Bank for International Settlements (BIS) general manager Agustin Carstens has criticized bitcoin saying the asset was inherently risky and “increasingly vulnerable” to a 51% attack.
A long time bitcoin (BTC) skeptic, Carstens stressed that only central banks should be issuing digital currencies.
“Investors must be cognizant that bitcoin may well break down altogether,” he opined, in a speech delivered at Hoover Institute on January 27, 2021. “Scarcity and cryptography alone do not suffice to guarantee exchange,” Carstens stressed.
Carstens, who runs the Basel-based central bank for central banks, speculated that the Bitcoin network becomes “increasingly vulnerable” to majority attacks as the cryptocurrency approaches its maximum supply of 21 million coins.
With fewer coins being produced, rewards to miners for processing transactions will also decline, he said, and confirmation wait times will increase. As a result, bitcoin’s vulnerability to majority attacks will go up.
Carstens described bitcoin as “a speculative asset” that lacks “the actual value backing” and as such, should be seen as a “community of online gamers.” He also cited mining using “more electricity than all of Switzerland” and alleged price manipulation as reasons for this impending breakdown.
“Bitcoin poses as its own unit of account, but fluctuations in value mean it is unrealistic to set prices in bitcoin. This also undermines its usefulness as a means of exchange, and makes it a poor store of value,” noted Carstens.
The BIS chief banker also took aim at stablecoins, such as the one proposed by Facebook originally known as Libra, but recently renamed Diem. He finds fault with private entities running a public monetary system by issuing coins that are backed by other assets such as fiat currencies.
“Private stablecoins cannot serve as the basis for a sound monetary system. They need to be heavily regulated and supervised,” Carstens thundered. In his book, governments should forever remain in control of issuing money.
“Clearly, 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,” he explained.
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