Over the past few days, media outlets have taken it in turns to report on a recent assessment published by the Bank of International Settlements (BIS) on Sunday.
Titled as “Cryptocurrencies: looking beyond the hype” and running to 24-pages, the BIS report argues that cryptocurrency would make a poor substitute for fiat currency, highlighting problems with instability; a lack of value guarantee; as well as the possibility of being subjected to a consensus attack.
Following publication, The Financial Times latched onto the ‘environmental disaster’ that would reportedly happen if digital currency took over from “actual money”; and The Telegraph’s Ambrose Evans-Pritchard uses the report as the basis for calling Bitcoin, “useless, unsafe, and dirty” in yesterday’s headlines.
Joint-owned by some of the world’s largest central banks and established by the precursor to the United Nations way back in 1930, there’s no disputing the venerability of the Swiss-based Bank of International Settlements.
However, it is clear that researchers have taken a two-dimensional, and somewhat simplistic, take on cryptocurrency that undermines some of the fundamental arguments in the report.
The report completely omits the Proof-of-Stake (PoS) model from its evaluation, instead focusing exclusively on Proof-of-Work (PoW) as the basis for an assessment for the entire cryptocurrency sector.
Whilst PoW networks are still in the majority – at least by market cap – there has been a recent surge in PoS protocols, and the developers behind Ethereum have already begun the transition to a hybrid consensus network with the ultimate aim to becoming a fully PoS blockchain in the next few years. All of this goes completely unmentioned in the BIS report.
One of the other key arguments from the report is that the energy consumption of mining is excessive to the point of dangerous and uses data which suggests that at present, mining uses as much as electricity as the European country of Switzerland, which according to the last census in 2016, has a population of 8.3m people.
However, the source for this, Digiconomist’s Bitcoin Energy Consumption Index, is an online data source that has recently faced criticism for being unreliable and based on inadequate research.
According to a research paper published by CoinShares just under two weeks ago, Digiconomist’s mining energy estimations have been grossly exaggerated.
Speaking to Crypto Briefing at the time, the head of the CoinShares’ research team, Chris Bendiksen, said Digiconomist had failed to supply a methodology and seems to assume that a relatively small sample of miners can be taken as representative of the entire mining industry.
According to the CoinShares report, not only is it likely that most mining activity relies on cheaper renewable energy, but also that the total mining consumption is probably half of the 70TwH claimed by Digiconomist and by extension, the Bank of International Settlements.
Interviewed on CNBC earlier today, Coinlist’s Andy Bromberg told the news anchor that the report didn’t necessarily reflect the reality of cryptocurrency, pointing out that it was an evolving technology. Bitcoin, he suggested, is heading towards becoming a store of value, and not necessarily a means of exchange.
This highlights a key argument: crypto isn’t a static sector but something still very fluid and dynamic.
The mainstream media has an unhealthy obsession with Bitcoin, and a report by an institution as a prestigious as the Bank of International Settlements can easily be taken as gospel.
Although the BIS crypto report does, in fact, mention some technologies positively, such as smart contracts, it clearly suggests that cryptocurrency is not needed: just the blockchain technology underpinning it.
However, just in the past month, Crypto Briefing has covered means by which cryptocurrency, as a crowd-inclusive element of blockchain technology, could address glaring inefficiencies in the niche world of scientific publishing; enable internet users to effectively earn passive income by joining a co-operative that sells data to the big digital advertising companies; and even open up a new avenue for Muslims to pay the obligatory Zakat to their mosque during the holy month of Ramadan.
Crypto Briefing has previously felt a duty in highlighting claims leveled against cryptocurrency which we feel are unsubstantiated.
Following the Consensus Conference in New York, which most outlets erroneously called ‘the Bitcoin conference’, CB’s editor Jon Rice identified the press’ obsession in finding negative angles that helped to conjure a completely inaccurate portrayal of the conference.
This included the fixation with the Lamborghinis parked outside the venue, as well as an article by Forbes which labeled VeChain as nothing more than a company “handing out shovels during a gold rush”.
It’s important that cryptocurrency and blockchain technology is scrutinized and critiqued at every stage of its development. However, these checks and balances need to be based on relevant, balanced and up-to-date information, not sweeping statements or generalizations.
Although the BIS crypto report has some arguably valid observations and concerns, there are glaring omissions which do the sector an injustice.
The onus has to be on institutions, especially of the caliber of the Bank of International Settlements, to ensure they have the relevant expertise and research to correctly assess cryptocurrency.
Unless that isn’t the goal.