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BIS: Cryptocurrencies are an environmental disaster that could break the Internet

18 June 2018  |  10162 views  |  3 power leads

In a scathing take-down of cryptocurrencies, the Bank for International Settlements says the replacement of retail payments by virtual money would break the Internet and lead to an environmental catastrophe.

In its Annual Economic Report, the Basle-based central banker's bank argues that the decentralised technology underpinning private digital tokens is no substitute for tried and trusted fiat money.

The paper calculated what it would take for the blockchain software underpinning bitcoin to process the trillions of retail transaction currently swirling through national payment systems.

"To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months."

With multiple ledgers operating at full throttle, "the associated communication volumes could bring the Internet to a halt", the report warns.

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

Today's cryptocurrencies become more cumbersome to use as the number of users increases, suggest the BIS, in contrast to conventional money, which works better the more people use it and trust it.

"Money has value because it has users," says Hyun Song Shin, economic adviser and head of research. "Without users, it would simply be a useless token. That's true whether it's a piece of paper with a face on it, or a digital token."

Comments: (3)

A Finextra member
A Finextra member 18 June, 2018, 11:11

Clearly the spell-checkers have already broken...

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A Finextra member
A Finextra member 18 June, 2018, 12:34

Surely there is a technical solution to not sending the entire ledger per transaction? With a risk-based approach this could be achieved.

 

The e-Krona project in Sweden must have considred this during their PoC.

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A Finextra member
A Finextra member 19 June, 2018, 08:47

Dear Member 2: According to published info the Swedish e-krona is planned to be based on legacy technology:

-For payments at point of sale a stored value card with a chip application containing the downloaded value the cardholder has decided. This payment will work off-line by transferring value from the card to the merchant payment device, much like Mondex?

-For larger payments/transfers the citizen holds an e-krona account with value deposited at the central bank server. When paying to somebody the value is transferred from payer central bank deposit account to payee central bank account. Much like a credit transfer works today between payer and payee with accounts in the same bank!

No need to guzzle up all electricity in Sweden on crypto currency - instead the central bank would effectively take over all account deposits and monopolizse all domestic debit card payments and domestic credit transfers, with regular, proven stored value and credit transfer applications...  

 

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