Swiss-based financial institution the Bank for International Settlements has released a report warning that cryptocurrency is not ready for use on a large scale.
The 24-page report, part of the institution’s annual economic report, said that the lack of a centralised backer for the network brought about significant risk.
The report says: “The decentralized technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.
“Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded.”
In particular, they warned of the implications of what could happen if many users attempted to make cryptocurrency transactions at the same time – on the scale that would occur if it were adopted for the retail market.
“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.
“The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”
Bitcoin and other cryptocurrencies based on the blockchain make use of a decentralised ledger of transactions, which has to be updated and verified by each participating user. The Bitcoin network as it stands now contains approximately 170 gigabytes of data, even though it sees very little transactional use.
The report also took aim at the environmental implications of Bitcoin “mining”, as well as the inherent trust required for miners who maintain the network.
It said that the blockchain “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.”
The writers of the report added: “Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster.”