BIS economists say crypto can’t fulfill the social role of money because of ‘fragmentation’

June 7, 2022, 2:37 PM UTC

The use of public blockchains results in fragmentation that means crypto could never be a suitable means of payment, economists from the Bank for International Settlements (BIS) said in a report on Tuesday.

“Fragmentation means that crypto cannot fulfill the social role of money,” the report concluded.

The report contended that as transactions per block get close to their limit, the cost of transactions rises, causing users to seek alternative blockchains. This “fragmentation” means blockchains cannot harness the beneficial network effects associated with traditional money.

Money, the report’s authors wrote, is a coordination device meant to facilitate economic exchange and that can happen only if there are network effects where the money is continually made more attractive as more people use it. Without interoperability between competing blockchains, cryptocurrencies cannot fulfill that role.

Not a fan of Bitcoin or crypto in general, the BIS, which is an organization that represents the world’s major central banks, has been advancing its own research into central bank digital currencies and recently completed project Dunbar in which the central banks of Australia, Malaysia, Singapore and South Africa found that cross-border CBDC efforts were viable.

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