Here is the truth behind the three biggest bitcoin myths, from criminal users to environmental impact.Here is the truth behind the three biggest bitcoin myths, from criminal users to environmental impact.  Read More crypto mining

BitcoinBitcoin
has become an important topic in this year’s election, attracting both fans and skeptics. Despite this, there continue to be misconceptions about the asset that can turn people off to learning more about it. These myths not only confuse newcomers, but also can linger among those who have followed Bitcoin for years. By addressing these myths head-on, we can foster a clearer understanding of what bitcoin is and what it isn’t, helping you make informed decisions about this evolving asset.

Bitcoin Is Not Only For Criminals

One of the most pervasive myths about Bitcoin is that it is a primary tool for criminals. This misconception likely stems from the fact that Bitcoin is censorship resistant, meaning its code cannot discriminate between transactions. While this can make it attractive for some illicit activity, the facts don’t support the idea of rampant criminal use. It’s quite the opposite.

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

Chainalysis also estimated Bitcoin’s specific share of total illicit cryptocurrency flow at less than 25%. Another report from Galaxy Research showed the Bitcoin network transferred $1.4 trillion in value in 2023. Using these figures, we can estimate that only 0.43% of Bitcoin’s volume came from illicit activities.

In comparison, fiat currencies dominate illicit financing. In a 2023 report from Nasdaq, they estimated the global illicit fund flows at a staggering $3.1 trillion. Bitcoin’s contribution to this total? Just 0.2%. This is remarkable given that Bitcoin recently surpassed the Japanese Yen to become the third largest currency in circulating supply.

Regarding black markets and the dark web, Bitcoin’s impact is similarly minimal. The size of the global black market is estimated at $2.25 to $2.5 trillion per year. If all of Bitcoin’s illicit use was in black markets, it would still only account for 0.27% of global black market activity.

How To Evaluate Bitcoin’s Real Value

Bitcoin is often criticized because it lacks so-called intrinsic value, unlike gold, fiat currencies, or labor. Critics argue that Bitcoin, being digital and intangible, doesn’t hold intrinsic value because it isn’t backed by a physical commodity or government, and has no practical use outside of transactions.

The concept of intrinsic value refers to an object’s value inherently or for its own sake. In reality, Bitcoin lacks intrinsic value because intrinsic value is a fallacy—all value is subjective and determined by the market. Consider the example of water: while it’s essential for life and in high demand, the price one is willing to pay depends on circumstances. A thirsty person in the desert will value it much more than someone already hydrated in a rainy region.

This lack of intrinsic value has been understood for a long time. 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 emphasizes the subjective nature of value, which is central to understanding Bitcoin’s role in today’s economy.

Intrinsic value is sometimes stretched to include use value, as in gold’s case. For example, even if gold were not used as money, it still has uses in jewelry or dentistry. Proponents of intrinsic value claim that these industrial uses give gold an inherent worth beyond being a medium of exchange which Bitcoin lacks. However, this argument misses the bigger point: all utility comes from fundamental properties, gold’s other uses don’t make it a good money, its underlying properties make it a good money. Similarly, Bitcoin has real, finite properties that create value. It’s the only asset with a truly fixed supply, it’s censorship-resistant, and it can be sent over communication channels.

While Bitcoin may not have the physical nature of gold or the government backing of fiat currencies, its value is derived from its unique properties that create reliable demand from its users just like every other asset.

Bitcoin’s Environmental Impact

Another common criticism of Bitcoin is its environmental impact, particularly due to the energy-intensive process of mining. This criticism has faded somewhat over the past year, but it is still front and center for many. While true that Bitcoin mining consumes immense amounts of electricity, it is a 100% zero emission activity. Like electric vehicles branded as zero emission, Bitcoin mining equipment itself produces no emissions either.

Second, Bitcoin’s energy consumption is inherently valuable as attested by the market. Bitcoin miners bid directly for the same power as everyone else. If they could not pay for the electricity with profit, hash rate and power consumption would fall. This point becomes more clear if we use another industry as an example. AI and data centers use an exponentially increasing amount of electricity, however, most people understand why that would be, because it is useful. In 2022, data centers and AI consumed more energy than Bitcoin mining, and by 2027 it is expected to double Bitcoin’s energy consumption.

A growing percentage of energy for Bitcoin mining also comes from renewable sources. Bitcoin ESG expert Daniel Batten, has said in public statements it is the number one industry for use of renewable energy with up to 56% of mining powered by renewable sources. Bitcoin miners also do something no other industry can do, they harness waste methane, abating 70 tonnes of CO2 per year from entering the atmosphere in a market driven process.

Moreover, Bitcoin can directly subsidize renewable energy projects. These projects often face long precommercial periods before connecting to the grid. A study from Cornell researchers in 2023 found that Bitcoin mining can help offset costs during this phase, allowing projects to recoup investments earlier. The study showed that Bitcoin mining could generate $47 million from planned renewable energy projects in Texas alone, offering crucial financial support during this vulnerable 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 illicit activities, nor is it devoid of value or an outright environmental hazard. It’s 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 deeper, question assumptions, and view Bitcoin through a nuanced lens. Only then can we fully appreciate its potential and decide where it fits in our financial future.