New BIS report displays criticism over blockchain and DLT claims

Avatar By Le Williams | 2 years ago

New reports published Sunday reveals a financial institution operated by the world’s central banks is taking aim at cryptocurrencies, questioning their ability to deliver on their promises.

Released by the Bank of International Settlement (BIS), the report termed “Cryptocurrencies: looking beyond the hype” explains the history behind the technology and analyzes whether it can truly create a trustless form of money.

Notably, the release precedes the organization’s full annual economic report, which will be published by the end of June.

BIS also refered to mining concentration, the proliferation of new cryptocurrencies, volatile markets and scalability as issues with cryptocurrencies at present, the bank’s report concludes that ” the decentralized technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.”

In addition, the bank claims that using a blockchain to process the volume of retail payments made daily “could bring the internet to a halt.”

The BIS report explains, “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 criticisms further demonstrate direct issues towards miners, noting that “delivering … hinges on a set of assumptions: that honest miners control the vast network of computing power, that users verify the history of all transactions and that the supply of the currency is predetermined by a protocol.”

While the BIS was harsh on cryptocurrencies, it saw distributed ledgers more positively, writing that “the underlying technology may have promise in other fields.”

Distributed ledger technology can facilitate cross-border payments, as well as help niche fields “where the benefits of decentralized access exceed the higher operating cost of maintaining multiple copies of the ledger.”