The ‘hashing is expensive’ and other red herringsAuer claims that balancing security and speed among PoW cryptocurrencies have led to prohibitively expensive transaction confirmations, as stated in the following excerpt:
If the incentives of potential attackers are analysed, it is clear that the cost of economic payment finality is extreme. For example, to achieve economic payment finality within six blocks (one hour), back of the envelope calculations suggest that mining income must amount to 8.3% of the transaction volume – a multiple of transaction fees in today’s mainstream payment services.If the paper was about particularly about the possible continued scalability of Bitcoin, then this could be a valid critique, but rather it claims that it presents an existential threat to cryptocurrencies like Bitcoin, which particularly makes zero sense at all. It doesn’t matter what it costs to make a Bitcoin transaction, because people will keep using Bitcoin regardless, which is apparently lost on Auer and BIS. Auer also states the eventual phasing out of block rewards and claims that it will make mining prohibitive because high transaction fees may not make it worthwhile, leading to continued liquidity declines, this heralding the end of Bitcoin. He also goes on to state as a concession that second-layer solutions such as the Lightning Network could be utilized to improve payment security economics as well as the mitigation of scalability issues.
So, what is this actually about?Why is one of the world’s central banking organizations going through all the trouble of research, drafting, editing and publishing a report on crypto that is light on facts and heavy on misinformation? Here’s a better question: Why is this particular central banking organization pushing for the doomsday of cryptocurrency markets? So they want us spending our nearly worthless fiat currency on the stock market? You can actually save time by not reading the entire report, as their reason is featured at the beginning of the abstract:
Methods other than proof-of-work could be used to achieve payment finality. But these might require coordination mechanisms, implying support from a central institution. Thus, the current technology seems unlikely to replace the current monetary and financial infrastructure. Instead, the question is rather how the technology might complement existing arrangements.That’s in Auer’s own words, presenting the point of the report is to dispute that crypto can disrupt the central banking system, doing something more efficiently that what banks can accomplish. It presents nothing other the release of over 30 pages of assorted garbage compiled of all fluff and next to no factual information. The central banking system is essentially hemming, hawing and clutching their pearls about the potential of low transaction fees and game theory reliability easily summed up in a Carstens saying, slightly paraphrased:
You damn kids! Stop trying to create money! You can’t do without us! You need us for our coordination mechanisms, our social coordination, and our collateralized mortgage-backed securities!Actually, we Millennials can do without the central banking system. We’re the generation of crypto, realizing that our own fiat currency continues to be devalued by our own government by printing out new bills every day.
Crypto investors are not rocket scientistsAuer, Carstens and the BIS act as if investors of cryptocurrency are trying to turn lead into gold. (Although, it would be interesting to make that happen, if it was possible.) BIS fails to understand that crypto growth did not come from some “medevial desire” to do such a thing, but rather the success that lies within its decentralization, the single entity which terrifies them the most. For example, crypto has created a growing ecosystem comprised of freelancers, agencies, virtual assistants and remote workers in the Nigerian city of Lagos, where such work models were either non-existent or unworkable because of central banking, which unilaterally dictated what, how much and where value could be transferred. Thus, the rise of cryptocurrency has turned the status quo upside down and created opportunities for highly-skilled individuals in underdeveloped communities and countries with wages commensurate to their skill level without having to move, this putting a dent into the system. Meanwhile, the central banking system continues to push their arbitrary restrictions on poorer nations, essentially keeping them in poverty. Cryptocurrency isn’t merely limited to clever coding or simply exists as a financial novelty, but rather a financial framework that takes power away from the hands of unseen, unelected bureaucrats which dictate the financial industry and makes that control accessible to anyone who can operate a computer or smartphone. As long as it remains accessible, cryptocurrency will never die. Let me state this again: As long as it remains accessible, cryptocurrency will never die. Until the central banks realize this truth, their executives will keep making doomsday predictions that will never come to fruition.
Jake Leonard, a broadcast media and journalism veteran, is the editor-in-chief of Heartland Newsfeed. Leonard is also GM and program director of Heartland Newsfeed Radio Network, wrestling editor and contributing writer for Ambush Sports, a contributing writer for My Sports Vote and Midwest Sports Network, and a former contributor to Bleacher Report and Overtime Heroics. He resides at home in Nokomis, Ill. with his dog Buster.