BIS Chief Banker Warns Underlying Risks in Bitcoin

Vishal  |  Jan 29, 2021

Agustin Carstens, General Manager of Bank for International Settlements (BIS), once again warned about the long term viability of Bitcoin in his recent speechHe notified that Bitcoin is increasingly vulnerable to most attacks and might break down shortly. Known as a Bitcoin critic, Carstens expressed his concern and predictions about Bitcoin while delivering a Hoover Institution Policy Seminar in Basel, Switzerland on 27 January 2021.

Bitcoin Vulnerable to Majority Attacks: BIS Chief

He stated that fewer coins minted means fewer miners will process the transactions, which will lead to more waiting time for confirmation. That will make Bitcoin more vulnerable to majority attacks.

“Bitcoin poses as its unit of account, but fluctuations in value mean it is unrealistic to set prizes in Bitcoin. This also undermines its meatiness as a means of exchange and makes it a poor store of value. The structure of the Bitcoin market is decidedly concentrated and opaque, and there is research evidence of price manipulation.”

He further cautioned the investors about the probable breakdown of Bitcoin shortly. He also raised concern over the “side effect” of Bitcoins for its absolute reliance on the tremendous amount of energy utilization.

Carstens cited: 

“If digital money is to exist, the Central bank must play a pivotal role guaranteeing the stability of value, ensuring the elasticity of the aggregate supply of such money, and overseeing the overall security of the system.”

Agustin Carstens on the Future of Stablecoins

While predicting the future of stablecoins, he pointed out Facebook’s upcoming Diem currency and commented that private stablecoins could not run the public monetary system. He further stated that private Stablecoins could not serve as the basis for a sound economic strategy. Then they need to be regulated and supervised by the trusted financial institutions such as Central Banks. Also, they should be part of the existing financial system.

He also clarified his stand on digital currencies' implications on the current monetary systems and the authorization mechanism of these dubious currencies.

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