Banking experts: Cryptocurrencies can't work as real money


Records of transactions are kept on a digital ledger.

In one of its most poignant findings, the BIS analyzed what it would take for the blockchain software underpinning Bitcoin to process the digital retail transactions now handled by national payment systems.

Beyond transaction capabilities, cryptocurrencies are prone to congestions, which drives up transaction fees significantly. Bitcoin's price surged to around $19,000 late past year, but has since plunged to below $7,000.

"But the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions.The associated communication volumes could bring the internet to a halt", it said.

"Transactions have at times remained in a queue for several hours, interrupting the payment process".

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The report also considered the growing need for a "redrawing of regulatory boundaries", which considers the drawbacks and limitations of cryptocurrency in line with the boundaries of its usage.

The central bank further stated that due to its high electrical power consumption, "the quest for decentralized trust has quickly become an environmental disaster" due to its high electrical power consumption.

Still, the institution concluded that Bitcoin's great breakthrough, the ability of one person to send something of value to someone else with the ease of an email, is also its Achilles heel.

The report came at a time when the values of cryptocurrencies are fluctuating aggressively.

The bank also revealed that there are chances for the central bank to launch digital currencies, which several central banks are contemplating. "That's true whether it's a piece of paper with a face on it, or a digital token", he said, comparing virtual coins to baseball cards or Tamagotchi.

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A big part of the appeal of many cryptocurrencies to their supporters is that they are decentralized rather than tied to a central bank like the US Federal Reserve.

Although, BIS is not totally discounting the usefulness of distributed ledgers.

While the BIS report is hardly supportive of using cryptocurrencies to replace normal money, it does acknowledge potential for other applications within the economy. These types of transactions are important for companies with large workforces overseas, and could make their payment systems faster and more efficient.

The report's authors were unimpressed, detailing a range of problems with trying to adopt cryptocurrencies as a widely used form of money.

The premier financial organisation's head stated that, "Without users, it would simply be a worthless token", since the few users it now has are dependent on third parties or miners to first record and then to verify crypto transactions.

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