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The bank for international settlements (bis) said in a newsletter released Tuesday that it does not see the potential for payment infrastructures in a fragmented blockchain ecosystem.
The bank for international settlements released a report on Tuesday critical crypto as a means of payment. The Bank of International Settlements released a report on Tuesday criticizing crypto as a payment method.
The organization, representing the central banks of australia, Malaysia, South Africa, and Singapore, amongst others, and specializes in international financial co-operation, points out that multiple blockchains create a fragmented system ill-suited to the role of money as a means of coordination.
Its rationale is based on how adoption in traditional finance creates positive network effects. It reduces costs for users, while the increase in cryptocurrency network transactions leads to congestion and higher costs, lead users toward other blockchains, and the creation of new forms of digital silver and parallel blockchain. The report contrasts this with the traditional financial system, where the more users buy into a platform, the more attractive it becomes.
The report contrasts with the traditional financial system, where the more users buy the platform, the more attractive it becomes.
Never a single source of truth. Users wishing to send funds using cross-chain bridges may send their preferred blockchain cryptocurrency to the bridge. The bridge then stores the aether or bitcoin, recording the transaction on the source blockchain. The bridge then converts the money in the bridge to the destination cryptocurrency, and the second transaction is registered on the second blockchain.
There is no way to create a single source of truth through sharing blockchain information since each blockchain uses information differently to reach a consensus, the report says, citing Ethereum co-founder Vitalik Buterin.
BIS banks on CBDCs as the way forward
The BIS is a known critic of cryptocurrencies, calling them “speculative assets rather than money, in a report released on June 23, 2021. “, in particular, has few redeeming public interest attributes when also considering its wasteful energy footprint,” it added.
The BIS has been a champion of central bank digital currencies, saying that they offer the benefits of fiat, such as settlement finality, liquidity, and integrity, but in digital form. However, without proper risk management, Fitch Ratings Agency predicts that CBDCs “may disrupt financial systems.”
The BIS believes there is more of a future based on trust in sovereign digital currencies than in a fragmented cryptocurrency landscape.
