The Bank of International Settlements praises use of blockchain for international trade

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BIS, Switzerland’s 88-year old bank as published a 24-page chapter in its Annual Economic Report 2018 titled: Cryptocurrencies: looking beyond the hype addressed issues related to cryptocurrencies and how they might impact our future. It is a hefty reportto read for leisure, but I will break it down for you.

1. Cryptocurrency as a payment system
As much as blockchain keeps a ledger of purchases, placing daily purchases on the blockchain might not be feasible. Keeping our day-to-day expenditure on a ledger seems redundant, and tracking these transactions may cause an overload to the existing servers on the internet. The additional security of a digital currency comes with a fee paid to miners as well as trading platforms that serve as a medium for USD/BTC exchange.

This suggested that cryptocurrency might be more useful for larger transfers that requires added security. Hence Bitcoin may serve other purposes rather than replacing cash.

2. Dencentralized ledgers bypasses traditional banks and inflation
Due to the fixed supply of Bitcoin, the value of cryptocurrencies can appreciate, making it a more desirable investment as compared to the USD. Banks currently regulate transactions to ensure payment and the trust given to them by its users. The traditional way banks function is human-error prone, and the centralized system is as secure as how much you trust the bank.

In the other hand, digital ledgers are built on a trustless system, validating transactions as it is and automatically fulfils payment. Double spending is not possible and current blockchains rely on a solid protocol to ensure no fraud. The permissionless system means we could one day render banks obsolete, replacing mundane banking jobs with trusted ledgers that speak for themselves. Automation could mean the elimination of banks as mediums and promoting new complex careers related to crypto and cyber security.

3. Energy consumption of cryptocurrencies
While the use of blockchain may consume lots of electricity due to its proof-of-work system, proof-of-share is already enhancing the existing blockchains. Every country has multiple banking and financial institutions that consume manpower, banking staff, security, market forecast, analysts, etc. It is a network of human intensive ecosystem. Blockchains could aid the roles of banks as they evolve toward digital banking services and unified to provide better service standards.

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4. Cross-border payments
Banks have been siphoning money earned from remittances, charging high fees for cross-border payments. According to BIS’s report, global remittances flow more than $540 billion. Fees laid to cryptocurrency miners are much more affordable than telegraphic services. The blockchain also makes finances more accessible to refugees without proper means to secure a bank account or cash. Having digital currency helps improve the distribution of wealth. Who needs rich bankers earning our interest?

5. Blockchain for governmental networks
The ledger if used for a country’s administration could provide a systematic tracking approach in the long run. Together with regulation from financial bodies, the movement of wealth could be better monitored.

Conclusion
Reports from banks could either promote blockchain and digital currency if they are likely to adopt and issue them or dissuade the mainstream into believing that the traditional use of cash and human bank tellers are the way for the future. Banks are run by generations of forefathers and many senior financial positions are held by rich businesses and businssmen. If a distributed ledger could bring forward some of the profits earned by banks, the mainstream would definitely dismantle these antique institutions who speak loudly but act poorly in times of emergencies.

-tysler