BIS Blasts Cryptos in Special Report: "Beyond the Hype"

The BIS blasts cryptos over scaling issues, energy, and trust. The BIS is correct. Cryptos are fatally flawed as money.

A Bank of International Settlements (BIS) report examines cryptocurrencies in depth. The study, called "Looking Beyond the Hype" investigates whether cryptocurrencies could play any role as money.

Bloomberg, Reuters, and the Bitcoin Exchange guide all have articles on the report but not one of the bothered to link to it.

After a bit of digging, I found the crypto report is part of an upcoming BIS annual report. The BIS pre-released the crypto report today (as chapter 5).

Here's a link to the page that contains a download for two Pre-Released BIS Chapters, one of them is on cryptos. I provide some snips below.

Note: I start with some lengthy snips that explain in detail how blockchain works.

Cryptocurrencies: Looking Beyond the Hype

  • Cryptocurrency technology comes with poor efficiency and vast energy use.
  • Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value.
  • Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.
  • The underlying technology could have promise in other applications, such as the simplification of administrative processes in the settlement of financial transactions. Still, this remains to be tested.

The Money Flower: A Taxonomy of Money

The money flower distinguishes four key properties of moneys: the issuer, the form, the degree of accessibility and the payment transfer mechanism. The issuer can be a central bank, a bank or nobody, as was the case when money took the form of a commodity. Its form can be physical, eg a metal coin or paper banknote, or digital. It can be widely accessible, like commercial bank deposits, or narrowly so, like central bank reserves. A last property regards the transfer mechanism, which can be either peer-to-peer, or through a central intermediary, as for deposits. Money is typically based on one of two basic technologies: so called “tokens” or accounts. Token-based money, for example banknotes or physical coins, can be exchanged in peer-to-peer settings, but such exchange relies critically on the payee’s ability to verify the validity of the payment object – with cash, the worry is counterfeiting. By contrast, systems based on account money depend fundamentally on the ability to verify the identity of the account holder.

Cryptocurrencies: The Elusive Promise of Decentralised Trust

In terms of the money flower taxonomy, cryptocurrencies combine three key features. First, they are digital, aspiring to be a convenient means of payment and relying on cryptography to prevent counterfeiting and fraudulent transactions. Second, although created privately, they are no one’s liability, ie they cannot be redeemed, and their value derives only from the expectation that they will continue to be accepted by others. This makes them akin to a commodity money (although without any intrinsic value in use). And, last, they allow for digital peer-to-peer exchange.

The technological challenge in digital peer-to-peer exchange is the so-called “double-spending problem”. Any digital form of money is easily replicable and can thus be fraudulently spent more than once. Digital information can be reproduced more easily than physical banknotes. For digital money, solving the double-spending problem requires, at a minimum, that someone keep a record of all transactions. Prior to cryptocurrencies, the only solution was to have a centralised agent do this and verify all transactions.

Cryptocurrencies overcome the double-spending problem via decentralised record-keeping through what is known as a distributed ledger. The ledger can be regarded as a file (think of a Microsoft Excel worksheet) that starts with an initial distribution of cryptocurrency and records the history of all subsequent transactions. An up-to-date copy of the entire ledger is stored by each user (this is what makes it “distributed”). With a distributed ledger, peer-to-peer exchange of digital money is feasible: each user can directly verify in their copy of the ledger whether a transfer took place and that there was no attempt to double-spend.

While all cryptocurrencies rely on a distributed ledger, they differ in terms of how the ledger is updated. One can distinguish two broad classes, with substantial differences in their operational setup (Graph V.2).

While cryptocurrencies based on permissioned systems differ from conventional money in terms of how transaction records are stored (decentralised versus centralised), they share with it the reliance on specific institutions as the ultimate source of trust.

