The Bank of International Settlement AER assessed what actually happens in cryptocurrencies. BIS’s overall assessment was that:

“Cryptocurrencies promise to replace trusted institutions with distributed ledger technology. Yet, looking beyond the hype, it is hard to identify a specific economic problem which they currently solve. Transactions are slow and costly, prone to congestion, and cannot scale with demand. The decentralised consensus behind the technology is also fragile and consumes vast amounts of energy. Still, distributed ledger technology could have promise in other applications. Policy responses need to prevent abuses while allowing further experimentation.”

Comparison of valid transactions

BIS compared Valid transactions in a centralised ledger/bank account and in a permissionless cryptocurrency see figure below:

Source & Copyright©2018 - BIS: Adapted from R Auer, “The mechanics of decentralised trust in Bitcoin and the blockchain”, BIS Working Papers, forthcoming

Using this model BIS calculated what cryptocurrencies would need to process the trillions of retail transactions in todays payment systems. They found that:

1. ”To process the number of digital retail transactions currently handled by selected national retail payment systems, even under optimistic assumptions, the size of the ledger would swell well beyond the storage capacity of a typical smartphone in a matter of days, beyond that of a typical personal computer in a matter of weeks and beyond that of servers in a matter of months"
2. With multiple ledgers operating at full throttle, "the associated communication volumes could bring the Internet to a halt"
3. Not only this, the energy required would be an environment disaster.

Future development fo cryptocurrencies

However, even though they found that decentralised technology underpinning private digital tokens is no substitute for tried and trusted fiat money, the did recommend that, “Policy responses need to prevent abuses while allowing further experimentation.”  

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CTMfile take: Does this show that Ripple will never be able to cover retail payments?