The Top 10 Bitcoin Misconceptions Debunked

Guest Post by Nick Giambruno

Bitcoin has been likened to the platypus… which sounds like an odd comparison.

The platypus is a strange duck-billed mammal with webbed feet and a furry body like a beaver. It has characteristics of birds, mammals, and reptiles. Females lay eggs but also nurse their young with milk. Males produce a potent venom.

When Europeans discovered the platypus in Australia in 1798, they wrote letters to folks at home to describe this bizarre new animal.

People thought the platypus was a joke or a hoax—because it didn’t fit into the classification of animals at that time. But it was a real animal. People just didn’t understand it because it was a new thing that didn’t fit into the established paradigms.

Bitcoin is much the same. It doesn’t fit into the framework of traditional financial analysis metrics.

There is no P/E (price-to-earnings) ratio because Bitcoin has no earnings.

There is no P/B (price-to-book) ratio because Bitcoin has no book value.

Bitcoin has no CEO, no marketing department, and no employees.

Bitcoin is an entirely new asset people are adopting as money because of its superior monetary properties, namely its total resistance to debasement and extreme portability.

The monetization of a new global money is genuinely unlike anything anyone alive has ever seen before. There is nothing else comparable. Like the platypus, Bitcoin is an entirely new animal.

That’s why Bitcoin confuses many people, including prominent investment professionals.

Below, I’ll debunk some of the most pervasive misunderstandings.

Misconception #1—Bitcoin is Fiat Money

Bitcoin is a free-market form of money.

Over 100 million people worldwide have subjectively determined that Bitcoin has value to them. They voluntarily chose to exchange other forms of value for Bitcoin. They did not choose Bitcoin because legal tender laws or government decrees forced them to, as they do for fiat money.

The Oxford English Dictionary defines fiat money as “inconvertible paper money made legal tender by a government decree.”

Bitcoin is clearly not fiat money.

Misconception #2—Bitcoin Has No Intrinsic Value

One of the first—and most important—things free-market Austrian economics teaches is that all value is subjective.

There is no such thing as inherent or intrinsic value.

Something only has value because individuals subjectively determine it has value to them.

For example, when people didn’t understand what crude oil was, they’d find it in their backyards and think it was waste. So they’d pay to have it removed from their property.

Later, once people understood the economic potential of crude oil, it was transformed from unwanted waste into a lucrative commodity.

The oil didn’t change; it was still the same oil. What changed was how people valued it.

Marxists differ in that they falsely believe that labor has inherent or intrinsic value. But this ridiculous notion is easily debunked.

The great economist Murray Rothbard explains this by asking people to try to make and sell mud pies—not the chocolate desserts, but pies literally made of dirt.

According to the Marxists, the pies have objective and intrinsic value because of the labor someone put into making them. But good luck getting someone to pay for them voluntarily.

All value is subjective—including monetary goods like gold and Bitcoin. Nothing has inherent or intrinsic value.

Misconception #3—Bitcoin Can’t Be Money Because It Has No Industrial Use

Money is simply something useful for storing and exchanging value. It’s a technology for sending value through time and space. That’s it.

A common misconception says money also needs to have some industrial use for it to be good money.

However, that’s like saying a shoe must also be useful as a hammer to be a good shoe.

Many people incorrectly reason that Bitcoin can’t be a good money because it has no industrial or non-monetary utility.

However, industrial use is not needed to make something useful as money. Using something as money—i.e., to store and exchange value—is sufficient for it to be money.

The fact that gold has some industrial use doesn’t give it superior monetary properties. People value gold as money primarily because it’s the one physical commodity most resistant to debasement—not because it’s used in dentistry, electronics, or other industries.

On the contrary, I’d argue that gold’s relatively small industrial uses do not enhance its monetary characteristics. If they did, why aren’t metals with more industrial use—like copper or nickel—more desirable as money?

When it comes to money, I’m only interested in its ability to store and exchange value. I’m not interested in something whose value is hostage to the whims of ever-changing industrial conditions.

