A new report by the Bank of International Settlements (BIS) entitled, "Looking Beyond the Hype," takes a closer look at this, revealing that the data requirements of crypto are so large that it would be near-impossible to scale them nationally for currency purposes.
One chapter in the report, entitled The Money Flower: A Taxonomy of Money, explains how one of the key components of any proper money system is accessibility. Another is a payment transfer mechanism that's both functional and efficient. So is any of this true for cryptos like Bitcoin? Not exactly.
While Bitcoin has the advantage of being decentralized, meaning it isn't controlled by a private central bank like Federal Reserve Notes are, it lacks the ability to process tens of thousands of transactions at once. Instead, it's only able to process a small handful, and at great expense to users of the platform.
The other problem is that cryptos have no intrinsic value, and represent nobody's liability, meaning they cannot be redeemed like U.S. dollars can. The only value they possess is the expectation that they will continue to be accepted by others, which makes them akin to "commodity money."
There's also the risk of what's known as the "double-spending problem," which basically encompasses the possibility that savvy hackers might try to spend their cryptos more than once. The peer-to-peer blockchain leaves vulnerabilities like this that a centrally-controlled blockchain doesn't, posing additional problems.
Bitcoin blockchain is growing exponentially in size – with no end in sight
There are various ways that blockchain ledgers can be updated in order to avoid this, including the distributed ledger model in which every participant is given a copy of the new ledger each time it's updated in order to verify it. But there are also what are known as "permissionless" ledgers that allow changes to be made through consensus rather than through individual verification.
This is the model that Bitcoin uses, and it requires a tremendous amount of electricity to keep maintained – not to mention expensive computer equipment that has to be updated constantly in order to keep up. What's known as a "proof-of-work" process is also included as part of this blockchain model, as it keeps the whole system going.
So what's the problem? In order for the peer-to-peer system to work, every user must download and verify the entire history of all transactions ever made, including the amount paid, the payer, the payee, and other important details – which takes up an incredible amount of space!
With each transaction adding another few hundred bytes to the ledger, this can grow substantially in not that long of a time period. Currently, the Bitcoin blockchain is growing at around 50 gigabytes (GB) per year, and is already as large as 170 GB. In no time, the size requirements will balloon into terabyte (TB) territory, requiring larger and larger hard drives – not to mention increasingly more processing power.
"... the issue goes well beyond storage capacity, and extends to processing capacity: only supercomputers could keep up with verification of the incoming transactions," explains The Maven about this growing problem.
"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."
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