Scalability has always been one of the major concerns of cryptocurrency and the fact that digital currencies lack the capacity for scalability makes them more likely to lose their efficiency.
According to a recent statement by the Bank of International Settlements (BIS), the lack of scalability means cryptocurrencies are more likely to experience a breakdown in trust and also a loss in efficiency as adoption increases. BIS is the financial organization that is the head of central banks. The statement was part of its recent annual report which was keen to point out some issues about the cryptocurrency market especially as popularity continues to grow.
Most of the opinions echoed in the report highlight the fact that central banks are against cryptocurrencies. According to the annual report, a currency has to have trust in the stability of its value as well as the ability to scale efficiently in order for it to work.
However, a decentralized network present a unique case where trust can easily be lost due to the fragile nature of the networks. Congestion on the networks as the cryptocurrencies become more popular becomes an issue. Some of the most popular digital coins such as Bitcoin (BTC) are characterized by high transaction fees and also the number of transactions per second is very low, thus making the system slow and inefficient. Things will get even worse as more transactions take place, meaning the network can at some point stop working and in such an instance, there would be a complete loss of value.
The BIS also touched on the crypto mining situation
BIS pointed out that cryptocurrency mining is very energy-intensive and as such, it is an expensive affair that can also cause environmental ramifications. Additionally, mining equipment can be quite expensive. However, developers have been hard at work trying to solve some of the mining-related issues. For example, more energy-efficient mining rigs are being developed manufactured. The issue of power consumption can also be resolved by shifting to renewable energy.
Although there are concerns about the inefficiencies especially in the major cryptocurrencies, developers are also trying to figure things out along the way. Future upgrades to the Bitcoin and Ethereum (ETH) networks might bring about solutions that will make things better.
Disclaimer: Nothing in this article should be construed as financial advice in any way, nor as an encouragement to engage in cryptocurrency trading activity. This article was not sponsored by any entities or companies mentioned in the article. The only purpose of this article is to inform/educate on the topics discussed in the article.
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