Misconceptions about cryptocurrency

6 Common Misconceptions About Crypto and Blockchain Technology

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Getting a grasp of new technologies can be quite tasking, especially for the non tech savvy. In our current dispensation however, familiarity with emerging technologies is a must for every professional therefore, scaling the learning barrier is necessary. Blockchain technology is widely tipped to be the next big thing in our tech inclined world. Its disruptive potentials moves it up the list of technologies worth learning about. If you do decide to embark on this learning path, here are five popular cryptocurrency misconceptions to take note of.

Misconception about Blockchain

1) Blockchain and cryptocurrency are the same

Even ardent enthusiasts are guilty of this cryptocurrency misconception. The fact that these terms are interwoven makes this opinion quite popular and perhaps, pardonable. It would have been valid if bitcoin were the only existing blockchain. The emergence of other blockchains with different use cases lays this argument to rest.

To establish a clear distinction between both, blockchains can best be viewed as the crust of a pizza while cryptocurrencies are its cheese and toppings. From their respective definitions, the distinction is obvious as well. Blockchains are basically chain of blocks that form a distributed ledger, while cryptocurrencies are cryptographic currencies backed by the distributed ledger.

Although cryptocurrencies always exists within a blockchain, it does not fully illuminate the potential of blockchain technology.

2) Coins and Tokens are the same 

Narrowing down on cryptocurrencies, we have coins and tokens. Both classes of cryptocurrency have only a thin line separating them, but that’s not an excuse not to know the difference!

Common cryptocurrency misconception between tokens and coins

Coins are independent stores of value usually tied to a public blockchain(e.g. Bitcoin, Litecoin, EOS, Ethereum classic etc). They possess the characteristics of money (acceptable, tangible, divisible etc) and mainly represent a medium of exchange. While coins operate on their own blockchain, tokens are hosted on a blockchain. They represent access to a protocol and can best be viewed as shares of a company. Possession of tokens gives individuals project voting rights .

They are also a medium of exchange even though their utility is confined to the spheres of the project’s ecosystem. Tokens can be hosted on Ethereum, Waves, Ethereum Classic, Stellar etc.

3) Cryptocurrency misconception: Ethereum is a cryptocurrency

If I had a dollar for each time I heard someone say “I hold xxx Ethereum”, I’d probably be up there with Bezos!. Ethereum is often misconstrued to be a cryptocurrency.

Ether cryptocurrency misconception

Rather, it is an open source public blockchain that permits anyone to launch their token. What most people actually mean in this context is Ether. Ether is a cryptocurrency generated by the ethereum platform which is used to compensate nodes for validating transactions. That said, I hope to hear more of “I hold xxx Ether in the future !”

4) All blockchain fundraising mechanisms are ‘ICOs’

ICOs and STOs are cut from the same cloth but have obvious differences. Both are fundraising schemes where blockchain projects sell tokens to investors. Raised funds are usually allocated to project development and implementation. ICOs are unregulated and backed by nothing, hence have facilitated scams which have resulted to the loss of millions of dollars. STOs attempt to nip in the bud by introducing SEC (Security Exchange Commission) regulatory frameworks and ensuring that vendors and investors adhere strictly. STO tokens are backed by security or real world assets. 

Though these ICOs and STOs are by far the two most popular fundraising mechanisms. Furthermore, there is IEOs. IEOs or Initial Exchange Offerings together with other forms of funding are gradually gaining ground today. 

5) Crypto misconception: All blockchains are public

“Open source, public ledgers” are far too common descriptions for blockchains so it is quite understandable to think that all blockchains are public. Therefore, assuming blockchain technology is only public, is another cryptocurrency misconception. Three types of blockchains exist: public, private and consortium blockchains.

Private blockchains usually have only a few participants that control the network. This makes them tilt a bit towards centralization. They come handy in cases of vote counting, monitoring and executing transactions, supply chain management amongst other use cases. Private blockchains are also referred to as permissioned blockchains since only authorised persons can join the network.  

Consortium blockchains are regarded as “self private” blockchains. They facilitate seamless resource sharing between controlled user groups of different organisations .

6) Blockchains can’t be manipulated 

Blockchains are not entirely immutable and devoid of manipulations as widely perceived. Although they are extremely difficult to manipulate, the likelihood of occurrence does exist. When an individual or a group controls more than half of the network nodes, he can alter data and records on the blockchain. This is known as the “51% attack”.

Conclusion

Familiarising one’s self with common misconceptions is a great way to start learning about a particular topic. There are quite a number of them that did not make the list, but these six popular blockchain and crypto myths should be erased from your books!.

 

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Daniel Okorafor
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Daniel Okorafor

Passionate about modern disruptive technologies and their impact on diverse aspects of human life. He has a wealth of experience in blockchain content creation and community management having written topnotch article reviews and whitepapers for several STOs and ICOs.
Daniel Okorafor
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