This is why industrial use is not a monetary benefit but, in fact, a potential detriment.

Gold would be an even better money without the variation in its supply/demand from its industrial uses, which are unrelated to its use as money.

Misconception #4—Bitcoin Isn’t Money Because My Local Grocery Store Doesn’t Accept It

The process of a new asset becoming a global money doesn’t happen overnight, and it’s inherently volatile.

Bitcoin is an emerging form of money that hundreds of millions—soon billions—are adopting because of its superior monetary properties, namely its total resistance to debasement and extreme portability.

It took gold centuries to achieve monetization.

Bitcoin has a good chance of undergoing monetization in a much shorter period—and it’s already well on its way.

Bitcoin has gone from having no market value when it was launched in 2009… to being used to purchase two pizzas in 2010, the first commercial exchange… to today generating tens of billions of dollars in daily transaction volume worldwide.

Many thousands of merchants accept Bitcoin as payment. Their numbers are rapidly growing.

If it were a government currency, Bitcoin would be the 18th-largest currency by the market cap of its monetary base, just ahead of the Singapore dollar. In other words, Bitcoin is already bigger than most national currencies.

Large corporations and nation states are starting to hold Bitcoin as a reserve asset in their treasuries.

This is what the process of a new asset becoming money looks like, and it’s just getting started.

As Bitcoin’s network effects grow, the number of people who will accept (or demand) it as payment will grow too.

Misconception #5—Bitcoin Is Too Slow, and the Fees Are Too High

Bitcoin is not merely a new way to make payments—like a competitor to PayPal or Venmo—it’s something much more profound; It’s a superior alternative to central banks.

Many erroneously think that because Bitcoin transactions can take 10 minutes (or longer) to confirm and have fees varying (depending on market conditions) from $0.05 to $40 per transaction, it’s not suitable as money.

Here’s the correct way to think of it…

When you use your credit card to buy a coffee at Starbucks, the money doesn’t land in Starbucks’ bank account when Visa approves the transaction.

Instead, a payment processor collects the money. It then aggregates a bunch of other transactions over a period. It then uses a commercial bank, which uses the Federal Reserve (the central bank of the US), to move the money from the payment processor’s account to Starbucks’ account for final settlement.

Aside from physical cash transactions, it’s not practical for Starbucks to immediately obtain final settlement. The company doesn’t have to clear with the Federal Reserve each cup of coffee it sells. Instead, it uses this layered approach with payment processors to facilitate everyday transactions.

All successful financial systems have used a layered approach to scale, including the one based on a gold standard, the current fiat currency system, and now Bitcoin.

The key characteristic of Layer 1 financial transactions is finality. They represent the ability to perform irreversible transactions that can transcend borders.

In the current fiat currency system, Layer 1 involves the central bank clearing transactions for final settlement.

Under a gold standard, the central banks of two nations used to settle balances between themselves with physical gold. Once Country A delivered the physical gold to Country B, there was final settlement.

Transactions on the Bitcoin blockchain are comparable to these. They represent final international settlement and clearance.

Layer 1 transactions are typical for high-value transactions that need security and finality. However, they are inappropriate for most consumer transactions—it’s unnecessary to use an international wire transfer to pay for a cup of coffee—which instead can happen on Layer 2.

Layer 2 transactions shouldn’t be compared to Layer 1 transactions—they’re totally different.

Layer 2 transactions involve systems built on top of Layer 1 that offer more convenience.

Using a credit card to pay for a cup of coffee is an example of a Layer 2 transaction. It involves a credit card company and a payment processor that enable convenient transactions on top of the Federal Reserve’s clearance for final settlement.

So, which Bitcoin transactions should be on Layer 1 and Layer 2?

Those are subjective decisions every individual must make.

The competitive free market for the scarce resource of space on the Bitcoin blockchain will decide its most efficient use and, thus, which transactions should be on Layer 1 or Layer 2.

