Regulator claims bitcoin is 'useless'

Regulator claims bitcoin is 'useless'

Virtual currencies such as Bitcoin are "useless" because they fail to perform the basic functions for which they are designed, according to the Bank for International Settlements (BIS).

The Bank for International Settlements (BIS) is a global organisation tasked with coordinating the response of central banks to issues of financial stability.

In a 24-page report, the Bank for International Settlements (BIS) stated the argument often made by enthusiasts for cryptocurrencies is that the tokens will serve as a more efficient method of payment and exchange than paper currency.

But the Bank stated the cost of processing each transaction makes using cryptocurrency as a payment method uneconomical, while the length of time needed to process each transaction makes it less efficient than traditional methods.

The Bank stated the vast quantity of energy required to manufacture each new unit of cryptocurrency requires means such assets will never reach a level of scale to enter everyday use.

The report, written by Hyun Song Shin, economic adviser and head of research at the Bank, said: "At the time of writing, the total electricity use of bitcoin mining equalled that of mid-sized economies such as Switzerland, and other cryptocurrencies also use ample electricity.

"Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster. But the underlying economic problems go well beyond the energy issue.

"Cryptocurrencies simply do not scale like sovereign moneys. At the most basic level, to live up to their promise of decentralised trust cryptocurrencies require each and every user to download and verify the history of all transactions ever made, including amount paid, payer, payee and other details.

"With every transaction adding a few hundred bytes, the ledger grows substantially over time.

"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."

The price of a bitcoin touched $20,000 (£15,000) just prior to Christmas 2017, and as of yesterday (19 June) $6,400 (£4,800).

The Bank stated mainstream currencies, because they are issued by only one entity, i.e. a national central bank, can have a stable supply, which promotes financial stability in the economy.

The author contrasted this with cryptocurrencies, which, because they can be created, or mined by anyone, the supply is always unstable, and this creates instability in the wider financial system.

An argument made by advocates of cryptocurrencies is that central banks can increase or decrease the supply of money in the financial system, and this creates instability, whereas cryptocurrencies are finite in supply, that is, only a certain number of each currency can be created, so the supply is ultimately fixed, and this reduces financial instability over the long term.