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Cryptocurrency : Bitcoin Has Few Public Interest Attributes, New BIS Report Notes

Key facts:

Bitcoin and stablecoins “work against the public good,” according to the BIS.

The agency presents the CBDC as a solution to the problems of the current payment system.

In a chapter of its Annual Economic Report, presented prior to its full publication scheduled for next Tuesday 29, the Bank for International Settlements (BIS) lashed out at Bitcoin, noting that the cryptocurrency has few attributes of public interest.

The negative view of the pioneering cryptocurrency served as a preamble to later highlight the role that, according to the BIS, central bank digital currencies (CBDC) will play in the monetary system.

In the preview of this year’s report, published by the BIS on its official website on June 23, the body said that cryptocurrencies are “speculative assets rather than money.” He focused his criticism on the role of bitcoin in facilitating “money laundering, ransomware attacks and other financial crimes.”

The text, entitled “CBDC: an opportunity for the monetary system”, also made mention of the high energy consumption of cryptocurrency mining. He cited the reports that have been published in recent months according to which the process of issuing bitcoins consumes more energy than some countries, such as Italy or Argentina.

All of these factors, in the BIS view, mean that Bitcoin has “few public interest attributes to redeem, especially when considering its wasteful energy footprint.”

The report also makes a brief assessment of stablecoins, which he sees only as “an appendage of the conventional monetary system.” This, “as long as its supposed asset support involves conventional money.”

The organism thus questions the argument that maintains that these types of currencies are changing the game in the financial system, in addition to doubting that they have valid support.

He thus refers, although without making direct mention, of the case of Tether (USDT). The largest stablecoin in the ecosystem -created in 2014- revealed your reservations for the first time last May. After stating that USDT coins were 100% backed by fiat money, it turned out that less than 3% of Tether’s reserves were held in cash.

CBDCs versus bitcoin

All the anti-crypto ideas presented in the BIS report served as a preamble to developing the central theme: CBDCs.

The agency devotes most of the chapter to explain the different design models for these coins. It also offers its support for the creation of such assets, underlining its role in “modernizing finance”, as it has done in previous reports.

According to the indications of the body that commands the main central banks of the world, the negative characteristics of both bitcoin and stablecoins “can only be counteracted with the creation of the CBDC.”

The report concludes that central banks are called upon to safeguard “public confidence in money during this period of upheaval.”

Innovations like cryptocurrencies tend to work against the public good. (…) For this reason, central banks seek to shape the payment system of the future, with the development of retail and wholesale CBDCs, along with other innovations to improve conventional payment systems.

BIS Annual Economic Report.

Calculation of transaction costs according to the payment method used. Source: BIS Annual Economic Report.

Other reasons why the Bank for International Settlements bets on CBDCs has to do with the desire to lower the cost of monetary transactions, in a context where the use of cash is decreasing. This matter seems to be one of the main problems that is affecting the payment system currently.

In this regard, the report inserts a graph showing how costs increase depending on the type of payment used. The illustration shows data that shows that the fees for commercial services are much higher when using debit and credit cards.

Bitcoin, energy consumption and money laundering: ideas in teardown

To highlight some negative features of cryptocurrencies, the BIS document starts from two positions that have been handled in public debates to the detriment of bitcoin. The first of them has to do with the energy consumption of the cryptocurrency, which is pointed out as excessive.

As a counterpart to this idea, there are sources that indicate that Bitcoin mining it is sustained at 78% by renewable energies. Meanwhile, a study by Galaxy Digital published a few weeks ago concludes that the network consumes half of the world banking system and that the mining and production of gold.

The second position draws on the oldest opinion matrix against Bitcoin, the one that sees cryptocurrencies as an easy way to commit crimes. A vision that is still used by many authorities, regulators and organizations in several countries.

It is a set of beliefs in dismantling, based on a series of investigations that show that the link between cryptocurrencies and criminal acts is not as strong as it seems. On this, CriptoNoticias published the opinions of the expert Yaya J. Fanusie, a former CIA counterterrorism analyst, who assured in September 2018 that terrorists prefer to handle cash.

The European Parliament and academics from the New York University School of Law reached this same conclusion through research in 2017 and 2018. Scholars document the difficulties of terrorists operating in areas with little access to telecommunications.

For its part, the study by the European Parliament showed that there is only a small number of documents and confirmed cases of terrorist financing, which involve crypto assets. Although it is not ruled out that the interest of terrorist groups in cryptocurrencies increases over time.

In this sense, it is worth noting that platforms such as Bitcoin have become in resources that facilitate the tracking of transactions and the identification of people, hindering money laundering.

This fact was recognized by the special agent of the United States Drug Enforcement Administration (DEA), Lilita Infante. This is possible thanks to the properties of blockchains platforms, in which the records of all transactions are recorded, facilitating their review and subsequent monitoring.

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