Busting 7 Blockchain & Bitcoin Myths

Is there more to the current blockchain hype than there was to the Bitcoin hype of the past? 7 myths debunked. 7 reasons to be skeptical.

Bitcoin 2Two years ago, Bitcoin was at the peak of its hype cycle. The digital currency’s value skyrocketed. Increasing tenfold in 4 months, it passed the $1,200 mark, the price of an ounce of gold at the time.

Then, after a couple of security breaches and scandals such as the collapse of the largest exchange Mt. Gox in 2014, Bitcoin’s value fell down to $200. The speculation frenzy came to a halt. So did the VC’s enthusiasm for Bitcoin-based business models.

In 2015, the hype machine started humming again. The new hype revolves around the idea that Bitcoin may not be viable as a currency, but the blockchain, the distributed ledger technology that records bitcoin transactions would have a formidable potential on its own. As research reported on by Coindesk shows:

“On the question of whether “the blockchain can thrive without bitcoin”, 73% of the 55 respondents asked this question said they believe it can.”

The dream is that of an open self-administered transaction network in which multiple processors are forced to collaborate and validate transactions –eliminating any risk of double spend or reversal- without central supervision. Such a system could be used to manage any type of asset transaction or contract history in a decentralized fashion, without a central authority. It could apply to stock trading, property title registry, voting, crowdfunding…

7 Myths Debunked & 7 Reasons to be Skeptical

As stated above the idea of blockchain has a great appeal and seems worth investigating. However, there are major reasons to be skeptical.

One suspicion would be that a blockchain-based system, if at all workable, would be a downgraded version of the Bitcoin’s blockchain and, as such, would require as many safeguards and controls as current regulated systems.

I’ve singled out 7 myths about blockchain and bitcoin, the debunking of which should inform a healthy skepticism.

Myth Number 1 : Blockchain as a decentralized ledger can be split from bitcoin in the Bitcoin system

Most people who say this argue something along the lines that bitcoin failed as a currency but the blockchain worked. From there, they jump to the conclusion that the blockchain in isolation of the bitcoin could build a decentralized transaction system. This is quite as absurd as saying that we could get water from oxygen alone because we can isolate oxygen from hydrogen in H20.

In reality what makes Bitcoin’s blockchain strongly decentralized is the specific bitcoin encryption algorithm and bitcoin network protocol which determine the way bitcoin processors (“miners”) compete to verify and validate (“hash”) bitcoin transactions.

There are other distributed ledger systems than Bitcoin’s, such a Ripple Lab’s and Ethereum’s. Ethereum develops its own “blockchain”, but the Bitcoin blockchain is, to this day, the only one that is truly decentralized without the need for consensus or supervision.

Myth Number 2: Bitcoin is a currency used by 10’s of 1,000’s of legal merchants.

One heard this two years ago when it was even less true than today. I remember a presentation by a Bitcoin vendor showing beautiful pictures of Afghan weavers who allegedly were using bitcoin to sell their carpets worldwide! Magic carpets, for sure.

In reality, ignoring illegal business which has dramatically declined since Silk Road was busted:

Bitcoin as a currency was and is probably still used to over 80% for speculative hoarding.
The legal merchants listed as “accepting bitcoins” don’t. At best,  they allow you to spend your bitcoins at a partnering facility which converts them into dollars – exchange costs and risks are on you.

Merchants started to “accept bitcoin” just to check how it works, to look cool, or to get media exposure.

Myth Number 3 Bitcoin transactions are processed in real time

In reality, Bitcoin transactions are processed in blocks and it takes more than 10 minutes between blocks. The Bitcoin network currently handles less than 2 transactions per second, against several thousands for Visa. You can check the stats on blockchain.info.

Myth Number 4 Bitcoin transactions are “nearly free”

In reality, the true cost of Bitcoin processing is not charged to users. It’s invisible to users, and, for the most part, not charged to merchants either –for now. Here is why:

Miners who process transactions are currently making over 99% of their revenue (currently around $1.3 million a day) from generating (“mining”) new bitcoins. This will last until the planned 21 million bitcoins have been mined – which should happen in 2140. It is unclear how the bitcoin transaction cost will evolve after that.

Transaction processing per se is minimally rewarded by the network with a small amounts of bitcoins that currently represents less than 1% of the miners’ revenue.

But only the total miner rewards can justify the high $ investment and operating costs of mining (see myth Nr 6 below). Hence, the real cost of transaction should take the total mining cost into account, i.e. $7.64 per transaction, for an average transaction of $824.

When exchange commissions are added, this cost is not negligible.

Myth Number 5 Bitcoin is more secure than other transaction systems

Bitcoin’s protocol has been highly resilient against attacks.

