The bigger cryptocurrencies get, the worse they perform: BIS

[webfact]

The bigger cryptocurrencies get, the worse they perform: BIS

Reuters Staff

 

Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 14, 2018. REUTERS/Dado Ruvic/Illustration

 

LONDON (Reuters) - Cryptocurrencies are not scalable and are more likely to suffer a breakdown in trust and efficiency the greater the number of people using them, the Bank of International Settlements (BIS)said on Sunday in its latest warning about the rise of virtual currencies.

 

For any form of money to work across large networks it requires trust in the stability of its value and in its ability to scale efficiently, the BIS, an umbrella group for the world’s central banks, said in its annual report.

 

But trust can disappear instantly because of the fragility of the decentralized networks on which cryptocurrencies depend, the BIS said.

 

Those networks are also prone to congestion the bigger they become, according to the BIS, which noted the high transaction fees of the best-known digital currency, bitcoin, and the limited number of transactions per second they can handle.

 

“Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded,” the Switzerland-based group said in its report.

 

“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 BIS’ head of research, Hyun Song Shin, said sovereign money had value because it had users, but many people holding cryptocurrencies did so often purely for speculative purposes.

 

“Without users, it would simply be a worthless token. That’s true whether it’s a piece of paper with a face on it, or a digital token,” he said, comparing virtual coins to baseball cards or Tamagotchi.

 

The dependency of users on so-called miners to record and verify crypto transactions is also flawed, according to the BIS, requiring vast and costly energy use.

 

It has issued a series of warnings this year after an explosive rise in cryptocurrency values attracted a wave of followers.

 

Agustin Carstens, general manager of the BIS, has described bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.

 

The BIS has told central banks to think hard about the potential risks before issuing their own cryptocurrencies.

 

No central bank has issued a digital currency, though the Riksbank in Sweden, where the use of cash has fallen, is studying a retail e-krona for small payments.

 

The BIS also said in its annual report that effective regulation of digital coins needed to be global, targeting both regulated financial institutions as well as companies offering crypto-related services.

 

Reporting by Tommy Wilkes

 

-- © Copyright Reuters 2018-06-19

[theguyfromanotherforum]

US dollars wins again.

 

When will John eat his own mini Afee?

[phycokiller]

Im not sure if its genuine ignorance or an attempt at spin but either way this article doesnt inspire trust in traditional banking, rather it makes them look like desperation is setting in. I will say tho, full marks for not mentioning tulips

[BuaBS]

As if they would be positive about crypto's.

[impulse]

Read an article yesterday that I haven't had time to run the traps on, so maybe a crypto fan can fill me in on the veracity of these 2 points:

 

1) Every blockchain transaction is recorded forever in the ether that is the internet, and every transaction has to reference every preceding transaction and that will eventually be an unmanageable amount of information. (I was a little unclear on that one, so please be kind)   And if the world were to adopt the Bitcoin (for example) as a daily currency, we'd soon run out of electrical power just moving those zeros and ones around the world.

 

2) Transaction costs on Bitcoin are currently running around $57 per.  Meaning that I'd pay $57.50 to buy a $0.50 pack of gum.

 

Once again, I need to run the traps on those points before I actually believe them, but this is a good place to start since TVF posters will soon be crawling out of the woodwork to call me an idiot and show me why I'm a waste of the oxygen I consume.

 

[phycokiller]

22 minutes ago, impulse said:

1) Every blockchain transaction is recorded forever in the ether that is the internet, and every transaction has to reference every preceding transaction and that will eventually be an unmanageable amount of information. (I was a little unclear on that one, so please be kind)   And if the world were to adopt the Bitcoin (for example) as a daily currency, we'd soon run out of electrical power just moving those zeros and ones around the world.

 

2) Transaction costs on Bitcoin are currently running around $57 per.  Meaning that I'd pay $57.50 to buy a $0.50 pack of gum.

1) yes its all recorded but no its not unmanageable and wont wont use all the worlds electricity. (consider that currently all bank transactions are already all recorded and nobody is fear mongering about that) 2) currently it costs about 10c for a bitcoin transaction and that is likely to drop to about 0.1c as lightning network becomes more common

[impulse]

4 hours ago, phycokiller said:

1) yes its all recorded but no its not unmanageable and wont wont use all the worlds electricity. (consider that currently all bank transactions are already all recorded and nobody is fear mongering about that) 2) currently it costs about 10c for a bitcoin transaction and that is likely to drop to about 0.1c as lightning network becomes more common

 

1) Banks record every transaction, but they don't trace back the usage history of every coin and bill in circulation every time it changes hands.  Imagine having to update the provenance of a 1975 nickel or a 2000 Series $1 note every time it changed hands, along with another big ass record every time the bill is replaced due to wear.  You'd need a ledger the size of a Big Chief tablet (per coin) for the period before PC's, then a big bunch of HD space if the digital records took the form of a blockchain (how many digits in a blockchain transaction?).

