Understanding Cryptocurrency: Myths and Realities

App Development
Emily Clark
4/8/2020

People do not always have a solid understanding of how cryptocurrency works, given its mysterious origins. Visual Objects surveyed 983 people who are familiar with digital currency to learn how people perceive and use cryptocurrency. We found that although one-third of people think owners use cryptocurrency on illegal items, they really use it on more mundane purchases such as clothing and food. 

It is 1 a.m. on a Tuesday, and Tom sits quietly in the dark. The glow of his computer illuminates his face. 

At the moment, Tom is unsure of himself. He has been saving up his bitcoin for a while now to make sure he spends it on just the right purchase. He decides to go for it and clicks the buy button, sending his cryptocurrency back into the folds of the internet. At some point, that bitcoin could be used to buy drugs or weapons. 

But not right now. 

Right now, Tom is buying a pizza. 

Visual Objects surveyed 983 people about how they use and perceive cryptocurrency. Although many perceive cryptocurrency to be a major tool to trade illicit and illegal items, the majority of people who buy cryptocurrency use it for normal purchases such as clothes and food. 

Still, the reality of cryptocurrency is complicated. Some consider Bitcoin and Ethereum the future of money, but the instability of the market can be a deterrent for more risk-averse investors. 

Using our findings, we break down 2 major myths about cryptocurrency: 

Myth 1: The cryptocurrency market is open with lots of cryptocurrencies to choose from and use.
Myth 2: People primarily use cryptocurrency to make illegal purchases. 

These myths, however, don’t match up with realities of how people use cryptocurrencies:

Reality 1: There are thousands of cryptocurrencies, but most people just use Bitcoin. 
Reality 2: Most people just use crypto to purchase food and clothing, although it is easier to buy illegal items with cryptocurrency than other payment methods. 

In this report, we dive into why these myths exist and how our data contradicts them. 

Our Findings

  • Fewer than a fifth of people (16%) have invested in cryptocurrency, indicating that they still prefer more mainstream methods of money. 
  • Bitcoin (70%) is the most popular cryptocurrency people own. 
  • The majority of people (72%) have spent cryptocurrency on day-to-day purchases. 
  • More than one-quarter of people (38%) spend cryptocurrency to buy food, and 34% use it to buy clothes. Still, 26% of people have spent their crypto on more dangerous items such as weapons (15%) and drugs (11%).
  • People, however, believe that cryptocurrency is used for different reasons, namely to buy stocks (40%) or illegal items such as weapons and drugs (30%). 

People Use a Small Number of Cryptocurrencies 

Myth: The cryptocurrency market is open with lots of cryptocurrencies to choose from and use.
Reality: People use very few forms of cryptocurrency and mostly just bitcoin. 

Although it may seem that new cryptocurrencies pop up all the time, people largely focus on very few. 

Almost one-fifth of the population (16%) in the U.S. has bought cryptocurrency.

16% of people in the U.S. have owned cryptocurrency

People legitimize cryptocurrency by demand and market value: It’s only valuable if people use it. 

As such, although there are 2,957 known cryptocurrencies, only 10 of them have any real worth, and the majority of people only use one. In total, the value of the global cryptocurrency market was $856 billion in 2019.

There is a long list of cryptocurrencies, but the most popular is Bitcoin. Almost three-quarters of cryptocurrency owners (70%) have bought Bitcoin. 

Top Cryptocurrencies People Own

Ethereum (27%), Litecoin (20%), and Dogecoin (15%) also have a significant number of users but do not compare to Bitcoin. 

What Exactly Is Bitcoin? 

Bitcoin was created by an unidentified figure known as Satoshi Nakamoto and first discovered in a whitepaper explaining how to use the coin in 2008. It rose to prominence in 2011 when it was used regularly on black market sites such as the Silk Road.  

To earn bitcoin, users access an autonomous software program where they can “mine” it based on a lottery-based system. People must mine for bitcoin by answering a complex math program (with the help of a computer) and “digging up” the cryptocurrency digitally. 

