Bitcoin could ‘bring the internet to a halt,’ banking group warns
Don’t bet on bitcoin ever replacing the dollar or other traditional currencies as everyday money.
That’s one of the messages from a new report by an organization that represents dozens of the world’s central banks.
The group, Switzerland-based Bank for International Settlements (BIS), said the “intense interest” in bitcoin and other cryptocurrencies had prompted it to look “beyond the hype” at what use they could actually contribute to the economy.
The report’s authors were unimpressed, detailing a range of problems with trying to adopt cryptocurrencies as a widely used form of money.
They include the danger that just processing all the payments “could bring the internet to a halt,” said the report, which was published Sunday.
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. Records of transactions are kept on a digital ledger.
But because every single transaction is added to the digital ledger, the report said using a cryptocurrency like bitcoin for retail transactions around the world would quickly swell the ledger beyond the capacity of computer servers to store it. Supercomputers would be needed to keep up with verifying incoming payments, and the huge amounts of data being exchanged between users would bring the internet to its knees.
Experts have warned previously about the vast energy demands that bitcoin could end up making if its use expands significantly.
The Bank for International Settlements pointed out other concerns about using cryptocurrencies as regular money, including the volatility of their prices. Bitcoin’s price surged to around $19,000 late last year, but has since plunged to below $7,000.
Every bitcoin transaction also requires users to pay a fee to have it added to the digital ledger. In times of high demand, the fees go up. During the feverish trading of bitcoin in December, they spiked to around $57 per transaction.
“Just imagine, if you bought a $2 coffee with bitcoin, you would have had to pay $57 to make that transaction go through,” Hyun Song Shin, the bank’s head of research, said in a video accompanying the report.
He noted that some people hold bitcoin not as money, but as an investment asset.
The report also questioned the limits of the trust on which cryptocurrencies rely.
“Trust can evaporate at any time because of the fragility of the decentralized consensus through which transactions are recorded,” it said, adding that “means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value.”
The report wasn’t entirely dismissive.
It said that cryptocurrencies’ “underlying technology could have promise in other applications, such as the simplification of administrative processes in the settlement of financial transactions,” although it added that “this remains to be tested.”