In other words, whoever is willing to pay the transaction fee to the miners can have their transactions inscribed onto the Bitcoin blockchain (Layer 1).

It’s likely larger transactions that demand a high level of security will use the Bitcoin blockchain.

Smaller consumer transactions will probably use more convenient Layer 2 solutions, just like they do now and did under the gold standard.

The idea is to keep Bitcoin’s base layer secure and scale by building on top of it. It would make no sense to scale Bitcoin by compromising its Layer 1. That would be bad engineering.

Many Layer 2 solutions for Bitcoin will inevitably emerge. However, the Lightning Network is the most dominant one.

The Lightning Network is an open, peer-to-peer network built on top of Bitcoin.

On the Lightning Network, people can perform an unlimited number of transactions without needing to add them to the Bitcoin blockchain. It’s unnecessary to delegate custody of funds to a third party—you can always remain in control.

The Lightning Network can eventually handle every consumer transaction in the world—many millions per second.

The Lightning Network also allows for instant micro-transactions that are fractions of a penny, which can be the basis for all sorts of applications, including content monetization, enterprise marketing, web paywalls, and internal corporate controls.

Unlike Layer 1 transactions on the Bitcoin blockchain, which can take 10 minutes or longer to settle, the Lightning Network has nearly instantaneous speed and almost zero fees.

As a merchant, to accept Layer 2 transactions like a credit card in the current fiat monetary system requires obtaining the blessing of a payment processor, a bank, and the central bank.

The Lightning Network, on the other hand, is an open, permissionless network with zero counterparty risk. Anybody can join the Lightning Network, and nobody can be prevented from using it.

Misconception #6—There Is No Privacy on Bitcoin

How do you obtain privacy on Bitcoin’s public blockchain?

It’s a good question that confuses many people.

The answer involves hiding in crowds.

Obtaining privacy on Bitcoin has been likened to the scene in the movie V for Vendetta in which thousands of masked people marched in the street. They were all engaged in a public act, but their identities were concealed because they were all wearing the same mask—which allowed them to hide in a crowd.

Privacy in Bitcoin works in a similar way.

Several excellent privacy tools are available to anyone right now on Bitcoin, and they are getting better every day.

For example, you can find a typical JoinMarket transaction, a special Bitcoin transaction optimized for privacy, at the link below.

Can you tell who the sender is and who the receiver is?

https://mempool.space/tx/a56d23da7df68eb49d3665452bf7085c07a79be62f29f19e588240f02eb94c76

Misconception #7—Miners Control Bitcoin

To be honest, I am not a fan of the term “mining” because it confuses what is happening.

The process of Bitcoin mining is better thought of as a competition with finite rewards, like winning a gold medal in the Olympics.

About every 10 minutes, Bitcoin miners submit a new block—or set of transactions—to the Bitcoin network, adding it to the existing database (blockchain), but only if the miner’s block follows the protocol.

If the Bitcoin network verifies the block as valid, the miner will earn the newly created Bitcoins in each block and the associated transaction fees as a reward.

However, before a Bitcoin miner can submit a new block to the network—and thus earn the rewards—they must compete to solve complex math problems that are difficult to solve but easy to verify. The first miner to solve the math problem has the chance to propose a new block to the network and thus earn the rewards. The process then starts over again.

Miners must incur real-world costs—expensive computer hardware and massive amounts of electricity—to solve these math problems and have the chance to submit a new block to the network to earn the rewards.

If the block they submit doesn’t follow the Bitcoin protocol or is otherwise invalid, the network will instantly reject it. If that happens, the miner will not earn any rewards despite incurring enormous costs to submit the block in the first place.

The genius of Bitcoin’s asymmetric security model is that it is difficult and expensive for miners to submit a new block, but easy, cheap, and fast for the network to verify whether that block is legitimate.

It’s what keeps a global monetary network worth hundreds of billions—soon trillions—running flawlessly with nobody in charge of it.

