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Cryptocurrency is either the future or a fad, depending on whom you ask. Either way, there are plenty of misconceptions about cryptocurrency that need to be debunked. Are NFTs different than crypto? How does a blockchain work? What is crypto mining's environmental impact? What happens when the crypto market fluctuates? Host Justin Dodd breaks down some common myths and misconceptions about the transactional world of cryptocurrency. Don't miss a video! Subscribe NOW: https://www.youtube.com/@MentalFloss?sub_confirmation=1 About Mental Floss: Mental Floss is where curious people come for trivia-tastic information. Mental Floss produces lists of fun facts, debunks common misconceptions, and tells untold stories from history, science, culture and more. Website: http://www.mentalfloss.com Twitter: http://www.twitter.com/mental_floss Facebook: https://facebook.com/mentalflossmagazine Copyright Notice: This video and YouTube channel contain dialog, music, and images that are property of Mental Floss. You are authorized to share the video link and channel, and embed this video in your website or others as long as a link back to this YouTube Channel is provided. 2025 Mental Floss Misconceptions About Cryptocurrency | Mental Floss https://www.youtube.com/@MentalFloss
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0:00
Some people love cryptocurrency and see a decentralized digital future as the natural
0:05
evolution of banking. Others see crypto as a passing fad designed to bilk people out of their
0:10
savings. And then there are the rest of us, nodding politely as we quietly wonder why anyone would
0:17
invest thousands of dollars to a digital currency based on a dog meme. Hi, I'm your host Justin
0:23
Dodd, and today we're debunking myths about cryptocurrency. We'll discuss Bitcoin's pseudo
0:28
anonymity, explain how these currencies relate to NFTs, and debate whether 99% of Bitcoin is
0:35
really owned by just a handful of users. Let's get started. There's an infinite supply of Bitcoin. Part of what makes it so hard for people to even
0:52
wrap their minds around cryptocurrency is that it's not tangible. There's no physical
0:57
cryptocurrency. Well, there are some people who have tried to make such a thing, but it's still
1:02
a bit convoluted. In general, when we talk about cryptocurrency, we're talking about a digital
1:07
asset. The paper money in our wallets hold a certain value, and there's only so much of that
1:12
money in circulation at any given time. This, in theory, keeps the value in check. Print too much
1:17
money, value drops off, inflation rises. But cryptocurrencies seem to be the opposite
1:22
They exist solely in the digital world and aren't monitored or printed by a government
1:27
So, in theory, something like Bitcoin can be mined and bought in perpetuity by individuals
1:33
until it's essentially worthless. Well, turns out that's not quite right. Bitcoin was designed specifically to have a limited supply in order to prevent inflation
1:42
and retain its value. And the complex system in place to maintain that limited supply
1:46
is pretty ingenious. When the creators of Bitcoin, who operate under the Satoshi Nakamoto pseudonym
1:52
thought up this whole enterprise, they knew they needed to put a cap on their digital currency to
1:57
preserve its value. They settled on a grand total of 21 million units. That is all the Bitcoin that
2:04
will ever exist before the world hits the end of the road. But those 21 million units weren't given
2:09
to the public at once. Each new batch of Bitcoin first needs to be mined before being released
2:14
That requires a high-end computer mining rig, or multiple rigs, to solve a complex math puzzle
2:21
These puzzles have been described as both guesswork and a lottery. Even after trying 4 billion times, according to data scientist Carol Arimenko
2:29
you have an estimated chance of success of 0.00000000001%. So as you can imagine, it takes a lot of computing power to successfully mine
2:42
The first miner or group of miners to solve a given puzzle is rewarded by the Bitcoin network with a set amount of coins
2:49
which, in April 22, was around 6.25 coins, equivalent to about $130,000 as of July 11
2:57
2022. That reward is only part of it. The mining process also creates new blocks for the blockchain
3:03
a kind of digital ledger for all Bitcoin-based transactions to be recorded and stored
3:08
Around 144 blocks are added per day, and each contains around 500 transactions
3:14
adding new blocks to the blockchain basically works to verify any Bitcoin transactions in progress
3:20
Think of it as a replacement for your bank verifying all of your credit card purchases
3:25
Instead of a central authority like JP Morgan, it's a peer-to-peer system without borders and
3:30