 

2) From the linked article:

In a video released alongside the report, Hyun Song Shin, the BIS’ head of research, explained that someone buying a $2 coffee with bitcoin hypothetically could get hit with a $57 transaction fee (which was bitcoin’s transaction fee during the high-demand period of December 2017).

 

Here's the article I read.  I'm not claiming I've vetted it.  Just that it's worthy of consideration. 

 

https://www.entrepreneur.com/article/315283

 

And yes, I realize the BIS study it discusses was written by someone with an agenda.  I'm looking for some unbiased input and perhaps directions to counter arguments.

 

Edit:  And, just for giggles, here's an interesting article linked in the one above...      https://www.entrepreneur.com/article/315000

 

[phycokiller]

5 hours ago, impulse said:

 

1) Banks record every transaction, but they don't trace back the usage history of every coin and bill in circulation every time it changes hands.  Imagine having to update the provenance of a 1975 nickel or a 2000 Series $1 note every time it changed hands, along with another big ass record every time the bill is replaced due to wear.  You'd need a ledger the size of a Big Chief tablet (per coin) for the period before PC's, then a big bunch of HD space if the digital records took the form of a blockchain (how many digits in a blockchain transaction?).

 

2) From the linked article:

In a video released alongside the report, Hyun Song Shin, the BIS’ head of research, explained that someone buying a $2 coffee with bitcoin hypothetically could get hit with a $57 transaction fee (which was bitcoin’s transaction fee during the high-demand period of December 2017).

 

Here's the article I read.  I'm not claiming I've vetted it.  Just that it's worthy of consideration. 

 

https://www.entrepreneur.com/article/315283

 

And yes, I realize the BIS study it discusses was written by someone with an agenda.  I'm looking for some unbiased input and perhaps directions to counter arguments.

 

Edit:  And, just for giggles, here's an interesting article linked in the one above...      https://www.entrepreneur.com/article/315000

 

to give you an idea the medium size of a transaction is about 220 bytes. fees did hit something like $57  at the peak of the bubble (for a fast transaction, even then you could send with a low fee and it will still work just takes longer ) but changes have been made since then and more will be coming, its a work in progress. Its still at testing stage but it looks like transactions will soon be able to be done instantly for about 0.1c using lightnting network. Its difficult to see how any other form of currency will be able to compete with that. I guess everyone has their own opinion. Mine is ... its close to buy in time folks

[Calach]

You don't expect a turkey to cheer when Christmas is around the corner. 

[lkn]

On 6/20/2018 at 11:09 AM, impulse said:

1) Banks record every transaction, but they don't trace back the usage history of every coin and bill in circulation every time it changes hands.  Imagine having to update the provenance of a 1975 nickel or a 2000 Series $1 note every time it changed hands, along with another big ass record every time the bill is replaced due to wear.  You'd need a ledger the size of a Big Chief tablet (per coin) for the period before PC's, then a big bunch of HD space if the digital records took the form of a blockchain (how many digits in a blockchain transaction?).

Bitcoin is actually worse, because a bank today needs to only care about their own customers’ transaction history and they can distribute it over multiple locations, e.g. old data can be archived.

 

For bitcoin, anyone who receives payments would need a full copy of the entire ledger and go through all transactions to be sure that the coins they received have been sent to their wallet, and that the sender was actually the owner of the coins, which in turn requires checking how they got them, etc.

 

The philosophy with bitcoin is to have a decentralized currency where you trust nobody, so you can’t rely on a bank with a big data center to track all this for you, and then trust the bank to let you know whether or not you have money in your account, because if you could, it’s no longer a decentralized currency.

 

And there is a further twist; say you got the entire ledger and check it; how can you be sure the sender didn’t double-spend the money they sent you? The rule of thumb right now (for bitcoin) is that if 4-5 more blocks have been appended to the copy of the ledger you have (each block takes about 10 minutes to create) then you can be reasonable sure that you have the “true” ledger. But this turned out to not be the case for bitcoin gold where an attacker double-spent and was able to cash-out coins for an estimated value of 18 million USD.
 

On 6/20/2018 at 11:09 AM, impulse said:

2) From the linked article:

 In a video released alongside the report, Hyun Song Shin, the BIS’ head of research, explained that someone buying a $2 coffee with bitcoin hypothetically could get hit with a $57 transaction fee (which was bitcoin’s transaction fee during the high-demand period of December 2017).

