This is not a theory from some apocalyptic wingnut. It’s a recent observation of the Bank for International Settlements, a Switzerland-based central bank for other central banks.
If blockchain-based technologies and cryptos are used on a large scale, particularly for processing transactions, the BIS predicts it will overwhelm the current capacity of the net.
It’s like flooding a reservoir with so much water that the dam bursts. “The associated communication volumes could bring the Internet to a halt,” the report states.
— Crypto Mining Uses Too Much Computer Power And Energy. “Individual facilities operated by miners can host computing power equivalent to that of millions of personal computers. At the time of writing, the total electricity use of bitcoin mining equalled that of mid-sized economies such as Switzerland, and other cryptocurrencies also use ample electricity. ”
— Lack Of Trust Can Crash A Digital Currency. “Trust can evaporate at any time because of the fragility of the decentralized consensus through which transactions are recorded. Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value. ”
–– The System Is Highly Inefficient. “Cryptocurrency technology comes with poor efficiency and vast energy use. Cryptocurrencies cannot scale with transaction demand, are prone to congestion and greatly fluctuate in value. Overall, the decentralised technology of cryptocurrencies, however sophisticated, is a poor substitute for the solid institutional backing of money.”
— Cryptos Add Another Element Of Systemic Risk. “It remains to be seen whether widespread use of cryptocurrencies and related self-executing financial products will give rise to new financial vulnerabilities and systemic risks. Close monitoring of developments will be required.”
Could widespread use of cryptos and blockchain applications lead to another 2008-style meltdown? The jury’s still out on that, although the sheer volume of computing and energy use is well documented.
“The report may also revive concerns that for all its ingenuity, blockchain transactions will get harder and harder to protect as it scales up,” according to a report by Bloomberg.
Does this mean that blockchain is doomed as a large-scale technology? Probably not, since nearly every technology gets faster over time. The BIS report notes that blockchain may have a promising future in niche applications such as cross-border payments.
Remember “Pong,” one of the first video games? It was slower than an actual game of tennis. But today’s gamers move at the speed of light. Technology evolves, but you need to be patient. Blockchain networks aren’t built in a day.