Banking Group Warns Bitcoin Could Literally Break the Internet

Representations of the Ripple Bitcoin Etherum and Litecoin virtual currencies are seen on motherboard in this illustration

Bitcoin 'would break the internet' if used at national retail scale

"To process the number of digital retail transactions now handled by selected national retail payment systems", it posits, "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".

Bank for International Settlements (BIS) stated that Bitcoin and Altcoins all have flaws in their design.

The BIS, which has previously warned of the fraud risk in cryptocurrencies, noted that there was "a fragile foundation of trust" in such systems. Even as Goldman Sachs Group Inc., the New York Stock Exchange, and other institutions take steps to offer clients access to the new marketplace, the U.S. Securities and Exchange Commission is cracking down on the offerings of new digital tokens, which it has found are rife with ripoffs. 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 BIS general manager asserts that "With new cryptocurrencies proliferating, it's as important to educate the public about good money as it is to build defences against fake news, online identity theft, and Twitter bots".

Besides their monetary value, some are looking to them as a means to perform all transactions, which prompted the Switzerland-based Bank for International Settlements (BIS) to examine it for its potential.

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When bitcoin peaked at $20,000 in December, a single operation with the digital currency cost additional $57. "Some people don't hold cryptocurrencies as money, but are speculating on its price", he added.

Since the 1970s, its goal has been to maintain worldwide financial stability.

"An even more worrying aspect underlying such episodes is that forking may only be symptomatic of a fundamental shortcoming: the fragility of the decentralized consensus involved in updating the ledger and, with it, of the underlying trust in the cryptocurrency". A collapse in trust can raise doubts on the finality of individual payments, which implies that the system will no longer be functional, resulting in a loss of the currency's value.

"The short experience of cryptocurrencies shows that technology, however sophisticated, is a poor substitute for hard-earned trust in sound institutions". Transactions are slow and costly, prone to congestion, and can not scale with demand.

On the other hand, cryptocurrencies' decentralized technology, is unable to provide sufficient alternative for the traditional, institutional backing of money.

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