Cryptocurrencies ‘Do Not Work as Money:’ New Bank Report Issues the Ultimate Bitcoin Diss
The Bank for International Settlements is not backing Bitcoin.
That’s the upshot of a 24-page article in the central-bank-for-central-banks’ annual economic report released Sunday. The Basel, Switzerland-based institution said cryptocurrencies such as Bitcoin suffer from “shortcomings” that would prevent the currency class from meeting the hype that surrounds it.
Among the complaints in the article are that the currencies are too unstable, require too much electricity (Bitcoin miners currently use about as much electricity as Switzerland does), and are too vulnerable to fraud to serve as a real store of value.
Most significantly, the bank argued that the decentralized nature of Bitcoin and other cryptocurrencies—often touted as the currencies’ main advantage—is in fact a fatal flaw. That’s based on a BIS calculation of what it would take for cryptocurrencies to process all the digital retail transactions currently handled by national systems. According to their findings, the volume of transactions would eventually overwhelm everything from personal devices to servers.
While the BIS concluded that cryptocurrencies do not work as money, they did think of a couple of uses for the distributed ledger technology. For instance, it can make low-volume and low-value cross-border transactions more efficient. Plus, it has benefits in “niche settings where the benefits of decentralized access exceed the higher operating cost of maintaining multiple copies of the ledger.” But none of the uses they identified required the distributed ledger technology to be turned into a currency.
Their findings come as cryptocurrency trading platforms are growing and questions about the legal position of cryptocurrencies are popping up. In a speech last week, a Securities and Exchange Commission official said the regulator had determined that Ethereum, like Bitcoin, is not a security—a label that would require it to be registered as such. Still, the legal status of other cryptocurrencies remains vague.