Published: Wed, June 20, 2018
Electronics | By Kelly Massey

Banking experts: Cryptocurrencies can't work as real money

Banking experts: Cryptocurrencies can't work as real money

The report also takes shots at 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".

On their 24-page article which was released on Sunday, the Bank report that bitcoin and their mimic coins are suffering from a "range of shortcomings". That's based on a BIS calculation of what it would take for cryptocurrencies to process all the digital retail transactions now handled by national systems. Meanwhile, many people buy coins for speculative purposes, so they tend to hold them instead of spending.

Shin has a good point here, although we do have cryptocurrencies that use more energy-efficient algorithms, such as NEO, which use a "Proof-of-Stake" (PoS) algorithm and EOS, which uses a "Delegated Proof-of-Work" (DPoS) algorithm. With every transaction adding a few hundred bytes, the ledger grows substantially over time.

Among the main problems are the instability, consuming excessive amounts of electricity to produce the cryptocurrency, and insecurity, because they are still manipulated and digital fraud around the world.

"Only supercomputers could keep up with verification of the incoming transactions".

It is true that now Bitcoin would not be suitable as a means of payment if mass option took place since its transaction processing capacity maximum is estimated to be between 3.3 and 7 transactions per second.

"The associated communication volumes could bring the Internet to a halt", the report said.

Banking experts: Cryptocurrencies can't work as real money

Among the complaints in the article are that the currencies are too unstable, require too much electricity (Bitcoin miners now use about as much electricity as Switzerland does), and are too vulnerable to fraud to serve as a real store of value.

Based on the report, for a monetary system to efficiently make transactions, it needs to be flexible to handle demand and must be able to scale with the economy, a task central banks have been able to provide.

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The researchers did note that blockchain technology could bring some benefits to the global economy, like, for example making cross-border payments more efficient. "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 bank also revealed that there are chances for the central bank to launch digital currencies, which several central banks are contemplating.

The Bank for International Settlements (BIS) also criticized the mounting transaction fees of cryptos. "Yet while the probability that a payment is final increases with the number of subsequent ledger updates, it never reaches 100%".

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