I would estimate the average cost of electricity per transaction at about $20.

 

When @phycokiller puts the price at 10 cents he is forgetting that miners are subsidized by block rewards, which is effectively printing new money and giving to miners, which should cause inflation, so the person doing the transaction does actually not (currently) pay the lion’s share of the transaction cost, that is paid collectively by all holders of bitcoin.

 

But the block reward (currently 12.5 bitcoins ≈ $77k, for one block which holds about 4,000 transactions) is halved every 4th year. So over time, more and more of the actual cost should be paid via transaction fees.

 

[phycokiller]

13 minutes ago, lkn said:

Bitcoin is actually worse, because a bank today needs to only care about their own customers’ transaction history and they can distribute it over multiple locations, e.g. old data can be archived.

 

For bitcoin, anyone who receives payments would need a full copy of the entire ledger and go through all transactions to be sure that the coins they received have been sent to their wallet, and that the sender was actually the owner of the coins, which in turn requires checking how they got them, etc.

 

The philosophy with bitcoin is to have a decentralized currency where you trust nobody, so you can’t rely on a bank with a big data center to track all this for you, and then trust the bank to let you know whether or not you have money in your account, because if you could, it’s no longer a decentralized currency.

 

And there is a further twist; say you got the entire ledger and check it; how can you be sure the sender didn’t double-spend the money they sent you? The rule of thumb right now (for bitcoin) is that if 4-5 more blocks have been appended to the copy of the ledger you have (each block takes about 10 minutes to create) then you can be reasonable sure that you have the “true” ledger. But this turned out to not be the case for bitcoin gold where an attacker double-spent and was able to cash-out coins for an estimated value of 18 million USD.
 

I would estimate the average cost of electricity per transaction at about $20.

 

When @phycokiller puts the price at 10 cents he is forgetting that miners are subsidized by block rewards, which is effectively printing new money and giving to miners, which should cause inflation, so the person doing the transaction does actually not (currently) pay the lion’s share of the transaction cost, that is paid collectively by all holders of bitcoin.

 

But the block reward (currently 12.5 bitcoins ≈ $77k, for one block which holds about 4,000 transactions) is halved every 4th year. So over time, more and more of the actual cost should be paid via transaction fees.

 

I think if what you say were happening was happening or ever going to happen bitcoin would have finished years ago. Also you might like to post how you estimated the cost of a transaction.

[lkn]

1 minute ago, phycokiller said:

I think if what you say were happening was happening or ever going to happen bitcoin would have finished years ago. 

Bitcoin is artificially limited to around 7 transactions per second. This is to prevent the ledger from growing too quickly, and that is why it could take days to do a transfer back in December when bitcoin transactions rose to more than 7 per second (so a queue was building, and you had to either pay transaction fees around $50 to jump the queue or wait forever for your transaction to be picked up).

 

In comparison the VISA network can handle around 24,000 transactions per second.

 

The lightning network is meant to solve bitcoin’s scalability problem by taking transactions off-chain, though this is a whole new can of worms.

 

The issues I have described are widely known and acknowledged in the (technical) bitcoin community.

 

[lkn]

8 minutes ago, phycokiller said:

I think if what you say were happening was happening or ever going to happen bitcoin would have finished years ago. 

And actually, finished doing what? Majority of people are just buying bitcoins hoping to sell them at a profit sometime in the future. You don’t really need a working system for that, some of the alt-coins are barely working, and yet have attracted “investors” giving them a market cap. in the billions.

[phycokiller]

19 minutes ago, lkn said:

The issues I have described are widely known and acknowledged in the (technical) bitcoin community.

what I mean is, if the so called bitcoin community knows and acknowledges all this they would have all sold years ago and it would have zero value. you are suggesting its some kind of conspiracy that involves tens of thousands of people and companies, like the moon landing being fake.

[lkn]

19 minutes ago, phycokiller said:

what I mean is, if the so called bitcoin community knows and acknowledges all this they would have all sold years ago and it would have zero value. you are suggesting its some kind of conspiracy that involves tens of thousands of people and companies, like the moon landing being fake.

I am flabbergast by this response.

 

Why are they working on the lightning network? why did they fork bitcoin last August? why did transaction prices skyrocket last December? All these things are related to the lack of scalability (the August fork was a political disagreement about how to best handle the scaling issues).

 

There is no conspiracy here, all the stuff I have written, you can verify yourself by studying how bitcoin works.

 

Though majority of bitcoin holders are probably in it because they think/thought the price will/would go up, they haven’t sold because it’s hard to take a loss, although certainly many have sold, as the price has gone from $19k to $6k in the last six months, and it still looks to be going down.

