The Bank for International Settlements Criticized Bitcoin: Why It Was Wrong

Blockchain, News | October 28, 2018 By:

The Bank for International Settlements (BIS) published a report harshly criticizing decentralized virtual currencies, dismissing bitcoin as “a poor substitute for solid institutional support for money.” The international financial organization said that cryptocurrencies are too unstable, consume too much electricity and are subject to manipulation and fraud to serve as a means of payment of bona fide (good faith) in the global economy.

For these reasons, the BIS concluded, the decentralized nature of virtual currencies is a fundamental defect instead of a strength.

Totally ignoring that bitcoin is a technology in full development – approximately 98% of the bitcoin source code has been revised since its creation in 2009 – the entity issued the following statements:

“Confidence can evaporate at any moment due to the fragility of the decentralized consensus through which transactions are recorded. This not only questions the purpose of individual payments, it also means that a cryptocurrency can simply stop working, resulting in a total loss of value. ”

2. Inefficient technology

“Even if trust can be maintained, cryptocurrency technology is inefficient and consumes vast amounts of energy. Cryptocurrencies can not scale according to the demand of transactions, are prone to congestion and fluctuate a lot in value “.

3. They put the Internet at risk

“Associated communication volumes could cause the internet to stop as millions of users exchange files of the order of magnitude of one terabyte.”

4. Environmental disaster

“In simple terms, the search for decentralized trust has quickly become an environmental disaster.”

The main problem with the BIS report is not its conclusions -which, although misleading, are not entirely false-, but the way in which its investigation is proposed:

The main problem with the BIS report is not its conclusions -which, although misleading, are not entirely false-, but the way in which its investigation is proposed:

In other words, the BIS research observes the limitations of cryptocurrencies if they were used as a means of payment in the global economy in its current form, without considering that a physical good such as gold or digital as bitcoin can not become money without the market adopting it with time as such. “It’s like arguing that it would be problematic to give a baby the responsibility of governing a country,” a cryptocurrency investor told Business Insider. “Babies have to grow up before they take on responsibilities and developers are working hard to help bitcoin and other digital currencies grow,” he added.

Other defenders of the virtual currencies criticized the BIS report in the same sense:

1. “It was a really shallow report ,  said Jeremy Allaire, Circle CEO. “They are analyzing things that are one year old, not what is really happening in terms of Research and Development in this space, it is very poor research.”

2. “I do not think many people appreciate how new this technology is,” said Jamie Burke, founder and CEO of venture capital fund VC Outlier Ventures.

3. “Cryptocurrencies continue to be an emerging technology, although it is moving towards the right infrastructure for daily use ,  said Matthew Newton, an eToro analyst.

The BIS is an entity owned by numerous central banks based in Basel, Switzerland. By its very definition, “it fosters international financial and monetary cooperation and serves as a bank for central banks.”

This story was originally published in Spanish at Cripto247.