Proof of Work-Enabled Bitcoin Unlikely To Succeed
On Monday, the Basel, Switzerland-based Bank of International Settlements (BIS) — the so-called central bank of central banks — released a paper titled “Beyond the doomsday economics of “proof-of-work” in cryptocurrencies.” In the research publication, authored by BIS’ principal economist Raphael Auer, it was explained that the antiquated Proof of Work (PoW) block processing mechanism is likely to fail Bitcoin (BTC) over time.
Auer centered his argument around Bitcoin’s issuance schedule, noting that the decline in block rewards will eventually kill the efficient, low-cost nature of BTC transactions — claiming that on-chain processes will take hours, days, or even days stretching into months reach finality. He wrote:
And with block rewards – which, at present, represent the vast majority of miners’ income and thus underpin the security of payments – being gradually phased out, the security of payments is also set to deteriorate.
The BIS researcher went on to touch on the Lightning Network, SegWit, and other potential scaling solutions that could fix Bitcoin’s current qualms. Although he did acknowledge that Lightning Network, arguably the most promising second-layer of the Bitcoin Network, has seen a semblance of adoption, he was skeptical of the long-term benefits the system would provide. More specifically, he wrote that there’s a trade-off between efficiency and centralization. With all this (and more) in mind, through the paper’s abstract, Auer wrote:
Thus, the current technology seems unlikely to replace the current monetary and financial infrastructure. Instead, the question is rather how the technology might complement existing arrangements.
Interestingly, Auer’s quip about Bitcoin’s PoW-centric consensus system comes just days after Bryce Weiner, a blockchain developer claimed that mining is likely to die out. In a Twitter thread, Weiner, a former software developer at Reuters and Lockheed Martin, gave Bitcoin’s supply limit some flak, noting that what gives cryptocurrencies “true financial power” is the ability to mint your own money, before subsequently lauding the Proof of Stake (PoS) consensus mechanism.
Weiner then added that those marginalized “stand the most to benefit from this technology,” and as such, Proof of Work-centric coins, like Bitcoin, are more targeted towards those that have “privilege.” On the other hand, staking-eligible coins and tokens will see adoption by the less privileged, creating further demand for altcoins.
BIS Survey Respondents Skeptical Of Crypto
In a recent survey conducted by the BIS, it was revealed that its constituents, a number of central banks across the globe, are skeptical of cryptocurrencies. As reported by Ethereum World News on a previous date, the BIS survey’s respondents were skeptical of crypto’s potential. The outlet, who got its hands on the data, claimed that more than half of 63 respondents claimed that cryptocurrencies were used only “trivially,” or weren’t actively utilized at all.
28% of surveyees claimed that blockchain-based assets were solely used by niche groups — like the swelling number of Bitcoin proponents and the financially marginalized (many of which don’t have access to proper services).
Those surveyed purportedly stated that the lack of cryptocurrency adoption can be chalked up to retailers’ hesitance to accept this nascent form of money, regulatory uncertainty, public skepticism regarding Bitcoin, and flat-out bans/stringent restrictions in some nations.
And while the BIS survey purportedly revealed that central banks are garnering the authority to offer in-house crypto assets, or are working on blockchain-related projects, respondents claimed that they are unlike to issue a sovereign digital currency “for wholesale settlement” in the next three years.
Title Image Courtesy of Chris Li Via Unsplash