The debate over the legitimacy of Bitcoin as a currency has persisted since the beginning of the creation of the coin. When the mysterious Satoshi Nakamoto rolled out the Bitcoin blockchain years ago, skeptics almost immediately began to argue that the currency would quickly peter out, losing value as quickly as it had gained notoriety. But as the currency developed and climbed to astronomical prices, many of the naysayers began to slowly dissipate.
But that doesn’t mean that there are not economic authorities in the status quo who disbelieve in the functionality of Bitcoin as a viable form of digital currency. Specifically, many professionals in the financial sector heavily and readily question the proposition that Bitcoin could function as an alternative to the traditional fiat cash in the status quo’s economy.
Now, the economic advisor to the Swiss Bank for International Settlements has come forward to express their belief that Bitcoin might not function as a legitimate currency, and that the decentralized coin might actually turn out to be a bubble after all. The financial executive outlined in an interview that, while he understood that the technology behind Bitcoin is useful as a “record keeping device,” the dreams that the tech could one day replace the existing financial system are a bit exaggerated.
The Bitcoin Bubble
Accusations that Bitcoin might be a bubble and that the burst is soon to come, have been debated for years. This past month, the general manager of the Swiss banking organization outlined in an interview that the currency is not just a bubble, but it is a Ponzi scheme, and a disaster waiting to happen. His grounds for the argument had to do primarily with the motivation for miners to verify transactions, which come down to rewards in the same currency they seek to verify.
But he didn’t stop there. He outlined that this mining system becomes a problem when mining becomes no longer necessary. When the Bitcoin blockchain network size increases, the transaction fees associated with the currency would decrease to zero. When this happens, he speculated, there would be no incentive to verify the blocks and transactions occurring on the chain.
It is also possible, according to the agency, that the Bitcoin community will eventually decide that there is a hard fork, and that previous transactions on the blockchain would be no longer valid. This means that, no matter what the transaction is or how unlikely the chance of a fork, no transaction is truly 100% valid and verified.
When he was quizzed on the future of blockchain technology, Shin outlined that he believed there was a significant functionality to the tech, and that it still retains potential and actualized applications all over the world.
But when the cryptocurrency attempts to “masquerade as a currency,” Shin said, problems arise. The technology becomes problematic when it makes promises that it cannot possibly fulfill, largely as a result of the core economics backing up the tech.