BIS Report Exposes the Inherent Flaws of Cryptocurrencies
The recent report published by the Bank of International Settlements (BIS) exposes the inherent limitations of cryptocurrencies, raising concerns about their role in the global economy. BIS researchers emphasize that permissionless blockchains, which are the foundation of cryptocurrencies, suffer from flaws that lead to network congestion and high transaction fees.
Report Debunks Promises of Decentralization
The latest Bank of International Settlements (BIS) report, claims that the current state of cryptocurrencies is unsuitable for integration into the global economy. While the industry claims to operate under the banner of decentralization, in reality, centralized intermediaries have played a crucial role in directing funds into the crypto universe. This fragmentation and dependence on decentralized validation methods hamper the synchronizing function of money, making crypto ill-suited for a monetary system, as per BIS researchers.
The researchers strongly believe that the crypto industry, which is dependent on decentralized validation methods, fosters a fragmentation that nullifies the function of money, thus rendering crypto unsuitable for widespread use. The BIS report adds:
"Crypto proponents argue that decentralization guarantees the safety of the system. However, there is often a de facto concentration of decision-making power. While centralization is not a structural flaw per se, it introduces new risks and invalidates arguments made by proponents of crypto and defi that stress its purportedly decentralized nature."
Although decentralization is touted as a safety measure, decision-making power often becomes concentrated, introducing new risks that invalidate claims of true decentralization made by crypto and DeFi proponents.
In a relatively short period, crypto has transformed from a niche interest to a major player in mainstream finance, attracting millions of everyday consumers and institutional investors alike. While crypto-assets do offer innovations like programmability and composability, the report highlights that the industry has yet to utilize these innovations for the betterment of society.
Crypto Has So Far Failed to Harness Innovation
The BIS report recognizes that the capabilities of cryptocurrencies offer automated financial transactions and facilitate seamless integration. Coupled with tokenization, these attributes have the potential to reduce the need for manual oversight, enhance transaction speed, and reduce costs.
However, the report concludes that crypto has thus far failed to harness its innovations to benefit society. It remains self-referential, cannot finance real economic activity, and is plagued by structural flaws related to stability, efficiency, accountability, and integrity. These flaws are rooted in the underlying economics of incentives rather than technological limitations.
What is your take on the BIS report's findings regarding the shortcomings of blockchain and cryptocurrencies? Please post your comments.
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