The Bank of International Settlements published a report yesterday warning that cryptocurrencies can’t be scaled, and so the likelihood of one completely breaking down grows along with the number of people using it.
“Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded. 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,” it reads.
Hyun Song Shin, BIS head of research, said that people hold cryptocurrency only for speculative purposes, as opposed to fiat money which has value because people actually use it.
He compared cryptocurrencies to baseball cards and Tamagotchis, according to Reuters. Tamagotchis are toys which were last popular around 20 years ago; perhaps something could be read into the fact that this is the example that he used, perhaps not.
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“Without users, it would simply be a worthless token. That’s true whether it’s a piece of paper with a face on it, or a digital token,” said Shin.
He also mentioned the inefficiency and waste of the mining industry.
The Bank of International Settlements, often referred to as the ‘central bank of central banks’, is based in Basel and provides banking services to institutions such as the Federal Reserve and the European Central Bank.
Since the 1970s, its purpose has been to maintain international financial stability. It was originally set up in 1930 to facilitate German war reparations, but during the Second World War was infamously infiltrated by Nazis and used to process goods stolen by that state.
In February of this year, General Manager Agustín Carstens gave a lecture in which he explained that the commodity that banks really supply is trust, and cryptocurrencies cannot be trusted. He also explained that they are inefficient and “a crazy way to store value”, while extolling the confidence that can only be provided by central bank backed-money.