The Truth About Bitcoin: Debunking the Biggest Myths

Bitcoin
Bitcoin
has become a big topic in this year’s election, attracting both fans and skeptics. Despite this, there are still misconceptions about the asset that can discourage people from learning more about it. These myths not only confuse newcomers, but they can also stick with those who have been following Bitcoin for years. By addressing these myths head on, we can promote a clearer understanding of what Bitcoin is and isn’t, helping you make informed decisions about this emerging asset.

Bitcoin is not just for criminals

One of the most common myths about Bitcoin is that it is a go-to tool for criminals. This misconception likely stems from the fact that Bitcoin is censorship-resistant, meaning its code cannot distinguish between transactions. While this may make it attractive for some illegal activities, the facts do not support the idea of ​​widespread criminal use. Quite the opposite.

The latest Chainalysis 2024 report shows a decline in crypto assets received through illicit addresses, from $39.2 billion in 2022 to $24.4 billion in 2023. The total amount represents just 0.34% of total cryptocurrency transaction volume, down from 0.42% the previous year.

Chainalysis also estimated that Bitcoin’s specific share of total illicit crypto flows is less than 25%. Another report by Galaxy Research found that the Bitcoin network moved $1.4 trillion in 2023. Using this data, we can estimate that only 0.43% of Bitcoin’s volume came from illicit activities.

By comparison, fiat currencies dominate illicit finance. A 2023 Nasdaq report estimated global illicit fund flows at a staggering $3.1 trillion. How much does bitcoin contribute to that total? Just 0.2%. This is remarkable, considering bitcoin recently surpassed the Japanese yen to become the third-largest currency in circulation.

When it comes to black markets and the dark web, Bitcoin’s influence is similarly minimal. The global black market is estimated to be between $2.25 and $2.5 trillion per year. If all of Bitcoin’s illegal use occurred on black markets, it would still only be 0.27% of global black market activity.

How to estimate the real value of bitcoin

Bitcoin is often criticized because it has no so-called intrinsic value, unlike gold, fiat currencies, or labor. Critics argue that Bitcoin, being digital and intangible, has no intrinsic value because it is not backed by a physical commodity or government and has no practical use beyond transactions.

The concept of intrinsic value refers to the value of an object inherently or for its own sake. In reality, Bitcoin has no intrinsic value because intrinsic value is a fallacy—all value is subjective and determined by the market. Consider the example of water: while it is essential to life and in high demand, the price someone is willing to pay depends on their circumstances. A thirsty person in a desert will value it much more than someone already hydrated in a rainy region.

This lack of intrinsic value has long been recognized. In Gary North’s 1969 essay “The Fallacy of Intrinsic Value,” he clearly states, “Value is not a metaphysically existing substance; an object is simply valued by someone who actively values ​​it.” This quote highlights the subjective nature of value, which is key to understanding Bitcoin’s role in today’s economy.

Intrinsic value is sometimes stretched to include utility value, as in the case of gold. For example, even if gold were not used as money, it would still have uses in jewelry or dentistry. Proponents of intrinsic value argue that these industrial uses give gold value beyond being a medium of exchange, which Bitcoin lacks. However, this argument misses the more important point: all utility comes from its fundamental properties; other uses for gold do not make it good money; its fundamental properties do make it good money. Similarly, Bitcoin has real, finite properties that create value. It is the only asset with a truly fixed supply, is censorship-proof, and can be transmitted over communication channels.

Although Bitcoin does not have the physical nature of gold or the government backing of fiat currencies, its value comes from its unique properties that generate constant demand from users just like any other asset.

Bitcoin’s Impact on the Environment

Another common criticism of Bitcoin is its impact on the environment, particularly due to its energy-intensive mining process. This criticism has subsided somewhat over the past year, but it is still at the forefront of many minds. While it is true that Bitcoin mining uses a huge amount of electricity, it is a 100% zero-emission activity. Much like electric vehicles that are labeled as zero-emission, the Bitcoin mining equipment itself also produces zero emissions.

Second, Bitcoin’s energy consumption is inherently valuable, as the market confirms. Bitcoin miners directly bid for the same power as everyone else. If they couldn’t pay for electricity with profit, hash rates and energy consumption would decline. This point becomes clearer if we take another industry as an example. AI and data centers are using an exponentially increasing amount of electricity, but most people understand why this is happening, because it’s useful. In 2022, data centers and AI used more energy than Bitcoin mining, and by 2027, Bitcoin’s energy consumption is expected to double.

An increasing percentage of the energy for Bitcoin mining also comes from renewable sources. Bitcoin ESG expert Daniel Batten has said in public statements that it is the number one industry for renewable energy usage, with up to 56% of mining being powered by renewable sources. Bitcoin miners also do something no other industry can do, they use waste methane, reducing 70 tons of CO2 emissions into the atmosphere per year in a market-driven process.

What’s more, Bitcoin can directly subsidize renewable energy projects. These projects often go through lengthy pre-commercialization periods before connecting to the grid. A study by Cornell researchers found that Bitcoin mining can help cover costs during this phase, allowing projects to recoup their investment sooner. The study found that Bitcoin mining could generate $47 million from planned renewable energy projects in Texas alone, providing crucial financial support during this sensitive stage.

Understanding Bitcoin requires cutting through the noise and misinformation. By examining these common myths, we can see that Bitcoin is not just a tool for illegal activities, nor is it without value or an immediate threat to the environment. It is a complex and evolving asset with unique characteristics that challenge traditional financial systems.

For those new to Bitcoin, this exploration is just the beginning. It’s important to dig in, question assumptions, and look at Bitcoin through a nuanced lens. Only then can we fully appreciate its potential and decide where it fits into our financial future.