without any one entity in charge. There are an untold number of miners out there working around
3:35
the clock, so transactions like one person sending Bitcoin to another are typically verified within
3:41
10 minutes or so, depending on the volume. So, yeah, mining does yield new Bitcoin, but
3:47
it also makes the whole blockchain system go round by verifying the transactions taking
3:52
place. To fight against inflation, blocks are designed to yield 50% fewer Bitcoins after
3:57
every 210,000 blocks are released. That usually takes around 4 years or so. Basically, the
4:03
more we squeeze the orange, the less juice we're getting. The creators were apparently thinking decades ahead when coming up with this strategy, because
4:10
While we've already mined more than 19 million bitcoins, it's estimated that the entire
4:15
supply won't be fully available to the public until 2140, thanks to the decreasing yields
4:21
And that's just the way Bitcoin works. Other cryptocurrencies operate completely differently
4:25
from the way the blockchain is verified to the real-world assets that back them
4:30
But we'll get to all of that in a minute. Crypto is guaranteed to go up
4:34
While Bitcoin's self-imposed scarcity is designed to preserve its value over the long
4:39
haul, it's not a guarantee that prices will go up, despite what passionate crypto evangelists
4:45
might say on Twitter. If there's no demand for a coin, say if it never becomes a universal
4:50
payment option or if speculative interest dries up, it will not appreciate in value
4:55
no matter how tightly the supply is controlled. Scarcity alone does not guarantee value
5:00
Let's look at it in a way we can all understand, through dog poop. If all the dog poop on the
5:06
planet disappear tomorrow except for three handsome little logs and all dogs stop pooping
5:12
it hard to imagine those three dog poops would suddenly be worth millions of dollars right Right Someone please tell me that right All crypto has an equal environmental impact Bitcoin mining is an incredibly fascinating
5:27
system, but its impact on the environment cannot be ignored. Those crypto miners out in the world
5:33
all use beefy computer rigs that need to perform complex computing. That requires time, storage
5:39
space, and most importantly, energy. It's estimated that the combined energy usage of
5:44
Bitcoin miners is 91 terawatt hours of electricity every year, which is more than what is used by the
5:50
entire nation of Finland annually, according to the New York Times. But not all cryptocurrencies
5:55
are created equal. Bitcoin's system of using miners to solve math equations to verify and add
6:00
to the blockchain is called proof of work. It makes for an extremely secure currency, but it's
6:06
also a big-time energy drain. Other cryptocurrencies like Solana, Terra, and Cardano use a system
6:12
called proof of stake. In this system, individuals who own a certain amount of a specific cryptocurrency
6:17
can offer to validate blocks of transactions to add to that currency's blockchain
6:22
Like the name suggests, they do this by joining a group of randomly selected validators and putting
6:27
their own coins at stake, sort of like collateral, until the validation is confirmed. Once confirmed
6:33
by the consensus, the validators might get some cryptocurrency or a portion of the transaction
6:38
fees associated with the transactions in the block as a reward. If a validator does not do
6:44
their job, if they go offline or try to attack the network, for example, some or all of their
6:50
stake can be taken away in a process called slashing. By depending on individuals with
6:56
actual skin in the game, it's theoretically supposed to be an honest system. Both methods
7:00
use computer algorithms to validate transactions on the blockchain, but since proof of stake doesn't
7:06
require millions of miners competing with each other with the biggest machines possible
7:11
the energy usage is far lower. Some estimates put it at more than 99% lower
7:16
Even amongst proof-of-stake cryptocurrencies, though, there can be significant deviation in energy consumption. The way networks are set up and the specific hardware used to validate
7:26
transactions can all affect the environmental impact of any given coin. Cryptocurrency always functions as a currency
7:33
When Bitcoin first hit the mainstream, the general thought was that it would eventually
7:37
stake a claim as a true digital currency that cut out banks and allowed people to easily
7:42
make transactions anywhere in the world. But despite gaining in value over the years
7:47
it has not quite become that. No cryptocurrency has, in fact. It still isn't a readily accepted
7:52
means of payment in the U.S. or around the globe. Even in El Salvador, where Bitcoin is legal tender
7:58
only one-fifth of businesses accept it. If you're looking to spend your Bitcoin or Ether on real-world
8:04
