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Crypto is not money, says Bank for International Settlements

Crypto is geen geld, zegt Bank voor Internationale Betalingen

The Bank for International Settlements (BiB) is an important financial institution that acts as a bank for central banks and aims to improve financial cooperation between countries. The institute regularly criticizes cryptocurrencies as bitcoin (BTC) and ethereum (ETH)† Recently, the institute announced that they believe that cryptocurrencies can in no way be seen as ‘money’.

BiB lashes out at crypto

Although the crypto industry continues to grow rapidly, not everyone seems equally charmed by the new sector. So the Bank for International Settlements is one of those critics. The bank published a few days a bulletin in which they clearly state why they believe cryptocurrencies cannot be seen as money.

The BiB states that there are a number of major fundamental problems in the crypto industry that prevent the social role of money from being fulfilled by cryptocurrencies. These problems include high transaction costs and crypto network congestion.

Blockchainscrypto, and DeFi trying to create a radically different monetary system, but they suffer from inherent limitations. A system perpetuated by rewarding decentralized but selfish validators through fees means that network effects cannot unfold. Instead, the system is prone to fragmentation and expensive to use.”

Fragmentation of the crypto industry

In particular, the fact that there are so many different crypto networks with similar functions is reason for the BiB to state that crypto cannot be used as money on a large scale. Also, many of these crypto networks today are not compatible with each other. This is what the BiB calls ‘fragmentation’.

“Fragmentation means that crypto cannot fulfill the social role of money. Ultimately, money is a coordination tool that facilitates economic exchange. It can only do that if there are network effects: as more users use a certain type of money, it becomes more attractive for others to use it as well. For the future, innovations that build on trust in sovereign currencies are promising.”

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