However, while people shouldn’t equate crypto with stocks as the core function, it can be a useful analogy when talking about the investment side of things.
Stocks are a way for an individual to assist in funding in a company and in return they have partial ownership of the company and are paid back in dividends from the company’s profit. There can be a similar kind of hype surrounding the IPO (Initial Public Offering) of a new company, and the ICO (Initial Coin Offering) of a cryptocurrency. However, smart investors don’t invest in every new company just because it’s new and the stock is cheap. Most companies fail. There is a good chance the value of a stock won’t go up after you buy it. So, people research companies first before deciding if they are providing anything worth value.
People should follow the same principles with cryptocurrencies. Don’t invest in them unless you believe in the innovations and value they are bringing to the market with their token. Anyone can replicate Bitcoin. Once the initial innovation was made public the actual implementation is not that difficult. However, now that Bitcoin has been created, mined and sold for 10 years, there is no reason to have another token unless it brings something new to the table. There are many, many other coins out there, most notably Ethereum, but always make sure you understand what you are buying before you buy anything.
Blockchains are Stores of Value
This idea is often associated with Bitcoin specifically, as increased adoption has caused high transaction fees and long wait-times until transactions are verified. With the amount of Bitcoin available being a finite number (the last Bitcoin will be mined sometime around 2140), it is possible that Bitcoin could someday be seen as a sort of digital gold. But this is the least interesting possibility.
People are innovating every day find a way to make Bitcoin keep up with the growing number of users, competing coins also offer various solutions to the same problems, and more cryptocurrencies on top of that address a myriad of utilities and industries beyond currency. Use cases for blockchain have been created for industries such as supply chain management, voting, finance, charity, storage and more.
These are just some of the most common myths and misconceptions about blockchain and cryptocurrency. With a technology as complicated as this one and at the infantile stage it currently operates at, there is much debate even within the community of heavy users. The best thing someone can do is learn more about the technology and fundamentals underneath it such as cryptography, programming, and game theory. For more information about this blockchains, how they function, and how they might affect the marketing industry check out Anvil’s webinar on blockchain in marketing.