goods or services, you're probably stuck going through a third-party app like Flexa. And even
8:09
then, you'll likely be hit with high fees and transaction times of up to 10 minutes or more
8:14
Right now, the most convenient thing to do with crypto is to buy more crypto
8:19
or to liquidate it for a more traditional currency. Because crypto doesn't exactly
8:22
act like a currency, the U.S. government has settled on classifying it as a commodity
8:28
Now, the definition of commodity is pretty broad, but crypto does meet certain requirements
8:33
Like other exhaustible resources, many have a fixed supply, and you can engage in futures
8:38
trading with them, meaning you can have a contract to buy or sell a specific crypto
8:42
when it hits a certain price at a future date. To many people, crypto is simply an investment like a stock, and a highly speculative one
8:50
at that, subject to large swings. All that said, remember that a commodity today could evolve into a currency down the road
8:57
and there's still a possibility that crypto will eventually become a convenient way for people
9:01
around the world, especially in developing countries, to engage in traditional purchases
9:07
without the need for a centralized bank. Or it might not. I don't know. Neither do you. Leave me
9:13
alone. All cryptocurrency is Bitcoin. We've talked a lot about Bitcoin so far, and that's
9:19
only natural because it's by far the most popular cryptocurrency. But there are thousands of
9:25
different coins out there, each with their own quirks and rules. Some have a limited supply
9:30
some don't. Some have more interesting capabilities like Ether, which is named after
9:34
the blockchain it lives on, that can be used to create NFTs. And some are just gimmicks
9:41
like the unauthorized CoinYay, modeled on Kanye West, that was cease and desisted
9:46
basically out of existence. Then you've got the less litigious Cthulhu offerings
9:50
based on the public domain character from H.P. Lovecraft, the world is not ready for a season 2
9:56
of Lovecraft Country all about crypto bros. 10% of Bitcoin Owners Own 99% of Bitcoins
10:03
One highly publicized report from Bloomberg back in November 2020 stated that researchers at
10:08
Flipside Crypto found that 2% of accounts control 95% of all Bitcoin. Other sources have listed
10:15
those 10% and 99% figures we quoted at the top of this section. If true, those whales could
10:21
manipulate prices at will with shady pump-and-dump schemes and absolutely control all aspects of the
10:27
market. But those figures are vastly overstated, according to Raphael Schultz-Craft, a researcher
10:33
for Glassnode which describes itself as a blockchain data and intelligence provider According to Schultz the report Bloomberg referenced looked at Bitcoin addresses which are different from an individual person Bitcoin account A single exchange address
10:48
for example, could hold the funds for millions of users, meaning a lot more individuals involved
10:54
than you might realize. You can debate how meaningful that difference is, though
10:57
Theoretically, in an unregulated market, a large exchange could unilaterally move its
11:02
users' crypto around if those users weren't holding their assets in locally stored hardware
11:07
wallets. The risks of hackers getting access to an online wallet system are real, as you might have
11:12
seen in stories of crypto theft. In practice, though, large exchanges like Coinbase don't
11:17
really operate like a single power user in the way that Bloomberg's stat might suggest
11:22
A significant percentage of a token being held by millions of different users on Coinbase
11:26
is not really the same thing as one person owning half of all Bitcoins
11:30
That being said, crypto whales are out there, and Bitcoin is certainly no exception. These whales
11:36
buy up an inordinate amount of these cryptocurrencies and do play a big part in their value. When
11:41
Schultzcraft went through the data, he found that whale activity is indeed increasing
11:45
but the figure is more like 2% of network entities control 71.5% of all Bitcoin. It's still a lot
11:53
but it's not as dire as some reports would have you believe. And for what it's worth
11:57
the concentration of ownership is not a problem unique to crypto. For comparison
12:01
it's estimated that the wealthiest 10% of Americans own 89% of all U.S. stocks
12:07
Cryptocurrencies aren't backed by anything If you're concerned that cryptocurrencies aren't backed by any assets to help them maintain their
12:15
value, you may be interested to learn about stablecoins. These cryptocurrencies are usually
12:19
backed by some sort of real-world commodity, like traditional currency or precious metals
12:24
The most notable examples are Pax Gold and Tether Gold. These are gold-backed cryptos
12:30
