BIS Economists Contend Crypto Can't Fulfill the Role of Money

The nature of permissionless blockchains necessarily leads to “fragmentation of the crypto landscape,” according to the central banking group.

AccessTimeIconJun 7, 2022 at 1:30 p.m. UTC
Updated Jun 7, 2022 at 2:54 p.m. UTC

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.

The use of public blockchains results in fragmentation which means crypto could never be a suitable means of payment, economists from the Bank for International Settlements (BIS) said in a report Tuesday.

“Fragmentation means that crypto cannot fulfill the social role of money,” the report concluded.

The report contended that as transactions per block get close to their limit, the cost of transactions rises, causing users to seek alternative blockchains. This “fragmentation” means blockchains cannot harness the beneficial network effects associated with traditional money.

Money, the report's authors wrote, is a coordination device meant to facilitate economic exchange and that can happen only if there are network effects where the money is continually made more attractive as more people use it. Without interoperability between competing blockchains, cryptocurrencies cannot fulfill that role.

Not a fan of Bitcoin or crypto in general, the BIS, which is an organization that represents the world's major central banks, has been advancing its own research into central bank digital currencies and recently completed project Dunbar in which the central banks of Australia, Malaysia, Singapore and South Africa found that cross-border CBDC efforts were viable.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.

CoinDesk - Unknown

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.