Bitcoin’s issues with price have been well documented. For a variety of reasons, people started to lose faith in the world’s premier cryptocurrency last year, and the value of each BTC fell dramatically on two different occasions. Long story short, the digital asset was trading at nearly $20,000 in January and now, it is exchanging hands at around $3,500, still struggling to regain its feet and surpass $4,000.
Amid concerns about further volatility in the market, the Bank for International Settlement (BIS) offered its view of the current crypto market crisis and what needs to be done for Bitcoin to get out of it once and for all.
A Slow and Almost Unusable Platform
According to a report from BIS, published this week, Bitcoin’s issues can only be solved if it walks away the proof of work (PoW) system. The paper states that if future BTC’s block rewards were to fall to zero (because few blocks of new Bitcoin will ever be created if that would be the case) the mining expenses would be too much to handle with only transaction fees to cover for them. Under that scenario, the Bitcoin network would turn into a slow, virtually unusable platform.
“Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality,” the paper reasons.
Social Coordination or Institutionalization Is Needed
That is why, while the paper observes that some methods could in fact be helpful, such as second-layer solutions (the Lightning Network is an example,) the only reasonable remedy would be walking away from the proof of work system. If that were to happen, the organization noted that it would “probably require some form of social coordination or institutionalization.”
The text concludes by saying that, according to the researchers, “in the digital age too, good money is likely to remain a social construct rather than a purely technological one.” For reference, the proof of work system (PoW) is a requirement to define an expensive computer calculation (often known around the industry as mining.) The first miner that solves each block’s problem gets a prize, or a reward. The PoW protocol has the objective of deterring cyber-attacks.
A little bit more about the Bank for International Settlement (BIS)
BIS is a Swiss organization which consists of 60 central banks. It accounts for almost the entire GDP (Gross Domestic Product) of the planet: most precisely, 95 percent of it. The BIS “fosters international monetary and financial cooperation and serves as a bank for central banks”.
One of BIS’ reports at the start of the year (on January 8th) concluded that 70% of the world’s central banks are currently investigating and researching on the matter, most precisely central bank digital currency issuance.
Last September, the BIS also reported that there was a strong and evident relationship between the prices of cryptocurrencies and news about regulatory intervention around the world.
By Andres Chavez