If a miner tried to stray from the Bitcoin protocol or include invalid transactions in the block, the network would easily detect and instantly reject it.

It would be not only a fruitless effort for the renegade miner but would impose actual costs on them. They would need to use an enormous amount of electricity and processing power to solve the math problem in the first place.

In other words, it takes a lot of effort and costs a lot of money to propose a new block to the Bitcoin network, and if the miner isn’t following the protocol, then it will waste all of that money.

Bitcoin proponent Saifedean Ammous said it best: “Miners are Bitcoin’s slaves, not masters.”

Saifedean means that the miners need to satisfy the Bitcoin network—not the other way around.

Miners must follow the Bitcoin protocol and be honest. If they don’t, they will do nothing but waste money and eventually bankrupt themselves.

Misconception #8—The Deep State Created Bitcoin To Usher In CBDCs

While the true identity of Bitcoin’s creator—who used the pseudonym Satoshi Nakamoto—is uncertain, we know he came from the Cypherpunks and that Bitcoin was the culmination of their efforts for many years.

The Cypherpunks are a loosely affiliated group of activists advocating for strong cryptography and privacy technologies as a route to social and political change.

They aim to empower the individual and disempower the state, not by engaging in the political process or asking permission, but by writing code and releasing unstoppable software.

The Cypherpunks are the good guys.

The Cypherpunks are behind not only Bitcoin but also other freedom-oriented technologies and organizations that have caused the US government great consternation, such as WikiLeaks, BitTorrent, Tor, Pretty Good Privacy (PGP), the Electronic Frontier Foundation, and others.

As a result, the Cypherpunks often had a hostile relationship with the US government.

I am, therefore, skeptical of the claim that a Cypherpunk was secretly working for the US government. The burden of proof is on the person making the (baseless) accusation that the Deep State somehow birthed Bitcoin. Unless compelling evidence emerges, I’m not inclined to believe it.

Further, Bitcoin is open-source software, which means its code is available for anyone to download, inspect, suggest changes, and run.

Bitcoin was released in 2009, and anyone has had many years to inspect the open-source code, but nobody has ever found anything sinister. If you think there is something sinister in the Bitcoin code, nothing is stopping you from proving it.

Again, the burden of proof is on the people making these claims, and so far, they haven’t provided any, so I don’t find them credible.

Regarding central bank digital currencies (CBDCs), it’s crucial to understand that CBDCs are a reaction to Bitcoin.

Central banks took notice of Bitcoin’s disruptive potential and realized they had better do something before Bitcoin ate their lunch. CBDCs are their response, and as you’ll see, it’s pathetic.

In short, despite all the hype, CBDCs are nothing but a rebrand of the faltering fiat currency scam. It’s old wine in new bottles.

CBDCs and Bitcoin share some characteristics. For example, they are both digital and facilitate fast payments from a mobile phone. But that is where the similarities end.

The reality is that CBDCs and Bitcoin are entirely different in the most fundamental ways.

You need the government’s permission and blessing to use a CBDC, whereas Bitcoin is permissionless.

Governments can (and will) create as many CBDC currency units as they want. With Bitcoin, there can never be more than 21 million, and there is nothing anyone can do to debase it.

CBDCs are centralized. Bitcoin is decentralized.

Governments can censor transactions and freeze, sanction, and confiscate CBDC units whenever they want. Bitcoin is censorship-resistant. No country’s sanctions or laws can affect the protocol.

There is no privacy with CBDCs. However, with Bitcoin, if you take specific steps, it is possible to maintain reasonable privacy.

CBDCs are government money that are easy to produce and give politicians a terrifying amount of control over people’s lives. On the other hand, Bitcoin is non-state hard money that helps liberate individuals from government control.

In short, CBDCs are a pathetic attempt to compete with Bitcoin. They are a desperate, last-ditch effort to keep the fiat currency scam going—a Hail Mary.

