In a recent report the Bank for International Settlements (BIS) condemned cryptocurrencies with some scathing comments about the collapse of the internet among other things.
It is not unusual for a bank to be critical of crypto. It is not surprising either since decentralized money competes with and goes against a bank’s business model which is to make money from its customer’s money. They will often fuel FUD harping on about terrorism funding and criminal activity but breaking the internet really is going a bit far.
In its Annual Economic Report, the Swiss-based central banker’s bank argued that the decentralized technology underpinning cryptocurrencies is no substitute for trusted fiat money. The report stated that the bank was prompted to look ‘beyond the hype’ following ‘intense interest’ in Bitcoin and virtual currencies. Predictably the authors were overtly critical;
“looking beyond the hype, it is hard to identify a specific economic problem which they currently solve. Transactions are slow and costly, prone to congestion, and cannot scale with demand. The decentralised consensus behind the technology is also fragile and consumes vast amounts of energy.”
For a bank to say crypto transactions are slow and costly is absurd, anyone that has tried a cross-border transaction between two different banks in two different countries will know the meaning of ‘slow and costly’.
The report went on to attempt a calculation on what it would take the current Bitcoin blockchain to process the current level of retail transactions taking place at the moment;
“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 associated communication volumes could bring the Internet to a halt.”
What it doesn’t consider is that the industry is embryonic and gradual adoption will lead to evolution in the technology. There are already several blockchains and digital currencies that are far more efficient than Bitcoin and more will follow. Would networks in 1994 been able to handle the current level of information flowing around the internet? No, they have evolved along with the technology and adoption.
In addition to breaking the internet the report went on to call the energy consumption in mining operations an ‘environmental disaster’. Did it compare this to the energy used to power the sky scrapers that banks own, or fuel for the planes that their executives fly around the planet in? No.
Banks are threatened by crypto in the same way that corrupt governments are threatened by free speech and flow of information. Taking the profits and power back from the banks by fostering crypto adoption will bring about a financial revolution that this world profoundly needs – it just may take a few years, and the bankers will not like it.