that are worth the same as one troy ounce of gold, according to Fortune. A troy ounce is a unit of
12:35
measurement dating back to the Middle Ages when it was supposedly used in Troyes, France. One troy
12:40
ounce equals about 31 grams or so, and when the value of gold goes up in the real world, so does
12:46
the stablecoin. The interesting thing about gold-backed crypto is that you can actually
12:50
exchange it for actual gold. This is reminiscent of the decades the United States spent on the gold
12:55
standard, where you could trade in $20.67 for an ounce of gold. FDR put the kibosh on that in 1933
13:03
and all remaining ties to the gold standard were put to bed in the 1970s
13:07
Since then, the U.S. has operated on a fiat money system, which basically means the U.S
13:12
dollar is backed by the assets and power of the government itself. Having a digital currency backed
13:16
by a physical commodity might sound counterproductive, but asset-backed coins like this
13:21
exist to cut down on the unpredictable nature of crypto. That's the theory, anyway. In May 2022
13:28
as crypto values dropped across the board, Tether—a stablecoin that's supposed to have a
13:33
1-to-1 value with the US dollar—dipped down to 95 cents in value. Others fared far worse
13:40
TerraUSD, an algorithmic stablecoin—which means it isn't backed by any physical assets—had a
13:46
similar $1 peg but fell dramatically. As of filming this video, one TerraUSD coin is worth
13:52
about 5 cents. Terra Nickel isn't such a bad name. A dip in the crypto market proves the doubters
13:59
right. In November 2021, the crypto market was valued at $3.1 trillion, and enthusiasm around
14:06
the world for digital currency had never been higher. Fast forward to May 2022, and the bottom
14:12
dropped out, resulting in a $2 trillion loss across the entire industry on the back of inflation
14:17
woes and other assorted economic fears. It was a staggering crash, one that many cryptocurrencies
14:23
likely won't ever fully recover from. So, is that it? Did the bubble that so many people were waiting
14:30
to burst finally blow? While no one knows for sure what crypto will look like even a year down the
14:35
road, all you have to do is go back to 2018 to realize that a volatile market like crypto has
14:41
bounced back from crashes before. That year, Bitcoin shed 37% of its value at one point
14:47
losing $70 billion and falling below $4,000 per coin in the process. It was declared dead then
14:54
just as it was declared dead in May 2022. But if you had put money into Bitcoin when it hit
14:59
rock bottom in 2018, you could have taken advantage of a historic bull market that rose
15:04
from the crash's aftermath and peaked in November 2021 when Bitcoin topped out at $68,800
15:11
a share. Any one move in a coin's price, even a dramatic move that causes very real financial
15:16
hardship for many people, is not necessarily a death sentence. Now, let me be 100% clear. Just
15:23
as a major dip isn't a guarantee of a coin going to zero, it's also not a guarantee that past
15:28
recoveries are going to repeat themselves. You might think you're buying low, only to see prices
15:33
continue to drop all the way to zero. There are no guarantees in investing, and I think a very wise
15:38
rule of thumb is that you shouldn't put in anything that you can't afford to lose
15:43
And by the way, if it wasn't obvious to you already, and I pray that it was
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I am not a financial advisor. In fact, I have no idea what a 401k is, and I do not know what to put
15:53
in each line of a check. Whether the source you're listening to is bullish or bearish on crypto
15:59
be wary of anyone who says they know for sure what the future holds All crypto transactions are eternally anonymous Contrary to cliches your crypto transactions are all somewhat publicly visible on the blockchain
16:11
which, again, is like a digital ledger. If you move your funds to a different account or buy
16:16
anything with it, there's a record of it. Crypto's anonymity pertains to the digital wallet used to
16:22
send, receive, and store currency. Let's use Bitcoin again as an example. To make a transaction
16:27
you would send the agreed-upon crypto to a recipient's digital bitcoin wallet
16:31
through a digital address created by the wallet. The addresses themselves use a combination of
16:36
numbers and letters, no names, and they detail the transaction and the remaining balance
16:41
This transaction is public, but it only shows the nonsensical addresses, not a username
16:46
That said, if anyone could link your wallet to an address through hacking or other means
16:51
they'll be able to see your transactions out in the open on the blockchain. This kind of visibility is an important tool when the government pursues crypto-related crimes
16:59
In February 2022, Ilya Lichtenstein and his wife Heather Morgan were arrested in Manhattan on
