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Bank for Central Banks: Crypto Trading Volumes Could Bring the Internet to a Halt

Cryptocurrency NewsJun 19, 2018 01:20AM ET
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Bank for Central Banks: Crypto Trading Volumes Could Bring the Internet to a Halt

Members of the Bank of International Settlements (BIS) aren’t fans of cryptos. They say they are unstable and vulnerable to price manipulation.

Furthermore, the group’s officials don’t believe cryptos will ever reach mainstream status.

The bank for central banks sees several flaws in cryptos. They include:

  • Cryptos being highly volatile
  • Cryptos’ transactions being slow, costly and prone to congestion
  • The crypto space not having a central body with a mandate to keep the currencies stable

Then there is the typical argument that cryptos are too vulnerable to fraud and money laundering practices.

BIS made clear the group’s disdain for cryptos in a lengthy report in which its officials attempt to evaluate whether cryptos could play any role as money. They tout their research as looking beyond the hype to find specific economic problems, if any, that current cryptocurrencies can solve.

Here, we’ll note their other findings, as well as push back from a key crypto player.

Little trust in crypto space

The main reason BIS officials believe cryptos have garnered so much attention is due to their promise to replace trust in long-standing institutions, such as commercial and central banks.

Trust is a virtue BIS officials think cryptos lack. This is despite the immutable Blockchain technology that underpins Bitcoin and other cryptos.

Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded. Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value.

BIS calls the means in which players in the crypto place try to achieve trust cumbersome.

Miners and the energy they consume are problematic

Crypto players know that mining cryptos requires the consumption of a considerable amount of energy. BIS thinks that the amounts are so significant that they could negatively affect the internet.

Here’s an excerpt from report about this seemingly outrageous claim.

“The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”

Then there’s the matter of finding “honest miners,” claims BIS.This is important because they control the majority of the computing power, notes BIS.

For trust to be maintained, “honest network participants” need to control the vast majority of computing power, each and every user needs to verify the history of transactions and the supply of the crypto needs to be predetermined by its protocol.

Blockchain is useless when it comes to trust in crypto space?

BIS believes its review shows that the “essence of good money has always been trust in the stability of its value.” It claims that even if trust can be maintained, cryptocurrency technology, i.e. Blockchain, comes with “poor efficiency and vast energy use.” BIS claims also that cryptos:

  • can’t scale with transaction demand
  • are prone to congestion and
  • greatly fluctuate in value

For all these reasons, Blockchain, no matter how sophisticated, “is a poor substitute for the solid institutional backing of money.”

Typical crypto bashing from central bank

Bitcoin guru Brian Kelly noted how cryptos are an existential threat to central bankers. He pointed out that in the Bitcoin/crypto ecosystem, you don’t need central bankers anymore.

In addition to cryptos being existential threats to central bankers, they have a couple of other features that make bankers antsy.

For example, they represent the new guard, pushing central bankers to the back burner as the old guard. He compared it to when newspapers went online, and how many thought that was a bad idea at the time. Now, look at how that move has changed that industry.

Then there’s the matter of Bitcoin being peer-to-peer.

“Bitcoin removes the middle man and the central bank is the middle man in this particular case.”

BIS is an 88-year-old institution based in Basel, Switzerland that serves as a central bank for other central banks.


This article appeared first on Cryptovest
Bank for Central Banks: Crypto Trading Volumes Could Bring the Internet to a Halt
 

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