In a much more radical departure from the prevailing institution-based setup, a second class of cryptocurrencies promises to generate trust in a fully decentralised setting using “permissionless” DLT. The ledger recording transactions can only be changed by a consensus of the participants in the currency: while anybody can participate, nobody has a special key to change the ledger. The concept of permissionless cryptocurrencies was laid out for the case of Bitcoin in a white paper by an anonymous programmer (or group of programmers) under the pseudonym Satoshi Nakamoto, who proposed a currency based on a specific type of distributed ledger, the “blockchain”. The blockchain is a distributed ledger that is updated in groups of transactions called blocks. Blocks are then chained sequentially via the use of cryptography to form the form the blockchain. This concept has been adapted to countless other cryptocurrencies.

Underlying this setup, the key feature of these cryptocurrencies is the implementation of a set of rules (the protocol) that aim to align the incentives of all participants so as to create a reliable payment technology without a central trusted agent.

First, the rules entail a cost to updating the ledger. In most cases, this cost comes about because updating requires a “proof-of-work”. This is mathematical evidence that a certain amount of computational work has been done, in turn calling for costly equipment and electricity use. Since the proof-of-work process can be likened to digging up rare numbers via laborious computations, it is often referred to as mining. In return for their efforts, miners receive fees from the users – and, if specified by the protocol, newly minted cryptocurrency.

Second, all miners and users of a cryptocurrency verify all ledger updates, which induces miners to include only valid transactions. Valid transactions need to be initiated by the owners of funds and must not be attempts to double-spend. If a ledger update includes an invalid transaction, it is rejected by the network and the miner’s rewards are voided. The verification of all new ledger updates by the network of miners and users is thus essential to incentivise miners to add only valid transactions.

[Problems] - Assessing the Economic Limitations of Permissionless Cryptocurrencies

Cryptocurrencies such as Bitcoin promise to deliver not only a convenient payment means based on digital technology, but also a novel model of trust. Yet delivering on his promise hinges on a set of assumptions: that honest miners control the vast majority of computing power, that users verify the history of all transactions and that the supply of the currency is predetermined by a protocol. Understanding these assumptions is important, for they give rise to two basic questions regarding the usefulness of cryptocurrencies. First, does this cumbersome way of trying to achieve rust come at the expense of efficiency? Second, can trust truly and always be achieved?

As the first question implies, a key potential limitation in terms of efficiency is the enormous cost of generating decentralised trust.

At the time of writing, the total electricity use of bitcoin mining equaled that of mid-sized economies such as Switzerland, and other cryptocurrencies also use ample electricity (Graph V.4, left-hand panel). Put in the simplest terms, the quest for decentralized trust has quickly become an environmental disaster. [Mish Comment: The Lead-In Graph]

But the underlying economic problems go well beyond the energy issue. They relate to the signature property of money: to promote “network externalities” among users and thereby serve as a coordination device for economic activity. The shortcomings of cryptocurrencies in this respect lie in three areas: scalability, stability of value and trust in the finality of payments.

First, cryptocurrencies simply do not scale like sovereign moneys. At the most basic level, to live up to their promise of decentralised trust cryptocurrencies require each and every user to download and verify the history of all transactions ever made, including amount paid, payer, payee and other details. With every transaction adding a few hundred bytes, the ledger grows substantially over time. For example, at the time of writing, the Bitcoin blockchain was growing at around 50 GB per year and stood at roughly 170 GB. Thus, to keep the ledger’s size and the time needed to verify all transactions (which increases with block size) manageable, cryptocurrencies have hard limits on the throughput of transactions (Graph V.4, centre panel).

A thought experiment illustrates the inadequacy of cryptocurrencies as an everyday means of payment (Graph V.4, right-hand panel). 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. But the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions. 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.

Another aspect of the scalability issue is that updating the ledger is subject to congestion. For example, in blockchain-based cryptocurrencies, in order to limit the number of transactions added to the ledger at any given point in time, new blocks can only be added at pre-specified intervals. Once the number of incoming transactions is such that newly added blocks are already at the maximum size permitted by the protocol, the system congests and many transactions go into a queue. With capacity capped, fees soar whenever transaction demand reaches the capacity limit (Graph V.5). And transactions have at times remained in a queue for several hours, interrupting the payment process. This limits cryptocurrencies’ usefulness for day-to-day transactions such as paying for a coffee or a conference fee, not to mention for wholesale payments. Thus, the more people use a cryptocurrency, the more cumbersome payments become. This negates an essential property of present-day money: the more people use it, the stronger the incentive to use it.

