Dissecting the FUD in the BIS report on Cryptocurrency
“Money has three fundamental and complementary roles. It is: (i) a unit of account – a yardstick that eases comparison of prices across the things we buy, as well as the value of promises we make; (ii) a medium of exchange: a seller accepts it as a means of payment, in the expectation that somebody else will do the same; and (iii) a store of value, enabling users to transfer purchasing power over time”. BIS Annual Economic Report, June 2018
The Bank for International Settlements (BIS) published their Annual Economic Report in June. In this report, they analyse the state of the global economy in relation to developments, prospects, and risks. Not surprisingly, they included a chapter on cryptocurrencies entitled “looking beyond the hype”.
Weiss Ratings’ writer, Juan Villaverde, describes the BIS as “the central bank of central banks”. In Villaverde’s detailed account of the latest BIS report, he concluded it is “riddled with misinformation” concerning cryptocurrencies.
This article aims to further highlight some of the cryptocurrency FUD filled claims made in the BIS report and present alternative perspectives. In addition, it presents points on which we are in agreeance on.
“[Cryptocurrencies] garner attention because they promise to replace trust in long-standing institutions, such as commercial and central banks, with trust in a new, fully decentralised system founded on the blockchain and related distributed ledger technology”. BIS Annual Economic Report, June 2018
All cryptocurrencies rely on energy-intensive Proof-of-Work mining which is an environmental disaster.
While this was once true, most cryptocurrencies now lean towards using Proof-of-Stake consensus types which are more eco-friendly. To illustrate this, NavCoin’s co-founder, Craig MacGregor, says their entire network consumes only NZD$10,000 of electricity per year.
Cryptocurrencies have no intrinsic value.
Today's cryptocurrencies have plenty of intrinsic value!
For example, the value of utility tokens is in the use cases of the corresponding platform. Whether that be the value of secure data storage facilities or the transfer of digital music from producer to customer without third-parties.
Alternatively, when it comes to asset-backed coins the value is in the precious metals or other commodities they represent.
For cryptocurrency to be used as money universally, every device must store a full copy of every blockchain ledger. In doing so, the internet would crash due to the size of ledgers being orders of magnitude of terabytes.
The first part just isn’t true. Most blockchain/cryptocurrency platforms have ways to use their networks and products from mobile phones using light nodes.
Electroneum is one such platform where users can actually mine cryptocurrencies using their smartphones.
The value of cryptocurrencies is unstable; “this arises from the absence of a central issuer with a mandate to guarantee the currency’s stability”.
The implication here is that central banks “stabilise” fiat value by increasing or decreasing the supply to manipulate prices during times of financial and economic strain.
Villaverde points out that the central reason fiat currencies like USD are stable is due to the $5 trillion traded daily on the foreign exchange market resulting in massive liquidity.
Comparatively, the trading volume of cryptocurrencies is extremely small. Of course, there will be price volatility in markets which are still gaining liquidity.
Furthermore, central issuer’s DO NOT always guarantee fiat stability. Just look at Mugabe destroying the Zimbabwean Dollar by issuing money at will, and the second bout of hyperinflation with the Bond Notes. The result? A completely destabilised fiat currency with ZERO value, intrinsic or otherwise. BIS say it themselves “bank-issued money is only as good as the assets that back it”.
Cryptocurrencies cannot scale with transaction demand.
The next generation of blockchain technology is in development already!
Projects working to address scalability issues include the Lightning Network, mesh networks, and block lattice structures.
With IOTA’s Tangle, the more people using the network the faster it becomes. On top of that, IOTA offers infinite scalability.
Once again, the claim in the BIS report is inaccurate.
The rise of cryptocurrencies highlights the need for regulatory boundaries to be reassessed. “Since cryptocurrencies are global in nature, only globally coordinated regulation has a chance to be effective”.
Finally, something we agree on!
Regulation targeting businesses offering cryptocurrency-specific services (e.g. BitPrime) is something that is needed to ensure compliance with AML/CFT laws.
This would go a long way in minimising, if not preventing, fraudulent activities associated with the use of crypto. More than can be said of the state of fiat and fraudulent activities!
Additionally, regulation of this sort would help to further boost the public’s trust and perception in crypto.
It seems as though the author of the BIS report was either very misinformed or chose to ignore the other side of the story when researching. Interestingly enough, in the fine-print endnotes are several statements directly contradicting several main points the author made in the report.
Yes, there are limitations with various cryptocurrencies and their platforms. But, that is exactly why development teams are working so hard to overcome them and improve their products.
Hopefully, next years report contains a more liberal, open-minded view when they discuss their findings on cryptocurrencies. We need less cryptocurrency FUD reporting from those high up and more analytical reviews.
Have you seen the summary of the Yale research on cryptocurrencies yet?
What are your thoughts on the BIS report? I’d love to hear them.
Disclaimer: The above references an opinion and is for informational purposes only. It is not intended as personalised financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.
Last updated: 05/07/2018