Cryptocurrencies are an "environmental disaster" that could crash the global internet, a central bank advocacy has warned, noting that the dependence on miners to verify digital token transactions puts not only their final value at risk but also means that trust in the broader system could "evaporate" at any time.
The Bank for International Settlements, which is often described as the "central bank for central banks", issued the warning in a scathing research report into the rise of cryptocurrencies, including bitcoin, that was published on its website Sunday. It also added that "scaling" bitcoin across a broader selection of users could ultimately "bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte."
"Individual facilities operated by miners can host computing power equivalent to that of millions of personal computers," wrote Hyun Song Shin, the BIS' head of research. "At the time of writing, the total electricity use of bitcoin mining equalled that of mid-sized economies such as Switzerland, and other cryptocurrencies also use ample electricity."
"Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster," he added.
Shin also argued that network congestion can stall digital currency transactions for hours and warned that "trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded."
Bitcoins traded near a four-month low of $6,435 each on the Bitstamp exchange in Luxembourg Monday, extending their one-month decline to around 24.5% and marking a 66.5% plunge since hitting an all-time high of 19,187 earlier this year.
The BIS report follows a turbulent week for both bitcoins and the broader cryptocurrency complex following the hacking of the Coinrail exchange in South Korea that the Yonhap News Agency said resulted in the loss of around $37 million worth of digital tokens.
Not all investors are fleeing the cryptocurrency universe, however, including Tim Draper, the billionaire founder of venture capital firm Draper Fisher Jurvetson.
Draper told TheStreet last week that he as "no interest "in selling bitcoins and argued that doing so would be like "trading shells for gold."
"It is reverting to the past. I'm thinking long term I'll use it, spend it, invest it, or just keep it," he said. "Price-wise, we'll continue to see Bitcoin move higher. I've revised my estimate up to $250,000 four years out, so we'll see Bitcoin trade around the $250,000 mark in 2022."