Bitcoin has been a major factor in cryptocurrency going mainstream and, like stocks, its value fluctuates depending on the market. 

For example, with the COVID-19 pandemic, GDP could fall between 25% to 50%. Bitcoin trends with the economy. In January 2020, one bitcoin was worth about $7,200. By the middle of March, it fell by almost 50% to $4,107. As the market continues to rise and fall daily, one Bitcoin has settled at a value of roughly $7,000 as of April 7.  

Still, overall, the value of Bitcoin has skyrocketed since it was invented. People who invested in Bitcoin 5 years ago would make 6 times their investment if they sold today

People Use Cryptocurrency Primarily on Food, Not Illegal Goods

Myth: People use cryptocurrency primarily to make illegal purchases. 
Reality: People mostly spend their crypto on everyday things such as stocks and food. 

Cryptocurrency is associated often with buying illegal items online. The perception that most cryptocurrency operates outside the law, however, is incorrect. 

In general, people are almost split between thinking that cryptocurrency is used for investing in stocks and thinking it is used to purchase illegal items. 

Nearly one-third of people think cryptocurrency is primarily used for buying illegal items such as certain drugs and weapons. Meanwhile, 40% of people say it is used to purchase stocks. 

40% of people think owners use cryptocurrency to buy stocks

Not only do 30% of people who are simply familiar with cryptocurrency believe it is used for illegal purchases, so do the people who actually own it. Almost the same percentage of people who own cryptocurrency (28%) also think it is used for illegal items. 

What People Think Cryptocurrency Is Used to Purchase
Further, only 14% of people believe crypto is used to buy more mundane items such as food. 

These general perceptions, though, are shifting.

Bill Gates, founder of Microsoft, has referenced cryptocurrency as a potential solution for income inequality

“If we were building a financial system from scratch today, we’d do it on a digital platform,” Gates said. “Digital can lower the cost of a range of transactions by as much as 90%, providing nearly universal access to innovative financial products and services.”

Facebook, for its part, plans to launch its own cryptocurrency called Libra in 2020

As more businesses accept bitcoin as a usable form of payment, the more legitimate cryptocurrency will become in the global economy.  

People Use Cryptocurrency to Buy Food and Clothing 

People may associate cryptocurrency with criminal activity, but they use it mostly for standard purchases such as food. 

More than a quarter of crypto owners (38%) have used their cryptocurrency to buy food, while another 34% have used it to purchase clothing. This data means that more than half of bitcoin use is spent on ordinary items. 

What People Purchase With Cryptocurrency

Although many businesses do not accept cryptocurrency as payment, some larger retailers do: 

  • Microsoft accepts bitcoin as payment in its Xbox store
  • Overstock currently accepts and holds multiple forms of cryptocurrency
  • KFC Canada accepts bitcoin as payment for food
  • Expedia accepts bitcoin to purchase flights and other forms of travel 
  • CheapAir accepts bitcoin as flight payment

The more companies begin to accept cryptocurrency as payment, the more mainstream cryptocurrency will become. 

Of course, the downside to buying everyday things with cryptocurrency is the fluctuating value of the coin. 

For example, in 2010, someone spent 10,00 bitcoins on two pizzas, roughly worth $30. In 2017, those 10,000 Bitcoins would have been worth $82 million. Although the buyer obviously lost a fortune, people are warier of how to spend and distribute their bitcoin today. 

Why Do People Associate Cryptocurrency With Criminal Activity? 

There are a few reasons why people associate cryptocurrency with illicit activity: 

  • Its use began on black market sites
  • It’s known for pseudonymous transactions, or using a fake name to receive and send transactions
  • It is decentralized from governments
  • It can be used to easily buy something illegal 

Cryptocurrency Usage Began on the Black Market 

Cryptocurrency first became widely used on the black market so that people could buy illegal items online without putting in their credit card or bank account information. 

