Bitcoin could break the internet, says Bank for International Settlements

Joanna Estrada
June 20, 2018

The Bank of International Settlement - an organisation that provides financial services created to support the activities of central banks and other monetary authorities, as well as operating as a think-tank and analyst on financial matters - has said that it's "hard to identify a specific economic problem" that cryptocurrencies solve, and rubbished the prospects of the technology underpinning them becoming mainstream payments technology any time soon.

On Sunday, 17 June 2018, the Bank for International Settlements (BIS), released chapter V of its Annual Economic Report 2018 (the full report is due on 24 June 2018). Among the concerns is that Bitcoin and the rest of the digital coins are "unstable", consuming enormous amounts of energy, and are exposed to fraud that leads to theft of real money.

It also pointed to the electricity consumption used by miners to generate new tokens, billing the quest for decentralised trust as an "environmental disaster".

The BIS is weighing in at pivotal moment in the cryptocurrency story.

BIS suggests that distributed ledgers will find uses in simplifying administrative processes related to complex financial transactions. At the same time, cyber-attackers are hitting crypto exchanges regularly - just last week, Bitcoin nosedived after a South Korean exchange reported it was hacked.

Bitcoin fell about 0.9% to the level of $6.439 on Monday.

Comparison of classical c cryptocurrency transactions in the report. At the same time, US Securities and Exchange Commission is tightening laws on offerings of digital tokens. Yet with supporters pushing to make it a mass market platform utilized by companies and governments, it may become too expensive to secure, concludes Eric Budish, the paper's author and an economics professor at the University of Chicago Booth School of Business.

While the BIS was harsh on cryptocurrencies, it saw distributed ledgers more positively, writing that "the underlying technology may have promise in other fields". In the instance of Bitcoin, for example, the trust in the coin was eroded as more users clogged up the network, driving up transaction times and costs. More so, trades and businesses that still depend on facsimiles and letters of credit would appreciate the improvements brought about by Blockchain.

However, the toughest fall out of loss of trust, is not only the finality in the individual payment, but also the fact that the technology may simply stop functioning.

Headquartered in Switzerland, BIS stated that these challenges could be overwhelming and the fragility of the decentralized transaction ecosystem could result in a 'loss of trust.' The backbone of blockchain technology is the absence of a central authority which tracks the transactions.

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