How does crypto work? - Myths and misconceptions about cryptocurrency
How does cryptocurrency work? In this blog post, we discuss the various myths and misconceptions surrounding cryptocurrency, especially Bitcoin.
1. Bitcoin is just “nonsense”
Nonsense! This is one of the myths we are most concerned with dispelling. In 2021, we saw several large, serious players officially start taking an interest in bitcoin. The IT company Microstrategy bought bitcoin for several billion US dollars. Elon Musk, CEO of Tesla, mentioned bitcoin on Twitter, and Tesla bought bitcoin for almost 13 billion Norwegian kroner. Here in Norway, investors have also invested heavily in crypto. Kjell Inge Røkke bought bitcoin for half a billion kroner, while Øystein Stray Spetalen entered Firi on the owner side gjennom Tycoon Industrier og han har også kjøpt bitcoin på privaten.through Tycoon Industrier and has also bought bitcoin privately.
When Spetalen attended the DNB Invest conference in March, he referred to bitcoin as “nonsense”, but…
“When the facts change, I change. I met the Firi (formerly MiraiEx) founders Thuc and Øyvind the day after the recording of the podcast in early March and realized that I was wrong. And when I then read that Kjell Inge Røkke had gone into bitcoin, it became pretty obvious. Can’t bear to see Røkke making money and not me,” says Spetalen to the Finansavisen newspaper.
2. How does it work with cryptocurrency - Is it complicated to get into it?
A little, but you can do it! There are countless sources of information out there on how cryptocurrencies work, so we understand that navigating through all of these sources is something of a challenge. Fortunately, there are a nice bunch of crypto enthusiasts out there who are happy to share tips and advice. Kryptoklubben is a Facebook group for anyone who wants to discuss cryptocurrency with others. We also recommend that all beginners start their cryptocurrency journey by reading up on bitcoin which is the first and most well-known cryptocurrency. You can read about what bitcoin is here.
3. Using cryptocurrency is difficult and expensive
Myth! Many people think that using bitcoin and other cryptocurrencies is hugely complicated. This is certainly not the case. At Firi you can invest in cryptocurrency safely and easily without compromising security, especially because we take care of all the tech stuff, provide you with a wallet (digital wallet) and ensuring that your funds are stored safely. You can trade cryptocurrencies in just a few minutes.
If you want to buy physical goods with cryptocurrency, then you are dependent on the recipient being able to take payment in cryptocurrency. For example, it’s possible to transfer money from one crypto-wallet to another – just like with a regular online bank. A colleague of ours, for example, paid for a scooter rental on a small, Caribbean island using bitcoin when the USD at the only ATM on the island had run out.
However, we very much don’t recommend using bitcoin to buy a cup of coffee, for example. Not just yet at least. That’s because bitcoin has a transaction fee that is “just as high”, regardless of whether you’re buying a coffee cup or a house for 10 million krone. The technology is still evolving, and there are other cryptocurrencies that can be cheaper to trade with.
When you use Firi, you can transfer cryptocurrency to a scooter rental company in the Caribbean just as easily as you can to your grandpa:
6 easy steps for transferring bitcoin with Firi:
- Grab your phone
- Open the Firi app and log in with Vipps
- Go to transfers
- Select Wallet Transfer – Send Cryptocurrency – Select Currency (Bitcoin)
- Enter the recipient’s BTC address and amount
- Press Confirm
Since Firi is a Nordic cryptocurrency exchange, you can buy and sell cryptocurrencies with your local currency, which can save you currency exchange fees when using foreign platforms.
Compared to the competitors, Firi has reasonable prices. Creating an account and depositing both cash and cryptocurrency is free. All exchanges take a commission for different currencies, and you can see our prices here. The commission is a fee that you pay to conduct a trade on the stock exchange. At Firi, this commission is 0.5 percent.
4. Bitcoin is not a real currency with value
Myth! Cryptocurrency is a virtual currency that can be exchanged electronically.
For a currency to be successful and have any value, it should have certain specific characteristics:
- There must be a limit to how much of this currency there is. Too much money in circulation can lead to inflation and economic collapse. When bitcoin was launched in 2009, the developers decided that it would not be possible to mine more than 21 million bitcoin.
- It must be possible to divide the currency into smaller parts. This can be compared to cents or pennies, for example. You must be able to turn parts of the currency into larger or smaller units, and you must be able to buy all possible goods with the currency. In the same way that there are 100 øre in a Norwegian krone, there are 100,000,000 satoshi in a bitcoin.
- People have to be able to use the currency, for example when shopping. Bitcoin is decentralized, which means that people can spend money without a third party, such as a bank, and bitcoin can be used by anyone who has a bitcoin wallet.
- It should be easy to transfer currency from one person to another. Bitcoin can be transferred between people easily in a matter of minutes. This is done directly between wallets or on stock exchanges like Firi, for example.
- The currency must be durable and withstand a shock. Bitcoin cannot be destroyed in the same way as, say, a hundred dollar bill can since it is not a physical unit of currency. Still, it is possible to lose bitcoin if you do not have control over your keys and passwords.
- It should be difficult to counterfeit the currency. Bitcoin is virtually impossible to counterfeit due to its use of advanced cryptography and blockchain technology.
Bitcoin meets all the above requirements, and can thus function as legal tender. In addition to being legal tender, bitcoin is also its own payment system.
