Bank warns Bitcoin could break internet

THE Bank for International Settlements has warned that digital currencies like bitcoin could overwhelm and break the internet if they continue to grow.

The BIS, described as the central bank for central banks, also warned, in a 24-page report published on its website, that crypto-currencies could not be trusted the way sovereign currencies could.

Unlike central bank-issued denominations, virtual currencies are produced, or “mined,” by banks of computers solving complex algorithms, and then freely traded online.

The other key difference with typical currencies is that the number of bitcoins in existence can never exceed 21 million. There are about 17 million bitcoins in circulation.

Bitcoin’s surge in value from a few cents to a peak in December of $19 500 turned some of its first investors into billionaires.

In a theoretical scenario where a country’s entire population turned to a digital currency like bitcoin, “the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in weeks and beyond that of servers in a matter of months,” the BIS said.

“But the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions,” it said.

“The associated communication volumes could bring the internet to a halt.”

The BIS, which has previously warned of the fraud risk in cryptocurrencies, noted that there was a fragile foundation of trust in such systems.

The BIS also pointed to the “unstable value” of currencies such as bitcoin.

This arises from the absence of a central issuer with a mandate to guarantee the currency’s stability,” it said.

More broadly, the BIS raised long-standing regulatory concerns over the use of cryptocurrencies, particularly with regard to money laundering and financing of terrorism.