Hyun Song Shin, head of research for the Bank of International Settlements, provided some insights on the BIS’ discussion of Bitcoin found in BIS’ annual report released earlier today. Mr. Hyun described the cryptocurrency as a poor medium of exchange, questioning the cryptocurrency’s low use. Transactions are “slow and costly”, according to Mr. Hyun. From the BIS website:
“Cryptocurrencies promise to replace trusted institutions with distributed ledger technology. Yet, looking beyond the hype, it is hard to identify a specific economic problem which they currently solve. Transactions are slow and costly, prone to congestion, and cannot scale with demand. The decentralised consensus behind the technology is also fragile and consumes vast amounts of energy. Still, distributed ledger technology could have promise in other applications. Policy responses need to prevent abuses while allowing further experimentation.”
In his brief description of the Bitcoin production process, Mr. Hyun warned that the ability of miners to choose which transactions to process may result in users paying a higher price to get their transactions onto the cryptocurrency’s distributed ledger. The process is a congested one, but as production capacity lessens, so to does a miner’s incentive to extract Bitcoin.