The storage and execution of vast amounts of cryptocurrency transactions could potentially grind the internet to a standstill, according to the Bank for International Settlements (BIS).
A report authored by the BIS evaluated whether cryptocurrencies could play a tangible role in the financial industry or replace money in the future, with damning conclusions.
It claimed that processing the number of digital transactions currently handled by certain national payments systems would see the size of the ledger swell beyond the storage capacity of servers in a matter of months.
“But the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions,” the report added. “The associated communication volumes could bring the internet to a halt, as millions of users exchanged files on the order of magnitude of a terabyte.”
The BIS also raised concerns that maintaining the decentralised trust cryptocurrencies require to properly function relies heavily on honest network participants and significant computing power to verify the history of transactions.
“Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded. Not only does this call into question the finality of individual payments, it also means that a cryptocurrency can simply stop functioning, resulting in a complete loss of value,” the report explained.
Despite the alleged limitations to cryptocurrencies, the BIS concluded that the underlying blockchain technology could have promise in other areas of the financial industry, including simplifying administrative and settlement processes.
Although the report added that the true potential of these technologies remains to be tested, while regulatory oversight, abuse of cryptocurrencies and issuance of digital currency by banks remain serious issues.