17:05
conspiracy charges that they intended to launder $4.5 billion in stolen cryptocurrency. This was
17:12
one of the most high-profile crypto-related arrests in the US, and in a statement
17:17
Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department's Criminal Division
17:21
stress that we can follow money through the blockchain, and that we will not allow cryptocurrency
17:26
to be a safe haven for money laundering or a zone of lawlessness within our financial system
17:31
So yes, it's far harder to track crypto transactions than traditional digital banking
17:36
transactions, but if the right kind of information ever got out, then every move you make is open
17:42
for the world to see, especially the government. NFTs are cryptocurrency. NFTs and cryptocurrency often get conflated into one confusing digital stew, but they are not
17:54
interchangeable terms. The NF in NFT stands for non-fungible, which is the whole reason people
18:00
are drawn to them. That and endless internet hype about apes, I guess. A fungible asset can
18:05
be replaced or traded for another of equal value. A $1 bill can be replaced by another $1 bill
18:11
and it still remains worth $1. It can then be split into four quarters or ten dimes, etc
18:17
NFTs are digital assets, most famously images, but sometimes music, domain names
18:22
or almost anything else you can dream up, and they all have unique digital signatures
18:26
so each one holds a specific value. The easiest way to equate it to something
18:30
in the real world is to look at baseball cards. If you have a mint-conditioned 1973
18:35
Carl Yastrzemski baseball card when he had the big sideburns, you could sell it for an estimated
18:40
$1,300 or so. Imagine you loaned it to a friend for a few days. They come back with two cards
18:45
featuring players with normal-sized sideburns. Even if the monetary value of the two cards
18:50
combined to be $1,300, it's not the same thing. Even a different copy of the same card might not
18:57
have the same value. They're not interchangeable assets with a fixed value. Same with NFTs
19:03
A Bitcoin, on the other hand, will always be worth just as much as any other Bitcoin
19:07
In that way, it is fungible, just like Burns Coins, the new crypto coin I just invented that
19:12
celebrates Yaz's sideburns. Or maybe Homer's boss on The Simpsons? White paper forthcoming
19:18
Governments aren't recognizing or taxing cryptocurrency. Governments around the world are still feeling out the whole crypto thing. And that's led to a
19:26
whole lot of confusion over what's legal to do with crypto and where you can do it
19:31
In some places like China, Egypt, Morocco, and Bangladesh, cryptocurrencies are banned outright
19:37
Meanwhile, in Europe, many countries are embracing them. In the Swiss city of Lugano
19:42
for example, you can now use Bitcoin and Tether to directly pay taxes and for goods and other
19:47
services. It's a small experiment, but it could be a glimpse at how these currencies will be
19:52
integrated by governments at a larger scale across the continent. In the United States
19:56
cryptocurrencies are legal but are not legal tender, meaning that the government hasn't
20:01
recognized it for settling debts. However, that doesn't mean the U.S. doesn't still want in on
20:06
the action. In February 2022, Colorado Governor Jared Polis announced that the state plans to
20:12
to be the first in the country to accept crypto payments for taxes and other fees like hunting
20:16
licenses. To actually get the money, the state will have an intermediary convert the crypto
20:21
to dollars. More states, like California, have proposed similar bills that would allow people
20:26
to pay for DMV fees and other government-associated expenses using certain cryptocurrencies
20:31
As the states figure out how they want to utilize crypto, Uncle Sam is sticking to his classic
20:37
playbook. He's going to tax it. In the eyes of the U.S. federal government, any gains you see
20:41
from selling crypto will be treated like any other stock or property you sell. It has to be
20:46
reported on your federal income tax, and you will be charged by the IRS accordingly. And if you
20:51
happen to run a business that accepts Bitcoin as payment, you'd have to know how much Bitcoin was
20:56
trading at on the days you were paid in it to convert it to US dollars on your tax return
21:02
In short, prepare to do a whole lot of work if you're fully embracing the crypto lifestyle
21:06
Cryptocurrency is a subject that inspires strong opinions. So, I'm curious. What did we get wrong in your eyes
21:14
Or what other misconceptions about crypto are out there? And why did anyone ever think those Bored Ape NFTs were cool
21:20
I'm begging someone to explain it to me. They don't look good. Thanks for watching, and we'll see you next time
#education