The Bank of International Settlements (BIS) has leased a chapter from its forthcoming annual report that delivers a critical appraisal of bitcoin and cryptocurrency. The report attacks virtual currencies from several main standpoints: claiming that cryptocurrencies do not effectively perform monetary functions due to price volatility, that the retail adoption of blockchain-based payment mechanisms would “bring the internet to a halt,” mass cryptocurrency adoption would reap a drastic environmental toll, and that the trust engendered by a decentralized network is too “fragile” to compete with that of centralized institutions.
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BIS Annual Report Provides Critical Appraisal of Crypto
The chapter addressing cryptocurrencies in BIS’ upcoming report opens by stating that “Less than 10 years after their inception, cryptocurrencies have emerged from obscurity to attract intense interest on the part of businesses and consumers, as well as central banks and other authorities. They garner attention because they promise to replace trust in long-standing institutions, such as commercial and central banks, with trust in a new, fully decentralized system founded on the blockchain and related distributed ledger technology (DLT).”
Despite acknowledging that “Cryptocurrencies such as bitcoin promise to deliver not only a convenient payment means based on digital technology, but also a novel mode of trust,” the BIS report seeks to highlight a number of “economic limitations” arising from “permissionless cryptocurrencies.”
Price Volatility
BIS first attacks the notion of cryptocurrencies comprising an effective form of money, arguing that stability in value is a requisite quality for the facilitation of exchange. Cryptocurrencies, the report claims, are unstable in value due to “the absence of a central issuer with a mandate to guarantee the currency’s stability.”
By contrast, BIS claims that central banks emerged