However, like in any transaction system, security breaches have been caused by human failure and fraud. In 2015 alone:

  • Bitpay lost nearly $2 million in a phishing attack.
  • Before that, a Canadian bitcoin exchange was forced to shut down because its databases had been compromised.
  • Hong Kong-based bitcoin exchange MyCoin disappeared with $387 million in client funds
  • Bitstamp temporarily stopped trading because of one of its operational wallets was compromised.

Myth Number 6 Bitcoin’s ecosystem is decentralized

BitcoinHashrateDistributionBlockchainInfoDec2015-300x251Bitcoin Hashrate Distribution Source Blockchain.info Dec 3, 2015
In fact, bitcoin mining is increasingly concentrated in the hands of a few mining pools. The four leading ones, including 3 from China, control nearly 75% of the hashing. Large mining farms artificially limit themselves so as not to ruin the illusion of democracy. But smaller miners and mining pools, such as DigitBTC earlier this year, are driven out of business.

The reason for this oligopolistic dominance is that, by design, generating Bitcoins through mining becomes harder as the number of bitcoins increases. Only larger players can afford the higher capital investment (specialized hardware) and operating costs (e.g. electricity) that mining requires. Bitcoin is de facto controlled by a handful of quite opaque players who would, if they wanted to, have the 51% majority that would enable them to modify transaction rules.

Note that the wallet market is also very concentrated with Coinbase and Blockchain.info the largest operators claiming together more than 50% market share.

Myth Number 7 Bitcoin is idealistic and non-profit

Goldman SachsIn reality, billions of dollars of investments are riding on Bitcoin. Firstly, there is a cumulated $5 billion worth of bitcoin currency. Secondly, there are billions of dollars invested in mining, exchanges and wallet operators.

Recent examples:

  • Coinbase raised more than $100 million.
  • Goldman Sachs invested $50 million in a bitcoin start up call Circle.
  • Another bitcoin startup hardly out of stealth mode, 21 Inc, raised $116 million from the best VCs in Silicon Valley.

Even if only to rescue their Bitcoin investment, most investors want their Bitcoin business to “pivot” to blockchain.

In conclusion

Bitcoin is undoubtedly a brilliant, extraordinary invention and currently has the only truly decentralized ledger technology, i.e. blockchain. But what makes it so strong seems to make it also impractical. When reality hits, the Bitcoin network appears less efficient, more easily centrally controlled and more opaque than many regulated transaction and payment systems.

Whether another version of the blockchain or decentralized ledger could do better without adding layers of consensus or regulation that would put them of a par with competing technologies remains to be seen.

It’s not going to be easy – they’ve already tried for quite some time.




Therese TorrisTherese Torris is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique

(Editors Note: a version of this article previously ran on Return on Clicks)


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  • ttorris

    I feel quite comforted by the fact that a month after the above articles, several experts like Mike Hearn are now speaking up and saying that “the Bitcoin experiment has failed”. I quote : “Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system….” it goes on to make the same criticisms as in my article.


  • Here’s an interesting article I wrote on A new Blockchain startup out of Poland that you might find interesting.

    Blockchain is a potential gamechanger. And everyone seems to now be jumping on the bandwagon. But it appears that Poland is ahead and already changing the game now ― with the world’s first blockchain-enabled, bank-backed transactions that are compliant with regulators which allow for bankless banking. Billon.

    The Genesis Block — The Chain Begins in Warsaw  —  A Blockchain Tale

  • Elwar

    The thing that the “blockchain without Bitcoin” crowd miss is that there is currently over $1.5 million being spent daily to secure the Bitcoin blockchain. There is a resource available with $1.5 million spent daily to secure it. Just use the Bitcoin blockchain. If you think you need to come up with an alternative blockchain to do what you need to do, you’re not thinking hard enough.

  • You should really have removed Blockchain from this topic as you beat up Bitcoin for most of the part.

    Can blockchain technology work without or alongside Bitcoin?

    Depends on who you ask and what skin they have in the game I find. The Bitcoin community is currently a tad bit pissed off that Blockchain is getting limelight (front cover of Economist etc.) and Bitcoin is getting kicked to the curb by large institutions who want the ledger technology via Blockchain sans the Bitcoin of the Dark Web. And that group will argue that Blockchain needs Bitcoin. However, others who are developing new math and algorithms around Blockchain are likely to tell you that they don’t necessarily need Bitcoin to build a decentralised ledger or Blockchain.

    Sidechains, Proof of Stake… we are just beginning to unlock what the potential of Blockchain is and what can be done. Nasdaq, Visa, over 30 banks in R3 now. They are not looking at mythology here. If you want proof that Blockchain is not a myth spend some time on my site, Blockchain News at http://www.the-blockchain.com – there’s plenty of solid evidence there.

    Actually I believe that Blockchain technology can revolutionise Crowdfinancing (equity crowdfunding, P2P, convertible lending/investing) and have written a thesis on it at http://www.chaincrowd.com – likely using Ethereum.