 

I still can’t get over your response. What exactly in my post do you think is incorrect? The 7 transactions per second? That is easy to google (google “bitcoin transactions per second”). Subsidizing miners to the tune of $76k every 10th minute? Another easy thing to google (google “bitcoin block reward”), that people need a full copy of the ledger (blockchain)? Another thing you can google, and by doing it, I even found this nice graph showing how it is growing, currently at 172 GB, but that is with the limited transactions per second: https://blockchain.info/charts/blocks-size

[phycokiller]

16 minutes ago, lkn said:

...

I still can’t get over your response. What exactly in my post do you think is incorrect? The 7 transactions per second? That is easy to google (google “bitcoin transactions per second”). Subsidizing miners to the tune of $76k every 10th minute? Another easy thing to google (google “bitcoin block reward”), that people need a full copy of the ledger (blockchain)? Another thing you can google, and by doing it, I even found this nice graph showing how it is growing, currently at 172 GB, but that is with the limited transactions per second: https://blockchain.info/charts/blocks-size

you answer your own question. why are they working on lightning network? because of the 7 transactions per second problem. you havent said how you estimated the electricity cost so I cant comment on that. no you dont need to download a full copy of the blockchain, or any of it to send or receive bitcoin. 

[lkn]

27 minutes ago, phycokiller said:

you answer your own question. why are they working on lightning network? because of the 7 transactions per second problem. you havent said how you estimated the electricity cost so I cant comment on that. no you dont need to download a full copy of the blockchain, or any of it to send or receive bitcoin. 

Only if you trust the balances given to you by a third party, can you avoid checking the ledger (basic accounting), but then it is no longer trustless.

 

I don’t know how to parse your first sentence, but if you acknowledge that the lightning network is an attempt at solving the scalability problem, then it seems you agree there is a scalability problem. Whether the lightning network is actually a usable solution has yet to be proven (with lots of skeptics).

 

As for how to estimate the electricity cost: If we assume an efficient market, and we know the block reward is $76k, it would follow that people would be willing to spend almost $76k to obtain the reward. We also know that one block has about 4,000 transactions, so that would be $76k/4,000 = $19/transaction.

 

Note though that for one participant, creating one block only costs 10 minutes of CPU time. However, many players will compete in creating blocks, and only one of them will actually win the reward. So if there are 100 players with the same hardware, each player would only win the reward every 100th block, so the “true” cost would be 100×10 minutes of CPU time.

 

This is where I also like to bring up security: Basically anyone can create a block, but in the above scenario, we would only get our block submitted 1% of the time. If however we had majority of the CPU power, we would win every round (technically just more than every second, but we would ignore other people’s blocks, so in practice we would win all the rewards).

 

Now, if there are only 100 players, it means we can just rent 51 virtual machines at Amazon and we would get all the block rewards, and we could double spend our coins.

 

Renting 51 Amazon virtual machines is fairly cheap, so this network would be horribly insecure, therefor we need a lot more players to make it too expensive to rent CPU cycles and get majority control of the network.

 

But the more players we get, the less likely it is that each player get a block reward, and thus the more expensive it becomes to mine.

 

IOW to increase security of the network we need to increase the price of transactions. That is a rather bad design.

[phycokiller]

3 minutes ago, lkn said:

 

you might find this article interesting https://cointelegraph.com/news/the-bis-report-on-crypto-as-money-a-critical-review

[Wonderboy]

On 6/23/2018 at 11:53 PM, phycokiller said:

what I mean is, if the so called bitcoin community knows and acknowledges all this they would have all sold years ago and it would have zero value. you are suggesting its some kind of conspiracy that involves tens of thousands of people and companies, like the moon landing being fake.

All these limitations are well known, but the average bitcoiner is in denial. Same as you seem to be. Every article shedding light on the limitations of bitcoin are attributed as fake news from someone with an agenda to destroy bitcoin, usually banks. Guess it makes life easier that way...

[phycokiller]

3 hours ago, Wonderboy said:

All these limitations are well known, but the average bitcoiner is in denial. Same as you seem to be. Every article shedding light on the limitations of bitcoin are attributed as fake news from someone with an agenda to destroy bitcoin, usually banks. Guess it makes life easier that way...

I agree, its a huge conspiracy, wall street, microsoft, virgin, all the thousands of programmers that checked it out,  all the companies spending millions to develop software to use bitcoin,  they are just doing it to get rubes like me to buy in and then all those tens of thousands of people are going to secretly arrange a concerted sellout taking the price back to zero overnight and I will be left with nothing, I know, but in the meantime Ive been able to retire early on all the money they are pumping into this scam pyramid tulip bubble, so whats a man to do?