BIS “bank of central banks” describes bitcoin as useless
Fortunately it doesn't have to replace fiat currency to be useful, or even to be money.
In its most recent annual report (PDF), the Bank of International Settlements (BIS), which is literally a bank for central banks jointly owned by about 60 different central banks around the world, described bitcoin and other cryptocurrencies as useless and unable to ever fulfil their goal of taking over the world's payment system.
The crux of its argument is that bitcoin cannot scale effectively and that decentralised cryptocurrency networks are too fragile to ever foster the trust they need to operate effectively.
The endless scaling problem
The pointy end of bitcoin's scaling problem is its inability to process a lot of transactions quickly, especially without extravagant fees. The broader part of its scaling problem includes its ever-increasing energy and data consumption.
With some extrapolation, BIS concluded that if bitcoin was used for all current retail transactions "the associated communication volumes could bring the Internet to a halt." Meanwhile, the increasing energy consumption is self-evidently not sustainable.
"Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster," BIS said.
It also came at distributed ledger technology from the angle that decentralisation was unreliable and was a weakness, rather than a strength.
"Trust can evaporate at any time because of the fragility of the decentralized consensus through which transactions are recorded," the BIS said. "Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value."
The report says there's potential in distributed ledger systems for international payments and other areas and suggests that digital central bank money could be a useful system down the line, but argues that the disadvantages of decentralised systems generally outweigh the benefits.
In most cases and with the current state of distributed ledger technology, it probably does.
Balancing the pros and cons
There will always be some demand for decentralised systems, however, and at the moment, it's largely a question of finding the cases where those advantages outweigh the downsides.
For example, decentralised systems are able to create censorship-resistant payment options and can currently be a very cost effective way of making international payments. If someone needs that censorship resistance or just wants to make a cheap payment, it doesn't necessarily matter that they can't easily buy a cup of coffee with bitcoin or that their country's central bank doesn't recognise it as currency.
Different systems present different balances of pros and cons, and cryptocurrency can offer advantages that nothing else currently can. The cost is all those downsides which BIS argues make it useless.
But as development continues, the pros will get more numerous while the cons will diminish and get more flexible. This will open up new use cases, which are essentially just situations where the pros outweigh the cons.
Replacing fiat outright is a very tough use case though, and crypto might never be able to achieve the required balance of pros and cons to achieve that goal.
Bitcoin is largely obsolete, and it probably shouldn't come as a surprise that it's not able to achieve such a challenging late-game function as replacing fiat on a large scale. Until something can, the world will just have to make do with fiat currency's current balance of pros and cons.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and XRB.
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