The myth and menace of cryptocurrencies

‘So, Professor Shin, tell us what you really think about cryptocurrencies.’ I’m guessing that’s the brief the Bank for International Settlements (the Basel-based central bank of central banks) gave economist Hyun-Song Shin to write a chapter for its annual report, published this week. His response delivers a serious kicking to the whole befuddled concept of ‘permissionless’ online currencies that ‘promise to replace trust in long-standing institutions such as commercial and central banks’.

For a start, he argues, Bitcoin and its ilk are an environmental disaster because their systems consume enough electricity to power Switzerland. More importantly, their potential to replace state-backed money, is limited by three factors: scale (crypto computing could not possibly cope with the volume of transactions in a real economy), wild instability (whereas central banks can usually stabilise the value of state money by ‘elasticising’ supply) and a ‘fragile foundation of trust’ (the finality of crypto payments is unguaranteed, and there’s a lot of weird stuff going on out there).