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BIS Warns On Cryptocurrencies, Says Could Break Internet

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Bitcoin and other cryptocurrencies suffer from a range of shortcomings and it could break the Internet, says the Bank for International Settlements or BIS.

The Basel, Switzerland-based Central Bank overseer warned that the digital currencies are not scalable and could suffer a breakdown in trust and efficiency as more and more people use it.

In an article, as part of its annual economic report, BIS pointed out that trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded.

The quest for decentralised trust has quickly become an environmental disaster, noting the enormous amount of electricity used for crypto mining. The article pointed out that the total electricity use of bitcoin mining at the time of writing the article equaled that of mid-sized economies such as Switzerland.

"Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value. Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money," BIS said.

BIS analyzed that cryptocurrencies are inadequate as an everyday means of payment, and the size of the ledger would swell well beyond the storage capacity of smartphones, personal computers and servers.

According to BIS, the associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.

The report added that even though cryptocurrencies do not work as money, the underlying technology may have promise in other fields, such as low-volume cross-border payment services.

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