A working paper from the Bank Of International Settlements (BIS) has levelled several criticisms against proof-of-work (PoW) and affirmed that cryptocurrencies such as bitcoin which use the algorithm should depart from it.
The paper, entitled, “Beyond the doomsday economics of “proof-of-work” in cryptocurrencies” is authored by Raphael Auer, a principal economist in the Monetary and Economic Departmentm who previously served as a Senior Economist and Member of the Directorate at the Swiss National Bank.
The BIS notes that working papers reflect the views of each author and “not necessarily the view of the BIS.”
Limitations of PoW
Auer laid out a number of criticisms of PoW in his paper. He noted firstly how “bitcoin counterfeiting via “double-spending” attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive.”
The economist added that “simple calculations suggest that once block rewards are zero, it could take months before a bitcoin payment is final, unless new technologies are deployed to speed up payment finality.”
Auer suggested blockchain developers should work on new technologies to speed up payment finality. He does mention the Lightning Network, but remained largely dismissive, arguing nonetheless that “the only fundamental remedy would be to depart from proof-of-work.”
Auer’s critiques in his paper are in line with the BIS’ general sentiment when it comes to cryptocurrency. CryptoGlobe reported in July that BIS head Agustin Carstens told crypto enthusiasts to “stop trying to create money” and use their talents on other endeavors.
Carstens issued several well-worn attacks against cryptocurrencies, calling them a “bubble, a Ponzi scheme, and an environmental disaster.”
At the tail end of his paper, Auer explained “in the digital age too, good money is likely to remain a social construct rather than a purely technological one.”
The ‘Central Bank Of Central Banks’ Keeps Talking About Crypto
The BIS has been far from quiet with respect to cryptoassets.
In June 2018, CryptoGlobe covered the release of a chapter of the BIS Annual Economic Report. Author Hyun Song Shin asserted the limitations of crypto made them poor substitutes for fiat.
More recently, the BIS released research reporting that 70% of surveyed banks have commenced work on a central bank digital currency or are thinking about deploying its own cryptocurrency. Around half of those in the survey affirmed they have moved to “hands-on” proof-of-concept activities to study the feasibility and necessity of launching a central bank digital currency.