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By CCN.com: For years, the cryptocurrency market has been full of catastrophic projections and predictions. We are constantly told that every day, bitcoins and all their products will collapse into nothingness from where they come from, or something of the sort. These statements and statements have even been famously compiled into a live chronology of obituaries written by commentators ranging from very skeptical to completely naive.
BIS slams the "Doomsday Economics" of Bitcoin
The latest attack, however, does not come from an ignorant journalist or a pretentious economist, but from the Bank of International Settlements (BIS), an 89-year-old institution owned by 60 of the world's largest central banks. Readers will remember BIS Director General, Agustín Carstens, who gave his best cartoon impression, urging young people to "stop trying to create money!" When they have talked about cryptocurrency last year.
In a new report entitled "Beyond the economic disaster of" proof of work "in crypto-currencies", Raphael Auer, BIS senior economist, has further strengthened the focus on Bitcoin and cryptocurrencies. The report states that crypto-currencies of proof of work are doomed to failure because the cost of confirming the transaction is prohibitive and the miners will leave the market once the bulk rewards have been removed. Although on the surface, these technical reviews may seem debatable. A detailed review of these critics reveals several cracks.
"Hash is expensive" and other red herrings
In the paper, Auer says that one of the major drawbacks of transaction confirmations with PoW crypto-currencies is that the balance between security and speed leads to a prohibitive outcome. An excerpt from the report reads as follows:
If we badyze the incentives of potential aggressors, it is clear that the cost of the purpose of the economic payment is extreme. For example, to reach the economic end of payments in six blocks (one hour), the calculations on the back of the envelope suggest that mining revenues should represent 8.3% of transaction volume, a multiple of transaction costs in traditional payment services.
This could be a valid criticism if the article dealt with the possible scalability of Bitcoin. The document, however, presents this as an existential threat to crypto-currencies such as bitcoin, which does not make much sense because, obviously, people use bitcoin, as it entails a cost of 8%. There are factors that make crypto sufficiently desirable to compensate for such drawbacks, but it seems totally lost for Auer.
Auer then states that the phasing out of the block premium will make mining unprofitable, as the only transaction costs will not be profitable for miners. This, he says, will lead to a loss of liquidity that will announce the end of bitcoin. However, he concedes that second-tier solutions, such as the Lightning network, can be used to improve the profitability of payment security and mitigate many scalability issues. What is the problem then, if that's the case?
What is it really about?
Why bother to research, write, edit and publish a report on crypto-currencies that is heavily flat and illuminates the facts? Given that crypto-currencies are inherently self-destructive and that central banks will remain at the center of human finance, as they have done for 400 years, why not just wait for crypto to suffer its loss and welcome the consumers in the central bank chasm based on Fiat?
In the end, you do not even have to read the entire report to find out why. The answer is at the very beginning of the abstract:
Methods other than proof of work could be used to achieve the finality of the payment. But this may require coordination mechanisms, involving the support of a central institution. Thus, current technology seems unlikely to replace the current monetary and financial infrastructure. Instead, the question is rather how technology could complement existing arrangements.
That's what you say in the writer's own words. The point of this report is to deny that cryptocurrency can disrupt central banks or do what they do more efficiently. More than 30 pages of badembly, hawing and beads on the possible impact of low transaction fees in bitcoins and on the reliability of game theory could have been summed up by a group of cartoonists. Agustín Carstens (slightly paraphrased):
You damn children! Stop trying to create money! You can not do without us! You need us for our coordination mechanisms, our social coordination and our mortgage backed guarantees!
Bitcoin investors are not alchemists of modern times
What Auer and his colleagues at BIS do not understand is that crypto-currency growth is do not born of a medieval desire to turn lead into gold. The success of crypto lies rather in its decentralization – the very property that terrifies them the most.
Here in Lagos, Nigeria, for example, there is a growing local ecosystem of freelancers, agencies, virtual badistants and remote workers who owe their livelihood to crypto. Previously, such working models were impractical because global remittances were controlled by a select group of bankers who unilaterally decided what, how much and to whom the value could be transferred.
Crypto has surpbaded this status quo and created several opportunities for highly skilled people from less developed countries to earn a salary commensurate with their skills without emigrating to developed countries. While banks continue to impose arbitrary restrictions on remittances to poor countries, thus locking them into poverty, crypto tackles the problem of brain drain.
In just a decade after the exploitation of the first block of bitcoins, cryptocurrency has literally transformed lives and is transforming economies – something that banks have not been able to do for more than four centuries.
Crypto is not just a very smart code or a financial novelty. It is a financial framework that takes power away from a small group of unobserved and unelected people and makes it available to anyone who can use a computer or mobile phone. This That's why cryptocurrency will never die.
Until the bankers understand this, they will continue to look forward to a "doomsday" cryptocurrency that will never come.
Disclaimer: The opinions expressed in the article only commit the author and in no way represent those of NCC.
Featured image of Shutterstock
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