Financial Institution Claims Service of Cryptocurrencies Gets Worse as More Users FlockJun 18, 2018 at 21:32
The Bank of International Settlements (BIS) claim that cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency when more people are using it.
In its annual report released over the weekend, the financial institution highlighted that for any form of currency to work across large networks, trust in the stability of its value and in its ability to scale efficiently is required.
BIS said that such trust may not be attained because of the decentralized nature of cryptocurrencies and its risk of congestion.
“Trust can evaporate at any time because of the fragility of the decentralized 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,” the Switzerland-based group further stated in its report.
Meanwhile, in an interview with Reuters, BIS head of research, Hyun Song Shin, stated that fiat money gains value because of the number of its loyal users citing that cryptocurrencies only gain users because of price speculation.
“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,” he said, comparing virtual coins to baseball cards.
BIS also mentioned that the dependency of users on mining to record and verify crypto transactions is flawed since it requires large amount of electricity.
Despite this criticism, former hedge fund manager, Michael Novogratz, recently stated that the crypto industry will continue to flourish as institutional investments will soon flood it.
“You have this sense of nervousness around fiat currencies, a sense of distrust against central banks and quite frankly financial institutions. In 2008, we thought JP Morgan was going out of business as Lehman would go out of business so it felt like an easy play that there is a new technology and there is a story that we could have a distributed trust,” he recently expressed during the Bloomberg Invest conference in New York.