According to Hyun Song Shin, the Economic Advisor and Head of Research at the Bank for International Settlements (BIS), Bitcoin and other cryptocurrencies “fall a long way short of being able to sustain a monetary system”. According to him, they only “masquerade” as real currencies.
Bitcoin, a Bubble
In the latest episode of Bloomberg Benchmark Podcast, Shin said that money in the form of digital cash or tokens is merely a “record-keeping device”. And he said its worth only increases when others start to accept it. The general manager of BIS Agustin Carstens called bitcoin “a bubble, a Ponzi scheme and an environmental disaster,” in the previous month. Shin said that miners have incentives for verifying transactions as they collect their reward in bitcoins and also the transaction fees paid by the user. The problem will be solved if the network capacity is increased. And along with that, the transaction fees would also become zero. Thus, this would be the place where “the economics really bump into technology” as miners will not receive incentives to verify blocks. Shin mentioned that these statements hold true only for Bitcoin whereas other cryptocurrencies could give much better solutions.
When asked about Bitcoin’s finality issue, Shin said,
“What is a valid payment depends on what the bookkeepers agree is a valid payment. It is the result of a collective decision of the bookkeepers themselves.”
The transactions on the previous “branch” would become invalid. Since it is possible theoretically that the miners could interact with each other and agree on creating a hard fork. He said that thus the transactions on blockchains could lead to a disaster as they are not 100% valid.