The second key issue with cryptocurrencies is their unstable value. This arises from the absence of a central issuer with a mandate to guarantee the currency’s stability. Well run central banks succeed in stabilising the domestic value of their sovereign currency by adjusting the supply of the means of payment in line with transaction demand. They do so at high frequency, in particular during times of market stress but also during normal times.

The third issue concerns the fragile foundation of the trust in cryptocurrencies. This relates to uncertainty about the finality of individual payments, as well as trust in the value of individual cryptocurrencies. In mainstream payment systems, once an individual payment makes its way through the national payment system and ultimately through the central bank books, it cannot be revoked. In contrast, permissionless cryptocurrencies cannot guarantee the finality of individual payments. One reason is that although users can verify that a specific transaction is included in a ledger, unbeknownst to them there can be rival versions of the ledger. This can result in transaction rollbacks, for example when two miners update the ledger almost simultaneously. Since only one of the two updates can ultimately survive, the finality of payments made in each ledger version is probabilistic.

The lack of payment finality is exacerbated by the fact that cryptocurrencies can be manipulated by miners controlling substantial computing power, a real possibility given the concentration of mining for many cryptocurrencies (Graph V.7, left-hand panel). One cannot tell if a strategic attack is under way because an attacker would reveal the (forged) ledger only once they were sure of success. This implies that finality will always remain uncertain. For cryptocurrencies, each update of the ledger comes with an additional proof-of-work that an attacker would have to reproduce. Yet while the probability that a payment is final increases with the number of subsequent ledger updates, it never reaches 100%.

Not only is the trust in individual payments uncertain, but the underpinning of trust in each cryptocurrency is also fragile. This is due to “forking”.This is a process whereby a subset of cryptocurrency holders coordinate on using a new version of the ledger and protocol, while others stick to the original one. In this way, a cryptocurrency can split into two subnetworks of users. While there are many recent examples, an episode on 11 March 2013 is noteworthy because – counter to the idea of achieving trust by decentralised means – it was undone by centralised coordination of the miners. On that day, an erroneous software update led to incompatibilities between one part of the Bitcoin network mining on the legacy protocol and another part mining using an updated one. For several hours, two separate blockchains grew; once news of this fork spread, the price of bitcoin tumbled by almost a third (Graph V.7, right-hand panel). The fork was ultimately rolled back by a coordinated effort whereby miners temporarily departed from protocol and ignored the longest chain. But many transactions were voided hours after users had believed them to be final. This episode shows just how easily cryptocurrencies can split, leading to significant valuation losses.

An even more worrying aspect underlying such episodes is that forking may only be symptomatic of a fundamental shortcoming: the fragility of the decentralised consensus involved in updating the ledger and, with it, of the underlying trust in the cryptocurrency. Theoretical analysis (Box V.A) suggests that coordination on how the ledger is updated could break down at any time, resulting in a complete loss of value.

Frequent episodes of forking may be symptomatic of an inherent problem with the way consensus is formed in a cryptocurrency’s decentralised network of miners. The underlying economic issue is that this decentralised consensus is not unique. The rule to follow the longest chain incentivises miners to follow the computing majority, but it does not uniquely pin down the path of the majority itself. For example, if a miner believes that the very last update of the ledger will be ignored by the rest of the network of miners, it becomes optimal for the miner to also ignore this last update. And if the majority of miners coordinates on ignoring an update, this indeed becomes a new equilibrium. In this way, random equilibria can arise – and indeed frequently have arisen, as indicated by forking and by the existence of thousands of “orphaned” (Bitcoin) or “uncle” (Ethereum) blocks that have retroactively been voided. Additional concerns regarding the robustness of the decentralised updating of the blockchain relate to miners’ incentives to strategically fork whenever the block added last by a different miner includes high transaction fees that can be diverted by voiding the block in question via a fork.

Beyond the bubble: making use of distributed ledger technology

While cryptocurrencies do not work as money, the underlying technology may have promise in other fields. A notable example is in low-volume cross-border payment services.