Misconception #9—The Government Will Ban It

It is certainly possible that the US President could issue an Executive Order banning Bitcoin.

Remember, Executive Order 6102 outlawed gold ownership for American citizens from 1933 until it was repealed in 1974.

However, that outcome is unlikely for three reasons.

Reason #1: Code Is Protected Speech

Bitcoin is simply computer code.

In the Bernstein v. the US Department of State case, US federal courts have ruled that computer code is equivalent to speech protected by the 1st Amendment of the US Constitution.

On the other hand, the Constitution is not a reliable protector of rights, as the Covid hysteria, the War on Terror, and the War on Drugs have all proven. So, I wouldn’t exclusively count on the US Constitution to protect Bitcoin.

Nonetheless, the previous strong precedents ruling code as equivalent to protected speech complicates any attempts to ban it.

Reason #2: Regulatory Clarity Already Exists

The US government has defined Bitcoin as a commodity and property.

The IRS, the SEC, the CFTC, and other federal agencies have given Bitcoin clear regulatory and tax frameworks.

That’s helped many large US businesses get into Bitcoin, including many large financial institutions. Reversing these guidelines would generate significant pushback and be challenging.

Reason #3: Banning Bitcoin Is Impractical

Government bans may restrict something, but they cannot make something valuable and desired by many people go away by passing a law.

Consider governments in Argentina, Venezuela, and numerous other countries that have laws restricting their citizens from accessing US dollars.

However, these laws have little effect on their citizens’ desire and ability to use them. Instead, these actions create a thriving black market or, more accurately, a free market.

Similarly, consider how successful governments have been in prohibiting cannabis over the decades. Despite their best efforts, cannabis has always been available in most big cities.

Trying to enforce a prohibition on something digital and borderless like Bitcoin is entirely impractical. Bitcoin would be far more challenging for governments to ban than US dollars or a plant.

Further, many popular Bitcoin wallets use a 12-word phrase as a way to recover your funds. If you can memorize the 12-word phrase, you can potentially store billions of dollars worth of value just in your head with nothing else.

Try banning that.

It’s like trying to ban mathematics.

Even if it were practical to ban Bitcoin, it’s already too late.

There’s a critical mass of Bitcoin advocates among large corporations, politicians, and regular people.

They bring all of their lawyers, lobbyist, and political connections to advocate for Bitcoin potentially. That’s a lot of political firepower. And their numbers are only growing.

According to a survey from NYDIG, 46 million Americans own Bitcoin. That’s around 22% of all adults in the US.

Supporting a ban on Bitcoin means going against tens of millions of Americans—no small number are wealthy, powerful, and well-connected.

In short, outlawing Bitcoin will not help anyone win an election.

Bitcoin has already reached escape velocity. In other words, it’s too politically popular to outlaw, and every day it gets stronger as adoption grows.

Further, if the US government was foolish enough to ban Bitcoin despite all of this, it would only give Russia, China, and its other rivals a golden opportunity to be at the forefront of a lucrative new industry and the future of money.

Banning Bitcoin would be a financial and geopolitical blunder of the highest order.

Here’s the bottom line.

The US government doesn’t like Bitcoin.

Even though banning it would be politically unpopular and unconstitutional, it still might consider the move if it could do so effectively without giving an edge to its rivals.

But it can’t, so it won’t.

So, I think the US government will have to adapt to that reality, and it already has been by giving Bitcoin a clear regulatory framework for businesses and investors.

Misconception #10—BlackRock Will Change Bitcoin or Manipulate the Price

BlackRock has filed for a spot Bitcoin ETF.

Let me be clear. I am no fan of Fink, BlackRock, and the nefarious agendas they push.

Frankly, I’d like to see BlackRock go bankrupt and Fink clean toilets to earn a living.

However, it’s important to remember that Bitcoin is an apolitical, open, permissionless monetary network available to anyone and controlled by none. Nobody can be prevented from using Bitcoin.

Bitcoin is for everyone, including people you don’t like.

