The Bank of International Settlement raised a concern regarding the amount of power in computing cryptocurrency requires.
The process of creating new cryptocurrency units is called Bitcoin Mining, and is said to be a huge energy-sucker. An estimate was made that it consumes energy as much energy as 159 countries combined.
But that’s not just the problem. In a new report, the Bank of International Settlements (BIS), a self-described “bank for central banks,” calls this technology “a poor substitute for the solid institutional backing of money” due to some reasons including the fluctuating value and the regulatory concerns.
One of the critiques that the BIS explores is the total computing power it takes not just to mine cryptocurrencies, also the processing of their transactions. Their concern is that these records could grow unsustainably very large, very quickly because all records are kept in a decentralized ledger, rather than by the central bank.
In the report, it states:
“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 researchers warn them, that this could start the down fall of the internet globally, if the computing power will continue to surge.
“Only supercomputers could keep up with verification of the incoming transactions, 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.”
“Congestion” was also brought up by the BIS, there are new blocks on the blockchain but can only be added in a pre-specified intervals, there are limitations on computing these transactions, so when it gets to the limits if forms a queue and then transaction fees mount.
Hyun Song Shin, the BIS’ head researcher explained that someone who is buying a $2 coffee using bitcoin could hypothetically be charged with a transaction fee of $57 and this happened during bitcoin’s high demand on December 2017.
According to the BIS:
“The more people use it, the stronger the incentive to use it.”
In other words, the more people will use bitcoin in the transactions, the difficult it will be for us to use.
BIS, being an organization the represents central banks, all these should be read with an understanding that they have an interest in the centralized banking system remaining the status quo.
It’s not all bad news though, there is a potential in the technology, the currency itself. The purpose of the report is that the “simplification of administrative processes related to complex financial transactions, such as trade finance.”