    Richard Kastelein – Blockchain News.

    • ttorris

      HI Richard. The article is definitely about the hype around Bitcoin’s blockchain, based on proof of work, not about Ethereum’s. It hope it comes through that I find Bitcoin a brilliant invention and the blockchain/decentralized ledger concept a revolutionary one definitely worth pursuing. Just arguing it’s all but easy to make it work: http://www.coindesk.com/blockchain-decade-away-mainstream/.

      • It’s far from easy. It’s really really complex and there’s a lot of uncertainties. There’s part of it I want to work – but it also scares me a bit. Combine AI, robotics and Blockchain technology (DAPPs, DACs, DAOs et al.) running our future and humans won’t have much to do. Or maybe that will free us up to figure out why we are here and entertain each other with things that robots and AI can’t do. Blockchain experts are now talking about it’s potential use in Internet of Things – or Machine to Machine…. where all these sensors and computational devices will one day make deals and contracts with each other, without human input at all.

        • ttorris

          Indeed. This is one of those areas of research that raise many philosophical questions. Technology has given us, human beeings, the illusion of being able to control the world around us. Is it about to take it away?

  • Elwar

    Transaction time is in seconds. Confirmation time is 10 minutes. You are guaranteed no chargebacks after 60 minutes.
    VISA takes 6 months to guarantee no chargebacks.

    • ttorris

      “Seconds” is slow. Irreversible transactions of course have a different timefrom from reversible transactions, but the latter are considered a service, and sometimes required by law.

  • Elwar

    A debunking myth list that is full of myths.

  • Glenn Sanford

    Myth 1: The idea that Bitcoin has failed as a currency (not sure if that is your position) however I would suggest that Bitcoin is still early stage as a currency… Not failed. The UK recognized Bitcoin as a currency in October. I would suggest that Bitcoin is a store of wealth (though speculatively at this point) but a store of wealth none the less. The Chinese it is reported are one of the larger drivers of Bitcoin as a way to move money from Renminbi into a more portable currency that can be moved around the world. They can’t buy US dollars directly (if that was their intent) but they can buy Bitcoin. There is still a man in the middle challenge in China however assuming creativity to movement of monies from Yuan to Dollars is accomplished more easily via Bitcoin…

    Myth 2: 80% speculative hoarding… Seems a bit short sighted. Bitcoin is probably more distributed then ever before… When Bitcoin dropped from $1200 – $200 over the better part of 2 years was that speculative hoarding? The only reason one would use the term hoarding is because it makes them nervous…

    Myth 3: 10 minutes to confirm into a block is not a lot of time. There is relatively instant confirmation that Bitcoin has been sent and received and then there is the first confirmation. If you are buying a latte not a big deal. No need to wait 10 minutes. Probably don’t need to wait on a $100 purchase either… Now a $10,000 purchase using Bitcoin is a much different matter and waiting 10 or 20 minutes to confirm the transaction is just smart no matter what medium of exchange you are using. $100,000 maybe 5 confirm (under an hour). $1,000,000 maybe 8 confirms (90 minutes)… Try to do that with any other form of currency… Not going to happen… So your confirmation issue is hollow at a minimum and misinformed or more likely misleading (I suspect)…

    Myth 4: Bitcoin transactions are nearly free. Okay this one is just totally out there. First most of the mining that is going on is by hobbiests running mining machines on dedicated machines. These machines are no longer in place to make money even though there are some who probably want to make money. Distributed currency and distributed ledgers do have an inherent cost associated with them but they are not a physical expense cost. It is a social investment. By running Bitcoin mining software on dedicated hardware it is not so one makes BTC though that was the case 3 – 4 years ago. Since then almost all miners know that they will never recover the cost of their hardware and the benefits of mining is less then the cost of electricity needed to run their own computer. That being said these same individual in all likelihood are the same hoarders you talked about in Myth 2 who are holding on to much of their Bitcoin and know that part of the value of their BTC is tied to being part of the larger network. In 2030 when the last Bitcoin is mined do you think all of these individuals are going to demand that they get paid a high amount of BTC. Not at all… Will they turn their computers off. Some will while others recognizing the value of the network will buy a machine to run in the background at their home to be part of the network and to support the network… Will they demand 1% of every transaction… I seriously doubt it. .0001% of the transaction will probably be the norm and even then the value won’t be in receiving the transaction fees which there will be many but the value will be in being part of the network.