To be sure, such payment solutions are fundamentally different from cryptocurrencies. A recent non-profit example is the case of the World Food Programme’s blockchain-based Building Blocks system, which handles payments for food aid serving Syrian refugees in Jordan. The unit of account and ultimate means of payment in Building Blocks is sovereign currency, so it is a “cryptopayment” system but not a cryptocurrency. It is also centrally controlled by the World Food Programme, and for good reason: an initial experiment based on the permissionless Ethereum protocol resulted in slow and costly transactions. The system was subsequently redesigned to run on a permissioned version of the Ethereum protocol. With this change, a reduction of transaction costs of about 98% relative to bank-based alternatives was achieved.

Mish Comments

That was a scathing, but honest, and well-researched report.

The odds that cryptocurrencies as originally designed can live up to their hype are approximately zero.

The Bitcoin crowd will no doubt respond with the notion that the protocols will evolve and the problems will be fixed.

They won't. There are simply too many flaws, too many disagreements and too many forks. The soaring number of cryptocurrencies is proof enough. At last count there were 1906 cryptos.

One Strong Disagreement With BIS

I strongly disagree with one aspect of the report. The BIS says "Independent central banks have largely achieved the goal of safeguarding society’s economic and political interest in a stable currency."

There is no price stability. And central banks are to blame. There may be some trust in central banks, but that trust is misplaced.

The irony in the BIS study is that cryptocurrencies arose in the first place due to inability of central banks to produce a stable currency.

Alas, the cryptocurrency design as we see today is fatally flawed. It is not a monetary solution. As designed, the only real use for the current set of cryptos is speculation.

However, the technology will survive and prosper in various applications.

Mike "Mish" Shedlock

Comments (24)
No. 1-24
Stuki
Stuki

“..once an individual payment makes its way through the national payment system and ultimately through the central bank books, it cannot be revoked.”

Is this hack really that naïve? Not only can payments be revoked, they can be reversed. All you need is a judge…. Or, effectively the same thing over time, someone with influence over printing. In the latter case, the payment is not only effectively “reversed” from the POV of the recipient, but the guy paying never gets the payment back, either. It, ooops, went into some banksters' coke fund instead….

Crypto currencies aren’t 100 dit infinite-zeros reliable. Current ones aren’t, and future ones will never be. After all, a big enough meteor strike will do them all in. And complete certainty was never their selling point to begin with.

What is their selling point is the same one that motivated the US revolution: All Men Are Created Equal. Just as Powell and I and a dope dealer and a “terrorist” all have equal opportunity to get on our knees and dig for gold, so do all of us have equal opportunity to mine Bitcoin (or at least a Crypto with a proper proof-of-work). Central Bank Money OTOH, is the very definition of Some are Created More Equal Than others. Nice for the more equals and their fellow travelers at the BIS no doubt, but always and everywhere an ever-greater tragedy for the rest, the poor saps deemed to be mere equals.

That’s the true meaning of the “finality of Crypto payments” being probabilistic. They are. As opposed to the finality of Central Bank payments (or any non-anonymous payment, really), which can deterministicly be relied upon to be stacked in favor of those closest to the Central Banks, at the expense of everyone else. “Probabilistic” means a transaction of yours may be reversed out of every million you attempt, but there is no systematic bias as to whether that reversal works in your favor, or to your detriment. While Powell printing up another few trillion for his New York coke buddies, will always be to the detriment of everyone else. With a zero probability of any other outcome.

As to scaling to encompass all transactions, that is likely a more fundamental problem. No different that the problem of carting Gold around at the speed required for worldwide online commerce in that regard. But just as that is no argument against Gold as money, neither is an argument against crypto.

Crypto’s promise rests on it’s potential for anonymity. As that is the only way you can have any real protection against being robbed. If someone can know every penny you own, all he has to do is stick a gun in your face until you’ve paid him every one of them. Or achieve the same result by kidnapping your kid. Or sending you to Gitmo for waterboarding. Only if noone knows how much, if any, money you have, is your money safe. Properly implemented crypto currencies can, if not guarantee, then at least facilitate, that.

