The Bank for International Settlements released a new report that Bitcoin isn’t quite ready for the mass market just yet -- and based on recent studies, it may never be.
The Switzerland-based bank deemed the “intense interest” in Bitcoin and other cryptocurrencies had prompted many to look “beyond the hype” at their contribution to the current economy. BIS said that Bitcoin suffers from a “range of shortcomings” that would prevent it from ever reaching its fullest potential, as was expected by the masses.
In its report, BIS said cryptocurrencies consume too much electricity, are too unstable, and are subject to too much manipulation and fraud to ever really make it in today’s economy. The company also believes one of Bitcoin’s biggest flaws is in its nature of being created, transacted, and accounted for on a distributed network of computers.
Most importantly to consumers, BIS found that the processing of all Bitcoin payments “could bring the internet to a halt.”
Breaking the internet
Supporters of Bitcoin are drawn to the currency’s decentralized nature, meaning that it’s not tied directly to a bank or the Federal Reserve. All Bitcoin transactions are kept in a digital ledger.
However, every single Bitcoin transaction is added to the digital ledger, and as the ledger grows, it ultimately slows down the internet. Using Bitcoin or a similar cryptocurrency for a foreign retail purchase will almost instantly grow the ledger beyond what a typical computer server is capable of handling.
To keep up with verifying payments, users would need supercomputers, but the large amounts of data being transferred and shared between users would be enough to stop the internet entirely.
Using this vast amount of data also presents an energy problem. The amount of energy Bitcoin uses every year -- 32 terawatts -- could power three million U.S. households. Comparatively, Visa processes billions of transactions each year and the energy used could power just 50,000 American homes.
“As Bitcoin grows, the math problems computers must solve to make more Bitcoin get more and more difficult,” said meteorologist Eric Holthaus, inferring that even more energy will soon be required.
Experts in the field have been warning consumers of the various concerns Bitcoin presents to users. For starters, the cryptocurrency presents a large threat to the environment, as it hurts continued efforts to combat climate change.
“Bitcoin is slowing the effort to achieve a rapid transition away from fossil fuels,” said Holthaus.
Holthaus estimated that at this rate, if a significant change isn’t made to the way Bitcoin is processed, the cryptocurrency will be consuming enough electricity to power the entire country by 2019. Six months later, that energy need could equal the entire world’s consumption.
Along with the environment, BIS says the ever-changing prices of Bitcoin are another concern for consumers. Bitcoin’s prices surged to $19,000 late in 2017 and has since decreased to under $7,000.
Users also have to pay a rather hefty fee each time they complete a Bitcoin transaction to have it added to the digital ledger. When the demand for the cryptocurrency goes up, the fee goes up. Around December of last year when Bitcoin was on the rise, users were charged a $57 processing fee.
“Just imagine, if you bought a $2 coffee with Bitcoin, you would have had to pay $57 to make that transaction go through,” said Hyun Song Shin, BIS’ head of research.