    Myth 5: Bitcoin is more secure. The only time it isn’t secure is when there is a man in the middle period… The US Government this week is negotiating an additional $1.5 Trillion of borrowing that can never been paid back in addition to the $18 Trillion of National Debt not to mention the $100 Trillion of unfunded debt/entitlements on the books… Talk about a less secure currency. All that debt is based on the dollar… What happens to the dollar relative to Bitcoin when that house of cards come crashing down? Are you suggesting that the dollar is more secure? I would suggest it is less secure and more prone to theft then any Bitcoin you have in your personal wallet on the Blockchain… Maybe I’m wrong but there are a lot of very bright people who are investing in Bitcoin as a place to store wealth in the face of an impending dollar collapse that (though years off) is coming…

    Myth 6: Bitcoin ecosystem is decentralized… I don’t disagree with your premise here however it misses one very important point… All the players in Bitcoin need Bitcoin to be a legitimate trusted currency. To operate in ones best interest one needs to continue to encourage and potentially insist on decentralization. This is a short term anomaly of Bitcoin that will work its way out over time…

    Myth 7: Bitcoin is idealistic and non-profit… Maybe… Bitcoin is more like the early stages of the Internet where millions of dollars will invested in the 90’s into tons of Internet start-ups hoping to capture a significant marketshare in what was to come in the future… We didn’t know what the future looked like at that time and so anyone with an idea was getting funding and most of those ideas and fundings collapsed in 2000 but did the Internet go away? Nope… It kept on growing in the background. I remember in the 90’s when Bill Gates thought that the internet was a fad… It took him almost 2 years until he realized that it wasn’t and he and Microsoft started their pivot back then. There are tons of people (and based on your article) you included that put Bitcoin in the fad category and unfortunately you and those who trust you as an advisor are going to miss out on what will likely be the largest change in what we think of as currency the world has ever known. Bitcoin has the potential to be bigger and more profitable then the internet was for most people. Why? Because at this point in time virtually everyone of your readers can open up a Coinbase account and in short order buy themselves 1 Bitcoin. That’s all… Just 1 BTC. Just imagine if every millionaire on the planet wanted to buy 1 BTC… That’s it… Just 1 BTC what would the value of Bitcoin be? If they all bought 2 all the Bitcoin that is or would ever be mined would be owned by these millionaires… Imagine further if the children, the millennials and others wanted to own a bit of Bitcoin what would the value of Bitcoin be… What if these millionaires trusted Bitcoin more then they trusted their local currencies… Where does Bitcoin go then… Bottom line is we are at what will be for us the lowest prices we will see Bitcoin in our lifetime… Bitcoin is a store of wealth with potentials in the next 10 years to be part of the ecommerce arena. Previously the way to store wealth that wasn’t currency related was with Gold… But who can spend gold on the internet? No one… Who can spend bitcoin on the internet? Everyone!


  • Myth #4 has the statement “This will last until the planned 21 million bitcoins have been mined”. Fees are needed to support mining well before all 21 million bitcoins have been mined. Fees could become significant income for miners sooner rather than later as the blocks begin filling.

  • Potsdamer

    The first myth is correctly analyzed. Blockchain alone won’t work. Thanks for that.

    However, the statement, that Bitcoin is slow, is definitely false. Even though a transaction might take 10 minutes or more, this is several orders faster, than making a bank transfer, which might take several days.

    The comparison of Bitcoin with Visa is like comparing apples and pears. During a Visa-transaction, no money flows from the buyer to the seller. Instead, Visa grants the buyer the corresponding credit and pays for the buyer. At the end of the month, money goes from the buyer to Visa, if there is any. As a result, only people how are credit-worthy can use credit-cards.

    In contrast, only those Bitcoins can be spend, which a person owns, like in a bank transfer (though the bank might not hold enough cash as it owns as numbers in its databases). And, compared to a bank transfer, Bitcoin is virtually instantaneous.

  • Barry James

    Oh dear. I shall have to try and be polite.

    This mythbuster should be taken about as seriously as the Ghostbuster film – it’s about as full of hilarity and green slime being a mixture of false myths to debunk, half truths and misleading click-bait.

    I’m afraid the author reveals ignorance of the tech (and has clearly never heard of proof-of-stake for example).

    The H2O example holds no water and the rest are hardly less misleading.

    8/10 for Clickbait. 1/10 for elucidation accuracy.

    • ttorris

      HI Barry, thanks for making the effort of staying polite ;-). I am aware of proof of work and proof of stake and of the good work by companies like Ethereum to try to make decentralized ledgers/blockchain work.
      The article is about Blockchain in the current bitcoin system and I admit it is very provocative as I agree with you there is a lot of uninformed writing about the topic. I look forward to reading your wisdom on this topic.

      • Barry James

        You are welcome. Glad you are aware of those things. Amazed you did not mention how they bear on and wait in the wings to solve these mythical problems should they actually materialise.

        Provocative is one thing. Misleading is another. I wont be responding to your points directly as I think your whole frame and premise is too misleading and will tend to confuse rather than elucidate.

        Since you’ve expressly missed my, fairly extensive, writings on this topic here’s a starter – from this very publication (and Google can help you find a growing body of them across various others).