Bitcoin and other cryptocurrencies must be reported in your Tax Return every year, and the Tax Administration refers to cryptocurrencies as “assets”.
You can read more about why Nordic crypto researchers believe bitcoin has value here.
5. Cryptocurrency will replace fiat
Who knows? Fiat money is money issued and recognized by the central banks. This means Norwegian kroner or US dollars, for example. Many crypto-enthusiasts have predicted that cryptocurrency may replace fiat in the future, while others believe that this cannot happen. Will robots replace all jobs? Who knows, the future is exciting.
6. We do not need bitcoin as a payment system or currency because our traditional banking and money system works
Myth! Bitcoin is a worldwide currency with a fixed monetary policy. The value of bitcoin fluctuates a lot, but the number of bitcoin is fixed. No-one can decide that more bitcoin should be created, it is controlled by the software and the interaction between users, financial actors and miners (“gold diggers”). This means that people in countries such as Venezuela, Sudan and Turkey have had the opportunity to avoid extreme inflation by investing in bitcoin, either through buying or mining.
As mentioned above, bitcoin is not only a cryptocurrency, but also a payment system that is decentralized, and thus not controlled by banks or governments. In Norway, we are lucky to have a banking system that works and a government we trust, so for us it may not be so important that bitcoin has come onto the scene and can offer a system where you are independent of the state. This is not the case everywhere in the world. In countries with a lot of corruption, failing banking systems and little democracy, bitcoin can be an invaluable tool for citizens.
We refer again to the scooter rental in the Caribbean - this was in a country with a lot of political unrest where the banking system did not work properly. It was not just our colleague who didn’t have access to dollars, but also the residents of the island. Without money, they were unable to buy food and clean water. This happened a lot. What if everyone used cryptocurrency?
7. Cryptocurrency is detrimental to the environment
Well. There has recently been a strong focus on cryptocurrency, and especially bitcoin and its impact on the environment. The fact that bitcoin requires a lot of energy and computing power is not to be underestimated. But what type of energy is used? That’s right, surplus energy.
Bitcoin can hijack and store energy in places that have not previously been possible, writes Nikolai Johan Heum, technology director at Enode.io in the Dagens Næringsliv newspaper, concluding that “climate wins”.
He argues that bitcoin can act as a battery for more and more energy producers. The producers sell surplus energy to bitcoin miners, meaning nothing is wasted.
Researcher Svein Ølnes at Vestlandsforskning also believes that there is not any automatic increase in energy consumption.
New bitcoins can be added without any energy input, he tells Forskning.no.
When it comes to energy consumption, no-one in the cryptocurrency world is denying that Bitcoin uses a lot of energy. What many are concerned about, however, is that the Bitcoin system should contribute value to the global community that is worth spending energy on. By getting to know how the global financial system works, what challenges it has, and what problems Bitcoin will be able to help solve, you will also be able to more easily assess whether its energy use is defensible.
8. Cryptocurrency is only used by criminals
Myth! This is one of the biggest myths we come across in the crypto world. This stems, among other things, from the fact that trading on the illegal website “Silk Road” was one use for Bitcoin in years gone by, before the website was closed down and the owner arrested.
However, it is important to think about this again. Firstly: Cash is still the most widely used means of payment for criminals as it is difficult to track but easy to sell. Should we get rid of cash for that reason? Or is it conceivable that cash has a function that is valuable to the rest of society? Also, the main place where money is laundered is the traditional banking system. But this doesn’t lead you to the conclusion that “money is only for criminals” because that claim makes no sense.
Another thing is that you can see that criminals are often early adopters of new technology. In its time, this has also applied to the internet, drone technology, cell phones, the car and much more. It is an ill-conceived argument that you should not use a new technology because criminals have happened to use it.
We can imagine that this myth stems from the fact that the senders and receivers of cryptocurrency are “anonymous”. But that is only partially true because at the same time, all transactions can be read by anyone who wants to, and Bitcoin can be traced back to its original source since the software has an open source code and shared ledger. (You can read about this in our article on blockchain explorers. By contrast, the traditional monetary system is much more “closed” to the public.
Firi is registered with Financial Supervisory Authority of Norway and observes the Norwegian Money Laundering Act and “know your customer principle”, and works actively to prevent our platform from being used for illegal transactions.
9. Bitcoin is a pyramid scheme and Firi is a scam
Myth! Bitcoin is decentralized. There is no-one sitting at the top, and there are no middlemen. The root of this myth probably stems from the fact that some claim that Bitcoin has no real intrinsic value or useful application. Thus, it is a “worthless” system that is just about tricking new people.
Maybe people believe this because Bitcoin exists digitally and not physically, because they don’t understand the technology and because they have a simple understanding of what “value” is. Compare Bitcoin to shares, for example, and you’ll see that methods used for evaluating its value are adapted to it. But
Bitcoin is not a share, and is much closer to a commodity such as gold in terms of its properties.
A good starting point, therefore, can be getting acquainted with Bitcoin’s “whitepaper”, and reading up on what problems Bitcoin can solve.
As previously mentioned, Firi is registered with the Financial Supervisory Authority of Norway, in addition to being one of the fastest growing start-up companies in Norway, with serious investors on its owner side. You can therefore be sure that all investments you make with us are safe. We want to make it safe and easy to get started with crypto trading and savings.
Want to start your cryptocurrency journey after dispelling these myths? Read more on how to Register here!