ECB: "Blockchain promising, but Bitcoin is a bad creation"

De blockchain een veelbelovende technologie, maar Bitcoin is een kwaadaardig product dat is voortgekomen uit de financiële crisis. Dat zei ECB-bestuurslid Benoit Coeuré tijdens de Economics of Payments IX conference of the Bank for International Settlements.

According to him, the development of the Bitcoin was a very clever idea, but at the same time not a good idea. For example, the virtual currency also has a number of drawbacks that hinder wider adoption, such as the high power consumption of the network and the limited supply.

"Ten years ago, we saw the fall of Lehman, but it was also then that the domain was bitcoin.org registered for the first time and "Satoshi Nakamoto" published the original Bitcoin whitepaper. A few months later, Satoshi created the first so-called genesis block and was rewarded with 50 bitcoins. The rest is history, as they say. Few remember Satoshi embedding the genesis block in a January 2009 Times headline about the bailout of Britain's banks. Bitcoin is a malicious product of the financial crisis in more ways than one.

Lightning may strike me by saying this in the Tower of Basel - but Bitcoin was an extremely clever idea. Unfortunately, not every smart idea is a good idea. The opportunities of the blockchain are numerous, but the problems of Bitcoin are also plentiful. I believe Agustín Carstens summed up the many problems well when he said that Bitcoin is "a combination of a bubble, a Ponzi scheme, and an environmental disaster."

Central banks are experimenting with virtual currencies

Despite the shortcomings of Bitcoin, central banks do see added value in blockchain technology. In recent years, for example, several publications have been published about the so-called central bank digital currencies (CBDC), virtual currencies that can be issued by the central bank itself as an alternative payment system. A number of central banks have already developed a working virtual currency for testing purposes, but according to Benoit Coeuré it will take at least another ten years before such a virtual currency is brought to market.

"A clear majority of 69% are currently or soon to be engaged in work related to CBDCs. The remaining central banks tend to be small in size, face more pressing challenges, or indicate that they rely on the work of regional research programmes or international organisations such as the BIS or the IMF.

And of those working on it, a majority of 57% are exploring two broad forms of possible application: a payment application limited to high-value, high-priority transactions, such as interbank transfers, and a widely available, consumer-facing payment instrument for regular payments – what we call the central bank's overall goal of digital currencies. Recent successful experiments also show the potential for cross-border payment services, confirming the potential of new technologies to support financial inclusion.

However, on my next slide, you'll see evidence that most central banks are still in the early stages of studying digital currencies. There is broad agreement that a CBDC, in whatever form, is unlikely to be issued within the next decade, even among the four central banks that have indicated that they have reached the stage of developing a pilot project. We will hear from one of them tomorrow morning, when Gerardo Licandro from the central bank of Uruguay explains their pilot experiment of a CBDC to the general public."

What does the future look like?

From this speech by Benoit Coeuré we can deduce that central banks are serious about understanding the technology behind the Bitcoin and getting a better grip on the world of virtual currencies. These coins have become popular because they can be traded outside of the financial system and do not require banks or other central authorities to function. It goes without saying that central banks want to understand this technology and have an alternative ready of their own, to avoid losing their grip on the money system.

Central banks can release new virtual currencies as an alternative to cash, but it will be some time before that happens. Cash is still the most widely used means of payment in many countries, as it does not require electronic means of communication. That may change in the future, as more people have the equipment needed to make electronic payments.

This contribution was made from Geotrendlines