The Bank for International Settlements, whose main functions are facilitating cooperation between central banks and facilitating international financial settlements, published material that questioned the ability of the cryptocurrency to justify the expectations placed on them. This is written by CoinDesk.
In the document under the heading “Cryptocurrencies: beyond excitement”, the history of technology and analysis of its potential as a trustworthy form of money are given. As previously reported, the publication of this document precedes the release of the full annual economic report of the BIS.
Referring to the numerous hard forks, the concentration of mining, the quantitative growth of new cryptocurrencies, market volatility and scalability problems, the bank concludes: “Decentralized cryptocurrency technology, despite its sophistication, is a weak substitute for money provided by reliable institutions.” The authors of the document also argue that the use of blockchain to handle a large volume of retail payments, carried out on a daily basis,” can lead to a halt in the work of the Internet.”
“In order to handle the large number of retail transactions currently conducted through national retail payment systems, even according to optimistic estimates, the size of the registry will significantly exceed the storage capacity of a conventional smartphone for several days, a typical personal computer for several weeks, and a server for several months, – says the publication.
In addition, “only supercomputers” have sufficient computing power necessary to conduct each retail transaction through blockchain. Even if a sufficient number of supercomputers are created, which can be combined into a decentralized network, “millions of users will be forced to exchange terabyte-sized files.” According to the report, such requirements for the operation of the network will cause interruptions in the work of the Internet.
The document also mentions the miners with which, according to its authors, a number of assumptions are connected: it is assumed that honest miners control most of the computing power of the network, and the issue of coins occurs in accordance with the pre-established rules of the protocol.
Although the BIS is negative about the cryptocurrency, the technology of the blockchain system finds a positive response in its report, as it looks “promising in other areas.” A distributed register can be used for cross-border payments, “where the advantages of decentralized assets outweigh the higher transaction costs of maintaining multiple copies of the registry.”
The report also mentions that other technologies are currently being developed that are capable of performing the same functions as blockchain, “and it is unclear which of them will be more effective.”