Agustín Carstens, general manager of the Bank for International Settlements, believes that Bitcoin’s days are numbered.
During a Jan. 27 speech at a conservative think tank, the head of the bank for central bankers bashed Bitcoin proponents, saying “investors must be cognisant that Bitcoin may well break down altogether.”
The Bank for International Settlements (BIS) is a hugely influential institution, acting as both a forum for central bankers and a lender of last resort.
Carstens told the Hoover Institution that “scarcity and cryptography alone do not suffice to guarantee exchange,” suggesting that Satoshi Nakamoto’s system will break down after future halvings decrease the incentives for mining to simply the transaction fees earned with each block:
“Currently, so-called miners sustain the system’s security, and are rewarded with newly minted coins,” he said “As Bitcoin approaches its maximum supply of 21 million coins, the ‘seigniorage’ to miners will decline.” He added:
“As a result, wait times will increase and the system will be increasingly vulnerable to the [51% attacks] that are already plaguing smaller cryptocurrencies.”
In other words, Carstens believes that the shrinking number of new BTC earned by miners will cause them to shut down their operations and significantly decrease the blockchain’s hashrate. As a consequence, the network’s vulnerability to so-called 51% attacks would sharply increase, with potentially disastrous effects.
In a 51% attack, the attacker uses massive computing power to control more than half of the hash rate of a proof-of-work (PoW) blockchain such as Bitcoin and gain the ability to reverse transactions, effectively performing so-called “double spends.” Conducting such an attack on Bitcoin would require so much computing power the danger can largely be dismissed.
Still, the blockchains of minor cryptocurrencies are not secured by as much computing as Bitcoin, making them vulnerable to 51% attacks. As Modern Consensus reported about a year ago, attackers earned about $1.1 million in a successful attack of this kind.
Carstens also suggested that while Bitcoin was initially meant to be a currency using “a decentralised consensus, with no need for a central intermediary,” it “is clear that Bitcoin is more of a speculative asset than money.”
Bitcoin’s growth makes it an increasingly popular speculative asset and the infrastructure that it relies on allows for it to be exchanged without a central intermediary. This has proven robust enough to attract mainstream financial investors such as MicroStrategy and insurer Mass Mutual to make huge investments.
Yet Carstens went as far as likening Bitcoin’s community to nothing more than people playing a game:
“Perhaps the Bitcoin network should be seen more like a community of online gamers, who exchange real money for items that only exist in cyberspace. Bitcoin poses as its own unit of account, but fluctuations in value mean it is unrealistic to set prices in Bitcoin. This also undermines its usefulness as a means of exchange, and makes it a poor store of value.”