Then, once your money is anonynous, you can fund simple, efficient, centralized ledger accounts with anonymous crypto. Perhaps with a few hours lag. Perhaps without 100% certainty that the ledger operator won’t just walk away with the money. But you can fund them with only a small fraction of your total holdings. Over time, reputations built up by ledger operators will give increased certainty that they are honest. (OR, perhaps some of them are willing to go out on a limb and personally guarantee their ledgers. Who knows where that equilibrium will end up..... ) Regardless, you get the settlement efficiency of a simple, centralized ledger; while still retaining the positives of crypto: Anonymity and theft protection (both direct theft and via debasement.)

Over time, as the money printers and the governments they are in cahoots with, get ever more desperate in their attempts to pretend the cardhouses they have built up in order to pilfer people’s money away for themselves and their buddies are somehow sound, the systematic cost of having all your worth tied up in something they can easily see hence simply confiscate at arbitrary will, will only go higher and higher. It’s not as if there’s so me fundamental difference between progressivism in the US, the Soviet Union and Venezuela, after all. That makes the US version magically somehow more ultimately sound.

So, the costs of NOT( crypto ) can only increase over time. While at the same time, the annoyances, uncertainties and costs of crypto will only decrease, as they are fundamentally just engineering problems. And engineers solve problems. It's what they do. Ever more efficiently over time. In stark contrast to governments and their lackeys and hangers on. Who can always be relied on to create problems, even on purpose, in order to justify their own ever more rapacious, and always unproductive, existences.

So, wherever the cost/benefit of crypto vs Fiat is today, it will only ever move in crypto's favor in the future. There's simply no other logical possibility.

Blacklisted
Blacklisted

The BIS is the establishment. What did you expect?

Axiom7
Axiom7

I believe that it is inconsistent Mish that you believe self-driving trucks are a certainty while crypto-currencies are not. The cost savings from removing the costs of setttlement via the transfer of digital banking system liabilities (aka fiat currency) with instantaneous, irrevocable transfers of a digital token DWARFS the efficiencies of self driving trucks, fast food employees via robot, etc.

Remember this report was compiled by the Bank of International SETTLEMENTS. Crypto makes the BIS obsolete.

All of the weaknesses they raise will get fixed by technology (energy via settlement systems like Lightning).

Also keep in mind there is no inflation tax in bitcoin. There is no currency debasement in bitcoin. And the cost savings from removing those middle and back office jobs in the banking system — massive.

Also the person who made the comment about the anonymity of crypto wallets is a bit misguided. In the future most wallets will be linked with the owners.

The switch to crypto will be drivien by cost saving.

KafkaLee
KafkaLee

No mish, watch Eos and Cosmos . This cryptos are evoving real fast. Do not believe bls report. I recommend u to contact MIT computer science student and do your own research mish. PLEASE.

caradoc-again
caradoc-again

Energy consumption, transaction throughput, congestion - they have it nailed. However, do they really beliveve this? "This arises from the absence of a central issuer with a mandate to guarantee the currency’s stability."

MattH
MattH

As Mish said: the lack of price stability (a consequence of debt based money that is not grounded in anything) is really what's driving the innovation with Bitcoin. This all comes down to a lack of trust in the current central banks that are suppressing interest rates to keep the current system going. This will all have potential dire consequences down the road.

We need a system that delinks us from debt (Bitcoin ticks this box), fixes the qualitative valuation of each unit of currency (Bitcoin does not tick this box - note the wild swings in price movements) and allows the quantity of currency in circulation to be managed so that no inflation of deflation exists (i.e. neither savers or consumers are disproportionately advantaged).

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"I believe that it is inconsistent Mish that you believe self-driving trucks are a certainty while crypto-currencies are not."

Complete silliness. The flaws in Crypto are obvious and well stated. Moreover, I think there is a place for blockchain, just not as currencies, as currently designed.

It is silly to say I must embrace every new technology that comes along. Blockchain and self-driving are not related at all.

