Do you believe in these 5 Bitcoin myths?

Bitcoin is a very good thing for a lot of reasons. Yet it is not perfect. For all the good it does and all the potential it has for the future, Bitcoin has its flaws.

So why do so many people talk about it as though it is a financial and economic panacea that will usher the world into Utopia? Because doing so is human nature. We all want the world to be a better place.

In light of that, CCN contributor Greg Thomson wrote a compelling piece in mid-December, 2019 discussing what he called the "5 arrogant myths" of Bitcoin. Thomson wishes these myths would die, but he alleges they will not. It is an exceptionally good piece well worth reading.

This post will discuss those myths from our perspective. We agree with each one, though our reasons may differ from those Thomson offers. Be honest with yourself as you read. Ask yourself how many of the myths you actually believe. Then ask yourself if you are willing to embrace the truth about them.

1. Bitcoin's potential wealth redistribution

How many cryptocurrency enthusiasts have you heard say that Bitcoin is designed to level the playing field between the haves and have-nots? It does just that, but not in the way many people think. Your average consumer considers a level playing field as one in which every player is equal in terms of possession. In other words, they believe that Bitcoin is intended to redistribute wealth, thus eliminating rich and poor extremes.

Bitcoin cannot do that. Furthermore, it was never intended to do. Leveling the playing field, in the Bitcoin space, is about access rather than possession. Bitcoin offers access to monetary services among people who do not have access to the traditional banking system. It gives access to people who want to make cross-border transactions but who are otherwise limited by their banks.

That sort of level playing field is a good thing. It is also a necessary thing. There is neither need nor reason to lock some people out of the economy by limiting their access to financial services. Like digital payment systems, cryptocurrencies open yet another door that gives people access to money, goods, and services.

However, providing such access does not guarantee that the poor will become middle-class through wealth redistribution off the backs of the rich. Even if equal possession were possible (and it is not) Bitcoin would not be capable of achieving it. Bitcoin is a financial tool and nothing more. It cannot force the redistribution of wealth no matter how hard people try to make it do so.

2. Price gives Bitcoin value

Thomson's second myth is that Bitcoin's price is that which gives it its value. He phrases it more simply by stating that "price matters." In reality though, it does not. The only reason Bitcoin has value in U.S. dollars is because early investors pegged it to the U.S. dollar in order to encourage people to put money into the system. That's it.

Imagine your company created its very own cryptocurrency for use among employees. Employees could use tokens to buy and sell everything from time off to Friday lunch. In order to keep enough tokens in circulation, the company pays each employee a certain number of coins at the end of the week, the same way they pay regular salaries. Mining operations within the company would control coin supply.

Those coins would have value within the company because they could be used to transact business among employees. They can never be sold for fiat and, as such, they have no value tied to the U.S. dollar. Their value resides in their utility rather than an artificial price point determined by a fiat currency.

Bitcoin's real value as a monetary system is its utility. It is valued by investors in U.S. dollars because investors trade it. But take crypto trading out of the equation and suddenly Bitcoin's value as paid in U.S. dollars becomes meaningless. In other words, its monetary value to traders is only meaningful to them. That value is meaningless to the rest of us who do not approach Bitcoin as an investment.

3. Digital money for the people

Next up is the pervasive myth that says Bitcoin is digital money for the people. It might have started out that way - though that is a matter of debate - but it is certainly not that way any longer. Even in the midst of this latest crypto winter that now has Bitcoin trading at under $7,000, average consumers have been priced out. They were priced out long ago. No, the vast amount of wealth contained within the Bitcoin universe is owned by a very small number of coin holders.

Thomson points out in his article that 54% of all the mining power in Bitcoin belongs to a small number of miners located in a single Chinese province. And because nothing in China is truly privately owned, that means those assets really belong to the Chinese government.

Bitcoin lost any hope of being a monetary system for the people when it opened the door to large-scale investments. Those investments instantly created competition among coin miners to see who could become the biggest and best. And just like what happens in the corporate arena, the biggest and most powerful miners continue to grab a larger market share while smaller miners are absorbed or forced out.

If you are still convinced that Bitcoin equals money for the people, just follow the daily cryptocurrency news. You will find that 99% of all the stories pertain to government regulation or the activities of the wealthy and well-connected. It is exceedingly rare to find stories about Bitcoin and its day-to-day use among consumers.

4. Bitcoin is impervious to government control

This fourth myth states that Bitcoin cannot be controlled by government in any way. While the thinking maybe partially true, it is not completely true for the mere fact that governments have power to regulate just about anything. They have already started regulating cryptocurrency in many places around the world.

The government control myth was birthed from Bitcoin's decentralized nature. Decentralization does guarantee that governments and central banks cannot control Bitcoin's blockchain. As such, they also cannot directly manipulate its price or use it to manipulate economics. That does not mean government is powerless, however.

Government can regulate how Bitcoin is used. It can regulate Bitcoin exchanges, Bitcoin-accepting merchants, and how digital payment processors operate. Government even has the power to levy taxes against Bitcoin profits. And whether the world knows it or not, the power to tax is the power to control.

Thomson points out that the most ardent cryptocurrency enthusiasts defend Bitcoin's resistance to government control by saying that if Bitcoin ever fails, then it wasn't truly Bitcoin to begin with. The logic is strange and unsound for sure, yet there are people who believe it.

If Bitcoin isn't Bitcoin, what is it? No, today's Bitcoin is the same Bitcoin launched by Satoshi Nakamoto in 2009. It is a decentralized and censorship-resistant monetary system that facilitates both economic activity and investing. Yet it is also a system that can be regulated by any government that chooses to do so.

5. A force for positive change

The fifth and final Bitcoin myth states that the cryptocurrency is a force for positive change. To believe this myth requires the companion belief that Bitcoin is a force in and of itself. Yet we know it is not. Bitcoin is a tool in the hands of those who choose to use it. People are the force behind it.

We like to believe that those who use Bitcoin do so only for altruistic reasons. We would like to believe that Bitcoin is capable of solving all the world's financial problems while simultaneously weeding out crime, corruption, etc. But holding such beliefs doesn't make them true.

The fact remains that there will always be crime and corruption. Criminals will utilize every tool possible to do what they do - including cryptocurrencies. They have been laundering fiat for thousands of years already. Why would they not use Bitcoin the same way?

Government corruption has also existed since the dawn of man. Why would it suddenly disappear if Bitcoin replaced fiat? It would not. In fact, you could make the case that cryptocurrency would make government corruption easier to hide through encryption and blockchain permissions.

Please do not misunderstand the point of this post. No one is trying to convince you that Bitcoin is a bad thing. It's not. It is a very good thing for a lot of people. Just ask the good folks living in Venezuela. Many of them have relatives who live outside the country and are able to send them money by way of Bitcoin remittances.

The only point to be made here is that Bitcoin is not the utopian economic panacea so many people believe it to be. It is just a tool for facilitating financial transactions. For some people that makes Bitcoin a lucrative investment. For others, it is a way to shop online, play a few online slot games, and pay for a cab ride in London.

It is all good, but it's not all perfect. Read more on our Bitcoin page.