The Bank for International Settlements (BIS) released a report on cryptocurrencies over the weekend as a part of their 2018 Annual Economic Report. The intention of the report was to look “beyond the hype” and figure out if there are any real-world economic problems that can be solved by cryptocurrencies or blockchain technology.[1]
In their analysis, the BIS made a number of obvious errors. From ignoring the fact that systems like Bitcoin can scale via multi-layered approaches rather than placing all transactions on the blockchain to claiming that miners can decide to change the Bitcoin’s protocol rules on their own via a hard fork, it’s clear that more research was needed before putting out this report.
Let’s take a closer look at three key errors in the paper.
Completely Wrong on Scalability
The most obvious issue anyone familiar with Bitcoin would have found with the BIS report on cryptocurrencies was the part about scalability. While the report rightly pointed out that cryptocurrencies tend to be less efficient options when compared to the legacy financial systems, the claims made regarding scalability were laughable. The report goes as far as to say Bitcoin “could bring the internet to a halt” if it became a widely used means of online payment.
“To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months,” says the report.
Of course, this analysis assumes a 250-byte entry into the blockchain for every transaction. Anyone who has been paying attention to Bitcoin developments
