Plan BIS

18 June 2018 By Tom Buerkle Follow @tombuerkle

A rally in digital currencies faded after the bank for central banks said bitcoin and its ilk are unlikely to replace dollars, yen et al. There are good reasons to downplay the roughly $300 bln market’s disruptive potential and instead find complementary uses for the technology.

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Bitcoin and other cryptocurrencies are a poor substitute for dollars, euros and other central bank-backed monies because they don’t scale with growing demand, require excessive amounts of energy and fluctuate greatly in value, the Bank for International Settlements said in an article in its annual report, published on June 17.

Digital currencies require complex computational work to mint new units and to verify transactions via a so-called blockchain, a decentralized, distributed ledger. Such activity currently requires more than 60 terawatt hours a year of electricity for bitcoin alone, roughly equivalent to the electricity consumption of Switzerland, the BIS estimates. Commercial payments operators like Visa and Mastercard can process nearly a thousand times as many transactions per second as the networks behind bitcoin and ether.

Offers and sales of ether, the digital currency backed by the ethereum network, are not securities transactions, the Securities and Exchange Commission’s director of corporate finance, William Hinman, said in a speech on June 14. That would suggest they do not require approval by the Securities and Exchange Commission. Likewise, Hinman said, applying federal securities disclosure requirements to bitcoin transactions “would seem to add little value.”

Hinman was referring to current offers and sales of the two established cryptocurrencies, as opposed to any fundraising that accompanied their creation. The SEC's chairman, Jay Clayton, said earlier this month that most new fundraising efforts, known as initial coin offerings, may fall under the scope of SEC regulation.

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