On June 17, the Bank of International Settlements (BIS) released a report that highlighted the risks and issues associated with the ever-rising use of cryptocurrencies such as bitcoin.
The report, Cryptocurrencies: looking beyond the hype, was released as part of BIS’ annual economic report and cites the “range of shortcomings” surrounding bitcoin and other cryptocurrencies of the same ilk. It noted how “it is hard to quantify the extent to which they are being used… to engage in illegal activity” and the idea that “trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded”.
The BIS report highlighted the “easily replicable” nature of digital currencies and how ‘double spending’ could increase if bitcoin usage continues to rise
The report from BIS also highlighted the “easily replicable” nature of digital currencies and how the issue of ‘double spending’ (where people fraudulently spend their bitcoin more than once) could increase if bitcoin usage continues to rise as it has been. This quality also lends itself to tax evasion and the avoidance of capital controls, leading to a potential increase in these crimes.
Furthermore, the amount of energy that is needed to power bitcoin transactions is phenomenal. The BIS report stated that an “environmental disaster” has been caused by the excessive amount of electricity used, with the total electricity needed for bitcoin mining being equivalent to that of a mid-sized economy, like that of Switzerland.
Despite such drawbacks, the report also pointed out the advantages of bitcoin, such as its potential use as part of “low-volume cross-border payment services”, rather than as part of everyday transactions. These types of transactions are important for companies with large workforces abroad, and could make their payment systems faster and more efficient.
The report also considered the growing need for a “redrawing of regulatory boundaries”, which considers the drawbacks and limitations of cryptocurrency in line with the boundaries of its usage.
While many are hailing the use of cryptocurrencies such as bitcoin, Ether and Litecoin as the future of mainstream transactions, BIS suggests that perhaps it poses simply too many risks in order to make it a viable way to exchange money.