A new report alleges that blockchain is ill equipped to handle the sheer volume of retail transactions that take place every day.
In fact, processing every digital retail transaction on the blockchain would break the Internet, the allegation goes.
In its 24-page annual report, the Basel-based Bank for International Settlements (BIS) decried the world’s most widely used, but highly volatile, cryptocurrency and the underlying immutable distributed ledger technology (aka blockchain) behind it. The Swiss organization, oft referenced as the “central bank for central banks,” has plenty of skin in the payments game, however, as it’s responsible for processing transactions across borders.
“To process the number of digital retail transactions currently handled by selected national retail payment systems, 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,” the BIS said. “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 associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte,” the BIS said.
The group also said that “however sophisticated” cryptocurrency might be, with its “poor efficiency and vast energy use” virtual coinage is for the moment “a poor substitute for the solid institutional backing of money.”
Detractors are quick to point out crypto’s energy inefficiency; it requires a staggering amount of power to process the volume and size of transactions that verify each node uploaded onto the blockchain. Bitcoin “miners” have infamously set up camp in municipalities where energy is cheap and plentiful in attempts to get rich quick. But some places are fighting back: in March, a ruling by the New York State Public Service Commission permitted municipal power companies to charge higher electricity rates to crypto miners looking to capitalize on the state’s plentiful low-cost hydroelectric power.
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Some merchants accept Bitcoin but today it’s nowhere near close to achieving the widespread adoption that would wreak the kind of havoc BIS said would incapacitate the internet as we know it. Fintech firms have plenty of reasons to push back against cryptocurrency and blockchain; the very concept of “decentralization”—the core principle of these technologies—runs counter to the centralized power and control these organizations wield.
Still, it’s early days for blockchain and Bitcoin and the criticism is not unmerited. But it’s hard not to question BIS’ motive in delegitimizing emerging tech that could threaten its very existence.