Crypto for Beginners: Don’t Believe These Four Myths When Learning About Crypto
Strike these myths from your brain when trying to learn about crypto and blockchain.
Recently, one of my friends, who is smart, successful, and used to work in finance, started talking about crypto to me. The conversation went something like this:
Friend: “Mike, I’ve been studying crypto for a while, and I just don’t get it.”
Me: “It’s awesome that you’re getting into crypto! Don’t feel bad that you don’t get it yet. It’s such a complex topic with so many things you need to understand — technology, economics, finance, game theory, community, memes, and more. “
Friend: “Yeah, the memes are hilarious!”
I then explained how I learned about crypto, and started by mentioning four myths that everyone should strike from their brain when trying to understand it.
Myths to avoid when trying to understand crypto
Myth 1: Crypto is trying to replace fiat money
The first snarky comment I often get from crypto naysayers is “I can’t buy a cup of coffee with crypto.”
Sure you can. Maybe you can’t buy coffee at your Mom and Pop cafe down the street yet, but you can pay for plenty of things using Bitcoin and other cryptocurrencies.
I usually get this comment from people who live in the US and Europe. And this is expected — these countries have mature, well-developed financial systems where you can easily pay for goods and services with credit cards and online payment systems like PayPal and Venmo.
Thus, the first myth is that all cryptocurrencies are trying to replace fiat money, such as the US dollar, the Euro, and others, as a medium of exchange.
Yes, there are a few cryptos, like Dash and Reserve, that are aimed at being a medium of exchange for real-world goods and services. And Bitcoin’s initial goal was to be used for daily transactions, though that isn’t its primary use case today.
But most cryptos exist to be a medium of exchange for their own blockchain ecosystem, not necessarily for real-world commerce. More on this in another post.
Myth 2: Crypto is just for speculation
The second myth is that the only use case for crypto is speculation.
The overarching mainstream narrative of crypto is the price of tokens — price go up, price go down, good price, bad price, can the devs do something?
CNBC and other financial media outlets talk about the price of Bitcoin and Ethereum frequently.
Retail buyers across the globe can trade crypto 24/7.
But speculation is not a use case — it’s a side effect of cryptocurrencies being liquid assets that are tradable from anywhere, at any time. Again, the primary use case of crypto is to be a medium of exchange for their blockchain ecosystem.
I do admit that crypto would not be where it is today without the speculation aspect; the normal person just wouldn’t be as interested in crypto if they didn’t see the price of Bitcoin hitting an all-time high of nearly $70,000 in late 2021.
The great thing is that speculation brings new people into the ecosystem. And once these retail buyers purchase a little bit of Bitcoin or Ethereum on Coinbase or the crypto exchange of their choice, many start going down the rabbit hole and learning more about how game-changing this technology can really be. That’s how I started learning about crypto back in 2013.
So while speculation is an important aspect of crypto, it’s certainly not a primary use case.
Myth 3: Crypto is one big scam and ponzi scheme
The third myth is that the entire crypto industry is one massive scam and ponzi scheme.
Are there scams in crypto? No doubt about it. There are rug pulls, phishing scams, pump and dump schemes, and many more. Scammers want to take advantage of retail buyers who dream of 100x-ing their money in a month. Don’t be that person.
Any fledgling technology will have its fair share of scammers. Remember the Nigerian prince scams back in the day when email was still new?
There are certainly times where the crypto market is overvalued and frothy, and these are the times when scammers are at their worst. So do your own research and be careful when investing in early-stage projects with tokens with low liquidity, regardless of whatever some “trusted” influencer may say.
Bottom line is that an asset class doesn’t get to be worth over a trillion dollars by being a scam.
Myth #4: Crypto has no intrinsic value
Many believe crypto “has no intrinsic value”.
To understand crypto, you should understand what money is, and how it derives its value.
Money should be:
- A store of value.
- A medium of exchange.
- A unit of account.
I subscribe to the theory that money is a social construct — i.e. money has worth because people believe it has worth, not because it has some kind of backing or intrinsic value.
The US dollar has not been backed by any hard asset since Nixon ended the Gold Standard 50 years ago. In my opinion the USD is backed by the US military, but that’s a conversation for another day.
Many believe that gold is a type of money that has intrinsic value because it’s rare, can’t be arbitrarily created, and stable. Maybe.
Crypto is backed by open-source code. You can review the code to determine how many units of the crypto will ever be in existence, if there is a minting and burning process, what the token’s utility is, and more. Most of this information is out in the open for all to see.
This isn’t so for fiat currencies like the US Dollar. You have a group of old, white men in Washington DC who determine behind closed doors how many US Dollars will be printed and when.
So if you really think crypto doesn’t have any intrinsic value, then you’ll have to believe that fiat currencies don’t either.
Conclusion
These four myths are what I hear most often from people who are skeptical about crypto. And it’s totally fine to be skeptical, as long as it comes from a place of critical thinking, not ignorance.
What are your thoughts about these myths? Do you believe them? Are there other untruths that I may have missed?
I’d love to hear your thoughts in the comments below or on this Twitter thread:
In my next post, I’ll write about how I continued to explain crypto to my friend to make her say, “Holy shit Mike, that was the best explanation of crypto I’ve ever heard, I actually kind of get it now.”
Oh man, I might be setting myself up for failure.
Anyway, stay tuned!
Originally published at http://www.mikewchan.com on September 13, 2022.