SweetKenny
SweetKenny

Crypto tears are sweet.

stillCJ
stillCJ

Editor

I have asked this question before, but no one answers. Again: How is that crypto money thing going to work when the grid and the internet is down? Or, does anyone think that is not a possibility?

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Credit card transactions have similar issues. Here's the problem: The Crypto ledger will soon approach a size it will not fit on your phone or even desktop. Transactions costs have hit $50 when transaction volume is high. Totally unusable. EOS would seem to circumvent that if my understanding is correct. But the result is you now have to trust a nonbank central authority defeating the whole distributed ledger concept. And why EOS anyway? Anyone can copy the concept. The EOS idea seems to have merit. The coin itself?

Stuki
Stuki

Internet communication is, at it's base, asynchronous and packet switched. As in, doesn't depend on a hard connection between communicating parties. If nodes go down, packets (can) get rerouted/retried. So, as long as some route can be found from one to another over some reasonable amount of time, higher level functionality, like crypto, can still remain intact. Some higher level protocols, like those for Internet telephony, does fail without what is essentially a constant-on-network. They wouldn't make much sense otherwise. But there is no need for crypto currencies to be that fragile.

More fundamentally, the fact that crypto is useful for some/many transactions, doesn't mean absolutely every single egg has to be in that basket. Keep some Gold and silver around for immediate post EMP scenarios. Some anonymously funded centralized ledger accounts for quick, cheap to settle, day to day transactions. And on-chain settled crypto for bigger stuff.

Blacklisted
Blacklisted

Since 90% of financial transaction are already electronic, almost the same thing would happen, except the crypto investors are working on a satellite-based system to bypass the grid. People also ignore other energy sources that could materialize.

JayTe
JayTe

Wow Mike, I'm sad to say that you don't have a clue about what you're talking about. The report from the BIS (the absolute apogee of the establishment) is a hodgepodge of daft utterly clueless statements based on a misunderstanding of the existing technology as well as a profound misunderstanding of the evolution of any (not just cryptocurrencies) technology. I will take the four points you highlight at the beginning and crush them so that you can appreciate how little the BIS (and yourself) seem to understand:

Cryptocurrency technology comes with poor efficiency and vast energy use - I always laugh when I hear this one because if you understood anything about the economics of mining you would understand that most mining takes place in off grid facilities where for example a dam producing vast amounts of electricity that is not connected to the grid. Or similarly with solar energy projects (which if you knew anything about the economics of solar energy, you would know that it is now cheaper than even petrol according to the World Economic Forum. That was back in December 2016. We are now in June 2018. It has continued on that path (thanks in large part to the Chinese). So given that we have access to this vast energy source (i.e. solar, wind, geothermal and others that have been suppressed for more than 100 years such as Tesla, T. Henry Moray and many others), only guys like yourself and the BIS can try and conjure up a false argument about how energy is being wasted.

Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value - This point shows the depths of ignorance about technology. It is the equivalent of making an accusation about the potential of the internet back in the late 80s (when sending email attachments was a big thing) to what the internet is capable of supporting today. I guess you have never heard of payment channels? How about lightening networks? I guess you are a better technology expert than the thousands of brilliant engineers and technical architects working in this space and are going to tell me that it will never scale to the same volumes of say Visa or that it will never be able to handle micropayments!?!

Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money - LOL!!! Yes, the same institutional backing of money that has led to $21 trillion being printed and given to the well placed in the establishment to bail out the banks!?! Hmmm. I'm sure that everyone is onboard and supports institutional backing of the money. We all look forward to transaction using SDRs!

The underlying technology could have promise in other applications, such as the simplification of administrative processes in the settlement of financial transactions. Still, this remains to be tested - LOL, I have to suppress a giggle because it shows again how little you understand technology and what is going on. In 10 years most transactions will take place on blockchain and the overwhelming majority of those blockchains will be tied together in such a way that will permit atomic transactions across multiple transactions in a seemless manner. Payments will be handled by blockchain as well. And the BIS will be a quaint institution representing the bygone days of fiat money. But hey, you and the BIS know better than the hundreds of millions of people already using the technology and the millions who are building and extending the technology right?

