Letting Bitcoin break loose could break the internet, according to a report from a group of central bankers.
The Bank of International Settlements claims bitcoin is “a poor substitute for the solid institutional backing of money.”
But cryptocurrency advocates argue the bankers don’t know what they are talking about and are basing their opinions on out of date research.
One side is obviously wrong – and it’s probably the bankers taking cheap shots to attract media attention.
But, in fairness, plenty of cryptocurrency supporters do the same.
“Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded,” the bank report said. “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.
“Moreover, even if trust can be maintained, cryptocurrency technology comes with poor efficiency and vast energy use. Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value.”
And what about the accusation bitcoin could break the internet?
That comes from a section of the report that points out that the energy consumption of bitcoin mining rigs is the same as Switzerland, according to the bank.
“It was a really shallow report,” Jeremy Allaire, the CEO of Goldman Sachs-backed crypto company Circle. “They clearly haven’t done much research at all.
“They’re looking back at stuff that’s year’s old, they’re not looking at what’s actually going on in terms of the real research and development in this space. It’s just really poor research.”
Allaire and other cryptocurrency enthusiasts are aware the blockchain and other digital currency technologies are not perfect, but point out that they are continually improving.
They explain that around 98% of Bitcoin’s original code has been rewritten since first appearing in 2009.
“There’s a lot of infrastructure work going on and I think it’s really key because I think the consensus within the industry is that if we can solve some of those issues in the next year to two years, then we can have products that are actually used by a billion people. That’s when this gets to be a lot more interesting,” said Allaire.