While the black market was the first large-use case of crypto, cryptocurrency’s appeal grew from people wanting to invest in this new and valuable currency. 

Cryptocurrency Is Associated With Anonymity 

People widely perceive bitcoin transactions to be untraceable and anonymous. This assumption is incorrect. 

All bitcoin transactions are public and traceable. People consider transactions to be anonymous because users do not have to give any personal information to complete transactions. However, it is actually fairly difficult to be totally anonymous with cryptocurrency. 

All crypto buyers must have a unique and specific identifier called an address where they accept transactions.

Bitcoin Address

Source

This address is usually a pseudonym. It is quite easy to trace an owner to a purchase by recognizing the address from multiple purchases. People who want to be anonymous must create separate addresses for each purchase so that they can’t be tied to one pseudonym. 

Cryptocurrency Is Decentralized Currency 

The defining difference between cryptocurrency and other digital payment methods such as PayPal, Venmo, and credit cards is that the government does not disperse or set the value of crypto. 

The point of decentralizing currency from the government is to potentially “prohibit failure of the system.” For example, because the U.S. government controls the dollar, the success and failure of the dollar are tied directly to the government. 

Cryptocurrency is controlled by the people who own it, which means it has no singular point of failure.

Cryptocurrency is controlled by the people who own it, which means it has no singular point of failure.

It is a more democratic form of currency that relies solely on each individual investor rather than a hierarchical structure such as a central bank. As well, there is no currency exchange, and it can potentially be used anywhere in the world. 

People, however, may associate decentralization with operating outside of the law or to bypass government regulations. 

Governments, however, have rules on how cryptocurrency can be filed as taxes and consequences for creating crypto scams. For example, U.S. citizens must pay taxes on their cryptocurrency transactions. 

In 2019, the IRS had to send letters to 10,000 digital currency holders demanding them to pay taxes on their crypto holdings. 

In that same year, cybercriminals stole $4.2 billion from users using common cryptocurrency scams such as creating fake websites and then accessing people’s crypto wallets. 

People who are caught in a cryptocurrency scam can serve long-term jail time depending on the severity of the fraud. 

Although cryptocurrency has a decentralized value from the government, it is still under government restrictions.  

Cryptocurrency Makes Buying Illegal Items Easier 

It is much easier to buy something illegally with cryptocurrency than with a credit card or PayPal. 

While Bitcoin and Ethereum have implemented ways to track who buys what, people still give much less personal information through cryptocurrency than a bank account. 

More than a quarter of cryptocurrency owners (26%) admitted they bought dangerous items using cryptocurrency, with 15% saying they used it to buy weapons and 11% saying they used it to buy drugs. 

With cryptocurrency’s higher degree of anonymity, it is easier to hide what you purchase as well as vanish from the public if need be. 

Black markets, as well, usually accept cryptocurrency as payment, while supermarkets such as Safeway do not. With black market origins and less personal setup, cryptocurrency has helped people complete illicit activities. 

Although people use cryptocurrency for ordinary purchases, its illicit beginnings have warped general perception about its use. 

Cryptocurrency Is Associated With Illegal Purchasing but Is Mostly Used for Ordinary Transactions

Although almost 3,000 cryptocurrencies exist, Bitcoin remains the favorite by far: It’s the most familiar form of cryptocurrency and 70% of crypto owners have bought Bitcoin.

Many people consider Bitcoin and other cryptos to be widely used by criminals because of its pseudonymous setup, decentralized framework, and black market origins. 

Only 26% of owners, however, use cryptocurrency on illicit items. The majority of people spend it on ordinary purchases such as food and clothing. 

As more businesses begin to accept cryptocurrency as payment, people recognize the value of buying this newer form of money and using it in the future. 

About the Survey 

Visual Objects surveyed 983 people in the U.S. who have used a digital payment platform.

About 54% of respondents are female; 46% are male.

About 44% of respondents are ages 18-34; 35% are ages 35-54, and 22% are ages 55 and older.