Mike Mish Shedlock
Mike Mish Shedlock

Editor

It's hard to be taken seriously when you openly spread bullshit. Perhaps you like thse sources:

The Bitcoin Market Journal asks "How Many People Use Bitcoin?"

"Currently, there are almost 28.5 million bitcoin wallets that hold more than 0.001 BTC according to data compiled by Bitinfocharts.com. However, most bitcoin users have several bitcoin wallets and use multiple wallet addresses to increase their financial privacy when transacting in bitcoin. Hence, the number of bitcoin users is likely less than 28.5 million."

By the way how many of those alleged "users" are using cryptos for anything other than speculation?

Let's investigate. Transactions Per Day

"176,674 Transactions - The aggregate number of confirmed Bitcoin transactions in the past 24 hours"

And you think this will scale to the size of VISA? And People will adopt it? You are seriously nuts.

Please come back with a stat and tell me how big the ledger will be if all transactions were blockchain.

Whales own 40% of Bitcoin. So the claim of hundreds of millions of "users" is far-fetched for more than one reason.

Now, if some central bank gets involved, using a non-distributed ledger. Yes, we have much less of a problem. But then it will not be Bitcoin, Ethereum, EOS or any other such coin.

Stuki
Stuki

“Now, if some central bank gets involved, using a non-distributed ledger. Yes, we have much less of a problem. But then it will not be Bitcoin, Ethereum, EOS or any other such coin.”

Why would it have to be a Central Bank?

Premitive1
Premitive1

Bitcoin fanatics have a tendency to condescend and berate anyone who isn't on board. It's unfortunate JayTe chose to address you so maliciously while somehow also trying to change your mind. I would like to note the importance of "off-chain" transactions in the current development of bitcoin. Lightning network essentially allows large institutions to handle large numbers of micro-transactions in bitcoin without needing to confirm them on the formal block chain. Correlary to this, cryptographers interested in bitcoin will continue to propose methods fo decreasing the size of the blocks without affecting any of the other qualities. I think the BIS report raises important concerns which the fanboys really have nothing to say about. It's the hard working programmers who must rise to the occasion and prove that the community can adapt and fast enough not to get overtaken by a simpler idea. Essentially, I suggest bitcoin, as the first mover, has the potential to get simplified enough to address the concerns laid herein.

EWM
EWM

Take the time - Roger Ver - Passionate Presentation at CoinGeek :Bitcoin Core downfall - Human Failures

