A lot of people are still invested in cryptocurrencies today. In 2017, the world witnessed how the crypto industry reached the mainstream while Bitcoin almost hit $20,000 in mid-December. And now, despite the many issues surrounding cryptocurrencies, there are even institutional investors that are looking to get involved in the crypto market.
One of the biggest issues surrounding cryptocurrencies today is mining. Bitcoin mining is the reason how cryptocurrencies can function without the use of third parties to confirm transactions. Unfortunately, it isn’t as simple as it is. It involves algorithms that require powerful computers that consume a large amount of electricity.
BIS Things Cryptos Are a Bad Idea
And recently, Bank for International Settlements (BIS) mentioned that the cryptos such as Ethereum and Bitcoin can be a “poor substitute” compared to the state-backed fiat currencies. BIS mentioned that the lack of a central institution that backs cryptos mean that there is a risk that it can depreciate in value. And in addition to this, BIS even considered it as an environmental disaster.
BIS is based in Basel, Switzerland. It serves a central bank to different central banks and is already an 88-year old institution. One of the things that BIS discovered in its study is that ledgers swell in size and therefore, smartphones and other devices will eventually have a difficult time to keep up with every transaction.
According to BIS, “Trust can evaporate at any time because of the fragility of the decentralized consensus through which transactions are recorded”. BIS also added that “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”.
Mining and Energy Use
They also discussed the implications of mining. For instance, “Put in the simplest terms, the quest for decentralized trust has quickly become an environmental disaster”. Currently, according to reports, Bitcoin mining spends as much energy as Iceland. In fact, this is the reason why it is becoming difficult for Bitcoin miners to also find a place where they can get low-cost electricity.
It was reported recently that Quebec re-opened its doors to crypto miners only to stop the applications immediately after being overwhelmed by the number of businesses looking to relocate to Quebec.
Despite the things mentioned regarding the blockchain industry, BIS agree that cryptos have provided some benefits to the global financial system. For instance, you have a more efficient cross-border payment while blockchain related tech can also help businesses involved in exports and imports.
Slowly, there is regulatory clarity in the crypto market. For instance, SEC has considered Bitcoin and Ethereum, not a security. You also have a country such as Japan that is demanding G20 countries to come up with a unified regulation that pertains to cryptos. Could these developments further get institutional investors such as Goldman Sachs involved in the crypto market?
It is true that there are many concerns regarding the crypto market today. However, we can all agree that it is still quite young and is still developing. Could BIS simply having a knee-jerk reaction that cryptos have the potential to minimize their role in finance?