BIS (Bank for International Settlements) put out negative predictions on cryptocurrency through its annual report.
BIS predicted through its annual report (BIS Annual Economic Report 2018), which was issued recently, that values of cryptocurrencies will become more stable as there are more transactions involving cryptocurrencies.
BIS Annual Economic Report 2018 reported that cryptocurrencies have economic limitations and it pointed out that there are limits with their expandability unlike normal currencies since they require enormous amount of energy for mining.
BIS announced that amount of time that is required for verification continues to increase as ledger capacity of Bitcoin increases by 50GB every year depending on accumulation of transactions. Sharing of large ledger information is only done by super-computers due to rapid increase in number of digital transactions. BIS also suggested a possibility of internet paralysis.
Because only limited number of transactions are processed as blocks, BIS claimed that there can be high commission or outstanding contracts if number of transactions increases heavily. In other words, it will become more inconvenient to use cryptocurrencies as number of transactions increases.
BIS also put out negative predictions on values of cryptocurrencies as it is worried about sudden change of market values due to changes in market demands. Although values of normal currencies can be stabilized by adjusting issue amount, it is impossible to adjust issue amount of cryptocurrencies.
Its report stated that credibility of cryptocurrencies will become weaker as size of transactions grows due to cost of mining and ineffective distributed storage of records of transactions.
BIS also suggested a possibility of manipulation of ledgers. Also, it claimed that there are incidences where values of cryptocurrencies collapse or transactions become invalid during a ‘fork’ process, which is a process of making new ledgers due to reasons such as correction of errors and improvement in performance. Actually, values of Bitcoin dropped by 33% during a ‘hard fork’ process in 2013, and transactions involving Bitcoin were invalid for couple hours as a result.
BIS listed problems involving money laundering and protection of investors from political aspect. It pointed out that there is a high chance of money laundering by abusing cryptocurrencies and that there is a growing amount of damage on investors due to new fraudulent ICOs (Initial Coin Offering).
BIS analyzed that international cooperation is a must due to characteristics of cryptocurrencies that surpass boundaries. It emphasized that it is necessary to secure consistency amongst countries by modifying regulations on cryptocurrency service providers.
BIS explained that boundaries of regulations can be re-adjusted due to characteristics of cryptocurrencies and that it is necessary to establish international cooperation. Also, it stated that regulation systems on current financial institutions must be modified considering mutual connection between cryptocurrencies and financial institutions. It added that regulations on cryptocurrency service providers such as crypto wallet providers should be modified and that there should be consistency amongst countries.
BIS predicted that application of blockchain will be limited in particular areas. It elaborated further by saying that blockchain can be used for international wire transfer and Smart Contract of visible trades.
Staff Reporter Gil, Jaeshik | osolgil@etnews.com