Barely more than a decade has passed since Bitcoin was invented, but cryptocurrencies have pervaded American culture and language. In 2018 nearly 80 percent of Americans reported having heard of the cryptocurrency. Talk of cryptocurrencies seems to be everywhere in popular culture: “CSI,” “Family Guy,” “The Big Bang Theory,” several episodes of “The Simpsons.” And that’s just the television shows. The word “cryptocurrency” even made it to the Merriam-Webster dictionary in 2018.
Surprisingly, though, most people are still unsure how the technology works, and many myths about its pros and cons persist. Based on recent CNA analysis, we would like to debunk five myths about cryptocurrencies.
Myth 1. You need a computer science degree to become a user. As one analyst thoughtfully argued, cryptocurrencies are the microwave ovens of the 21st century. It wasn’t that long ago that microwaves represented an incredible innovation; very few people understood how they worked, and many expressed apprehension about putting them in home kitchens. Yet today microwaves are everywhere, despite the fact that most people still don’t know how the technology works. People adopted microwaves because they became common and familiar, not because they became easier to understand. Cryptocurrencies are similar. Understanding the technology isn’t necessary for the average person to use this new form of money.
Myth 2: Cryptocurrencies are anonymous. Cryptocurrencies are actually pseudonymous; there is a difference. The idea of Bitcoin originated with a loosely affiliated group known as Cypherpunks, who wanted to use cryptography as a means to increase privacy. They were worried that the governments and banks behind conventional currencies like the U.S. dollar had no incentive to guarantee the privacy of users. Their solution was to create a global financial system that excluded governments and banks. This would seem to allow for the anonymous movement of money. But holders of cryptocurrencies are known by their public keys, much as an author might be known by a pseudonym. As a result, if a user’s true identity is ever linked to her public key, it would be possible to trace all of her activity, in the same way that if an author’s pen name is ever linked to her real name, all of the books she wrote under the pseudonym would be linked to her true identity
Myth 3: Terrorist organizations are dependent on cryptocurrencies. Cryptocurrencies are popular among criminals engaged in a wide variety of illegal activities ranging from financial crimes like money laundering to more traditional crimes such as purchasing illegal goods. And of course cryptocurrencies are well-suited to cybercrimes involving ransomware. But despite the many articles that have been written on terrorism and cryptocurrency, most terrorist activity in this space has been modest, with organizations raising relatively small amounts of money. That said, some analysis suggests that this is the future of terrorism finance, and that terrorists are moving in this direction.
Myth 4: The blockchain is immutable. Cryptocurrency advocates often argue that the immutability of the blockchain — the ledger that records all transactions — is one of the most valuable qualities of the technology. The reality, though, is that the blockchain can be edited by any individual or group that controls enough of the network. This is called a 51% attack. In at least one case, a blockchain was edited by criminals to steal money. In other cases, it has been edited by well-meaning developers trying to stop criminals from stealing money.
Myth 5: Cryptocurrencies are a trustless system. Cryptocurrencies were created in part to allow people to exchange money without having to trust an external authority like a bank. In practice, though, cryptocurrencies still require trust. A transaction passed through a bank and recorded in the bank’s centralized ledger requires trust that the bank will be honest. A transaction in cryptocurrencies recorded in the blockchain trusts that the developers and miners — who might control majorities of the network — will be honest.
To learn more, follow these links to the full reports: Cryptocurrencies: A Primer for Policy-Makers and Cryptocurrencies: Implications for Special Operations Forces.