Some worry that BlackRock could change Bitcoin somehow, but that is unfounded.

Remember, nobody can change Bitcoin’s protocol—not even Elon Musk, Jeff Bezos, the Chinese government, the US government, or any of these powerful entities combined.

Even if Satoshi Nakamoto—Bitcoin’s anonymous Cypherpunk creator—returned after disappearing in 2011, he could not alter Bitcoin.

The Blocksize Wars, which culminated in 2017, is proof.

That’s when an overwhelming majority of the Bitcoin miners (primarily based in China)—and other prominent insiders and large companies—tried to get together and change Bitcoin’s protocol to increase the block size.

Even though they represented most Bitcoin miners, some of the most powerful insiders, prominent influencers, and large corporations, their attempted hostile takeover was an abysmal and embarrassing failure.

Instead of forcing a destructive change in Bitcoin—as they desired—they just created an increasingly worthless knock-off known as Bitcoin Cash.

Recently, the market cap of Bitcoin Cash (BCH) was less than 1% of the real Bitcoin’s (BTC) and is trending towards 0%.

I wouldn’t worry too much about BlackRock trying to make an “ESG Bitcoin” or otherwise changing it. Even if they were foolish enough to do so, I doubt it would be more successful than Bitcoin Cash.

Another worry about BlackRock is that they will manipulate the Bitcoin price by creating more claims on it than what actually exists.

They could sell some fake paper Bitcoin, but it would fail spectacularly and be self-destructive.

Suppose someone like BlackRock wants to manipulate the price of an asset by creating more claims on it than what actually exists.

Taking physical delivery of the underlying asset would be one way to reveal the fraud.

If there are more claims than actually exist, asking for physical delivery will reveal it because the delivery will fail.

Think of taking physical delivery like calling the manipulator’s bluff.

It’s challenging to take delivery of physical commodities traded on large exchanges, which opens the door to creating more claims than actually exist. It’s not easy to call their bluffs.

However, with Bitcoin, taking delivery is as simple as sending an email.

If anyone is idiotic enough to create more claims to Bitcoin than actually exist, revealing the fraud will be much easier than with other assets.

If BlackRock or some other entity tries this stunt, consider it a gift.

You’ll be able to accumulate more Bitcoin at artificially lower prices until their Ponzi Scheme inevitably blows up—just like what happened with FTX.

Conclusion

Bitcoin represents a revolutionary improvement in money.

When you put it all together, you have an unstoppable, superior form of money conquering the world. It’s not hard to see where this trend is going.

Yet many people still don’t understand Bitcoin or its implications.

Bitcoin can give monetary sovereignty to the individual. It allows anyone in the world to own and use incorruptible, debasement-proof money without needing any other party.

In short, Bitcoin obviates central banks and their inflationary fiat currencies. That’s no small accomplishment. It’s the most important innovation in money in hundreds of years and alters the status quo profoundly.

The implications of Bitcoin could shatter existing paradigms and be as disruptive as the invention of gunpowder, the printing press, and the Internet.

That’s why I have little doubt Bitcoin will continue to be one of the biggest financial trends of the decade.

Think about it.

You have the chance to front-run major investors, large multinational corporations, and even governments by getting in on this trend before they do.

It’s an enormous once-in-a-lifetime opportunity and the biggest investment story I’ve ever seen.

Yet, the vast majority of humanity does not own or understand Bitcoin. Many people believe one or more of the above misconceptions.

That perception gap is a blessing, as it allows us to capitalize on this information asymmetry with investments that tap into this powerful trend.

However, I’d bet it won’t be long until the rest of the world figures out Bitcoin’s potential and acts upon that knowledge. And when they do, the opportunity to make transformative profits will probably be gone.

That’s why I’ve just released an urgent PDF report revealing three crucial Bitcoin techniques to ensure you avoid the most common—sometimes fatal—mistakes.

Check it out as soon as possible because it could soon be too late to take action. Click here to get it now.

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