Bitcoin must move away from proof-of-work, according to a 31-page report published today by the Bank for International Settlement (BIS) entitled, “Beyond the doomsday economics of “proof-of-work in cryptocurrencies.”
The Bank for International Settlements is a bank for central banks — 60 to be exact, which reportedly account for 95 percent of the world’s GDP. Founded in 1930, it is the oldest global financial institution, and operates under international law.
The paper makes the claim that, in the future when Bitcoin’s block rewards become non-existent — this will occur when no new Bitcoin will be minted as a reward for miners, which should occur sometime in 2140 — transaction fees will not be able to sustain the mining industry, as is the conventional wisdom.
At this point, Bitcoin would become so slow that it would cease to be an even remotely effective means of transmitting currency. According to the report:
“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. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation.”
The report comes to the conclusion that “in the digital age too, good money is likely to remain a social construct rather than a purely technological one.” It then wonders “whether and how technology-supported distributed exchange can complement and improve upon existing monetary and financial infrastructure[?]”
For most crypto purists, this would be considered a non-starter, as Bitcoin cannot disrupt — let alone replace — the current global monetary system by working alongside it.
The article suggests that Bitcoin’s “payment efficiency could be greatly improved by introducing an institutional underpinning to undo double-spending attacks should they occur.” However, doing so would change the very core principle of Bitcoin, which is that it is decentralized.
In light of this critique, it is hard to imagine many Bitcoin devotees wanting to heed the report’s advice.