Inherent Flaws of Cryptocurrency Disqualify It as Money, BIS Informs G20

The Bank for International Settlements (BIS), often referred to as the central bank of central banks, has recently argued that cryptocurrencies cannot be used as money due to their inherent flaws. In a report presented to the G20 finance ministers and central bank governors, the BIS highlighted several reasons why digital currencies cannot fulfill the core functions of money.

One of the main flaws pointed out by the BIS is the extreme volatility of cryptocurrencies. As we have witnessed in recent years, the value of digital currencies can fluctuate wildly within a short span of time. This makes them unsuitable for everyday transactions, as a currency that changes in value significantly compromises the certainty and stability necessary for financial transactions.

The BIS argues that cryptocurrencies lack the capacity to handle a large number of transactions on a global scale. Traditional payment systems, such as those offered by central banks, have the capacity to process thousands of transactions per second, ensuring efficiency and scalability. In contrast, popular cryptocurrencies like Bitcoin can only handle a limited number of transactions, resulting in delays and high transaction costs during peak periods.

Another crucial aspect highlighted by the BIS is the issue of trust. While traditional fiat money is backed by governments and central banks, cryptocurrencies rely on decentralized networks and complex algorithms. This lack of a trusted authority raises concerns about the security and reliability of digital currencies. The potential for fraud, hacks, and theft in the crypto space further diminishes trust in their use as a reliable form of money.

Central to the functionality of any currency is its role as a stable unit of account. Cryptocurrencies have so far failed to fulfill this function. The ever-changing value of digital currencies impedes their ability to provide an accurate measure of economic value. This unpredictability ultimately prevents businesses and individuals from using cryptocurrencies as a reliable means of conducting economic activity.

The BIS raises concerns about the environmental impact of cryptocurrencies. The mining process required to produce digital currencies consumes vast amounts of energy, contributing to carbon emissions and exacerbating the unfolding climate crisis. This, along with the scalability issues mentioned earlier, poses serious challenges to the long-term viability of cryptocurrencies as a sustainable form of money.

Despite these shortcomings, the BIS report recognizes the potential benefits of cryptocurrencies. It acknowledges that digital currencies can offer alternative means of payment and financial inclusion, especially in areas lacking reliable financial infrastructure. The BIS firmly believes that these benefits can only be fully realized if regulators address the fundamental flaws of cryptocurrencies.

The BIS report delivers a clear message: cryptocurrencies cannot be used as money due to their inherent flaws. The extreme volatility, scalability issues, lack of trust, instability as a unit of account, environmental concerns, and other inherent limitations hinder the widespread adoption and acceptance of digital currencies. While the world of cryptocurrencies is brimming with possibilities and innovations, it is crucial to recognize that they currently fall short of fulfilling the core functions of money.