Halt the Internet? BIS Report Critiques Blockchain and DLT Claims

June 18, 2018

A financial institution operated by the world’s central banks is taking aim at cryptocurrencies, questioning their ability to deliver on their promise in a new report published Sunday morning.

The document, titled “Cryptocurrencies: looking beyond the hype” and released by the Bank of International Settlements (BIS), explains the history behind the technology and analyzes whether it can truly creating a trustless form of money. As previously reported, the release precedes the organization’s full annual economic report, which will be published next week.

Citing hard forks, mining concentration, the proliferation of new cryptocurrencies, volatile markets and scalability as issues with cryptocurrencies at present, the bank’s report concludes that ” the decentralized technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.”

In addition, the bank claims that using a blockchain to process the volume of retail payments made daily “could bring the internet to a halt.”

The report explains:

“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.”

Beyond storage capacity, the report claims that “only supercomputers” possess the processing power needed to conduct every retail transaction on a blockchain, and even if there were sufficient supercomputers to create a decentralized network, “millions of users [would] exchange files on the order of a magnitude of a terabyte.”

This massive communication volume is what would impact the internet, according to the report.

The report also takes shots at miners, noting that “delivering … hinges on a set of assumptions: that honest miners control the vast network of computing power, that users verify the history of all transactions and that the supply of the currency is predetermined by a protocol.”

While the BIS was harsh on cryptocurrencies, it saw distributed ledgers more positively, writing that “the underlying technology may have promise in other fields.”

Distributed ledger technology can facilitate cross-border payments, as well as help niche fields “where the benefits of decentralized access exceed the higher operating cost of maintaining multiple copies of the ledger.”

However, the report ultimately noted that research in other technologies to accomplish the same goals as a distributed ledger is ongoing, “and it is not clear which will emerge as the most efficient one.”