Pater_Tenebrarum
Pater_Tenebrarum
Stuki
Stuki said: “..once an individual payment makes its way through the national payment system and ultimately through the central bank books, it cannot be revoked.” Is this hack really that naïve? Not only can payments be revoked, they can be reversed. All you need is a judge…. Or, effectively the same thing over time, someone with influence over printing. In the latter case, the payment is not only effectively “reversed” from the POV of the recipient, but the guy paying never gets the payment back, either. It, ooops, went into some banksters' coke fund instead…. Crypto currencies aren’t 100 dit infinite-zeros reliable. Current ones aren’t, and future ones will never be. After all, a big enough meteor strike will do them all in. And complete certainty was never their selling point to begin with. What is their selling point is the same one that motivated the US revolution: All Men Are Created Equal. Just as Powell and I and a dope dealer and a “terrorist” all have equal opportunity to get on our knees and dig for gold, so do all of us have equal opportunity to mine Bitcoin (or at least a Crypto with a proper proof-of-work). Central Bank Money OTOH, is the very definition of Some are Created More Equal Than others. Nice for the more equals and their fellow travelers at the BIS no doubt, but always and everywhere an ever-greater tragedy for the rest, the poor saps deemed to be mere equals. That’s the true meaning of the “finality of Crypto payments” being probabilistic. They are. As opposed to the finality of Central Bank payments (or any non-anonymous payment, really), which can deterministicly be relied upon to be stacked in favor of those closest to the Central Banks, at the expense of everyone else. “Probabilistic” means a transaction of yours may be reversed out of every million you attempt, but there is no systematic bias as to whether that reversal works in your favor, or to your detriment. While Powell printing up another few trillion for his New York coke buddies, will always be to the detriment of everyone else. With a zero probability of any other outcome. As to scaling to encompass all transactions, that is likely a more fundamental problem. No different that the problem of carting Gold around at the speed required for worldwide online commerce in that regard. But just as that is no argument against Gold as money, neither is an argument against crypto. Crypto’s promise rests on it’s potential for anonymity. As that is the only way you can have any real protection against being robbed. If someone can know every penny you own, all he has to do is stick a gun in your face until you’ve paid him every one of them. Or achieve the same result by kidnapping your kid. Or sending you to Gitmo for waterboarding. Only if noone knows how much, if any, money you have, is your money safe. Properly implemented crypto currencies can, if not guarantee, then at least facilitate, that. Then, once your money is anonynous, you can fund simple, efficient, centralized ledger accounts with anonymous crypto. Perhaps with a few hours lag. Perhaps without 100% certainty that the ledger operator won’t just walk away with the money. But you can fund them with only a small fraction of your total holdings. Over time, reputations built up by ledger operators will give increased certainty that they are honest. (OR, perhaps some of them are willing to go out on a limb and personally guarantee their ledgers. Who knows where that equilibrium will end up..... ) Regardless, you get the settlement efficiency of a simple, centralized ledger; while still retaining the positives of crypto: Anonymity and theft protection (both direct theft and via debasement.) Over time, as the money printers and the governments they are in cahoots with, get ever more desperate in their attempts to pretend the cardhouses they have built up in order to pilfer people’s money away for themselves and their buddies are somehow sound, the systematic cost of having all your worth tied up in something they can easily see hence simply confiscate at arbitrary will, will only go higher and higher. It’s not as if there’s so me fundamental difference between progressivism in the US, the Soviet Union and Venezuela, after all. That makes the US version magically somehow more ultimately sound. So, the costs of NOT( crypto ) can only increase over time. While at the same time, the annoyances, uncertainties and costs of crypto will only decrease, as they are fundamentally just engineering problems. And engineers solve problems. It's what they do. Ever more efficiently over time. In stark contrast to governments and their lackeys and hangers on. Who can always be relied on to create problems, even on purpose, in order to justify their own ever more rapacious, and always unproductive, existences. So, wherever the cost/benefit of crypto vs Fiat is today, it will only ever move in crypto's favor in the future. There's simply no other logical possibility.

In fact, the US government managed to reverse a USD denominated bank wire by a German citizen within Europe - which went through the SWIFT system. This BIS report is full of holes. The "central bank of central banks" doesn't like cryptocurrencies - well, duh. It also doesn't understand them. BTC cannot scale as long as its block size is kept at 1 mb, but the fork BCH has upped it to 32 mb (demonstrating it is technically possible without a hitch) and can easily out-scale credit card companies like VISA already.

Pater_Tenebrarum
Pater_Tenebrarum

Mish, the size of the ledger is not a problem at all. No users need to download the complete ledger (although it can of course be done). No-one ever had the ledger on their phone. The transaction scaling problem of BTC is solely due to the lead developers refusing to increase the block size despite the fact that it is technically possible and feasible (an infight broke out in the BTC community over this issue, which resulted in the BCH fork). BCH shows that scaling is not a problem at all.

Lamarth
Lamarth

The BCH solution isn't nearly enough. They need about a 10,000 times increase for currently planned uses, and the BCH thing will only get 10 or maybe 100 before other things start to fray. But, there are many proposed better solutions than simply increasing the block size, which is why I linked the sharding FAQ.

I do agree with Mish that BTC is on its way out. It was an amazing first step, but it's not improving. If you compare two things, one of which is improving at a steady rate and one is not, the improving one will always eventually dominate, no matter what the initial positions.

MattH
MattH

I agree that there are lots of issues with bitcoin being used as a possible currency, but there is a new network being developed called the Lightening Network that may help the scaling and transaction processing capabilities of everyday transactions with bitcoin. From what I understand this new development would start to allow bitcoin to compete with visa, etc.