stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Bitcoin's credibility shrinking amid allegations of manipulated prices
space
space
By IAN MCGUGAN
  
  

Email this article Print this article
Tuesday, June 19, 2018 – Page B1

For years, bitcoin's enablers have promoted the delightful notion that you can conjure your own money out of thin air. They've shielded that rather dubious assertion behind a thick wall of geekery.

Unless you're on speaking terms with hashing algorithms, one-way functions and other such topics, the easiest response has been to shrug your shoulders and assume the computer guys know what they're doing with this new money thingie.

Now it's becoming clear they may not. For all the intellectual beauty of bitcoin and the blockchain - and it is beautiful, in its own nerdish way - there are serious, maybe fatal, problems.

The flaws are on display in fresh critiques from academics and regulators. One analysis finds clues that cryptocurrency prices are being manipulated.

Another points to bitcoin's grievous environmental impact. Yet another describes the economic limits of the blockchain and pours doubt on the notion that bitcoin can ever become the new gold, as many of its investors hope.

To be sure, the enthusiasm that propelled many cyptocurrencies skyward last year has already faded. Bitcoin, the best known digital token, was trading around US$6,700 on Monday, down by more than 60 per cent from its peak in mid-December. Still, the recent outpouring of skepticism suggests cryptos may have even further to fall as their weaknesses become clearer.

Consider, for instance, one of the most popular convictions in the crypto-community -that many people will always want to hold a form of money that isn't subject to manipulation by a central bank.

If so, those same safety-minded people should be outraged by new evidence that other folks may be manipulating their chosen store of wealth.

A research paper published last week by John Griffin, a finance professor at the University of Texas, and Amin Shams, a graduate student, pointed to suspicious trading patterns that suggest someone using Bitfinex, a large crypto-exchange, helped push up bitcoin prices during recent downturns.

Bitfinex executives say they know nothing about the alleged manipulation, which used another virtual currency called Tether. Still, whoever was responsible may have accounted for half of the enormous gains last year in bitcoin and other virtual currencies, the researchers say. If so, recent investors bought into an artificially inflated bubble.

The Bank for International Settlements (BIS), an international organization of central banks, trumpeted its own concerns about the crypto-craze in a report published on Sunday.

It says bitcoin and its siblings have become an "environmental disaster" because of the enormous amounts of energy they require to verify transactions. Bitcoin miners now use as much electricity as Switzerland, the BIS says, and the energy consumption will only grow worse if crypto use spreads.

And that's just one problem.

Despite cryptos' voracious appetite for power, bitcoin and other forms of digital cash can't handle the huge volumes of everyday transactions in a modern economy, the BIS asserts.

The problem arises because digital tokens such as bitcoin rely on decentralized ledgers that hold a complete history of all transactions made in the cryptocurrency. Users have to download those ledgers, which grow as new transactions are made.

To include the number of digital retail transactions processed every day by a system such as Visa or PayPal, "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," the BIS calculates.

It says supercomputers would be required to keep up with processing volumes and "the associated communication volumes could bring the internet to a halt."

So if cryptos don't seem destined to become an everyday payment method, could they still be a store of wealth - a digital gold? Many promoters tout that notion. But it doesn't bear up well under scrutiny from Eric Budish, an economist at the University of Chicago.

His analysis, titled "The economic limits of bitcoin and the blockchain," was published on Monday and examines the conditions under which someone might be tempted to disrupt the bitcoin system.

Most crypto-enthusiasts argue there's no need to worry because miners are richly rewarded for maintaining the system. Any attempt to disrupt bitcoin through what is known as a "majority attack" by someone wielding enormous amounts of computing power would be ruinously expensive for the attacker.

Mr. Budish points out conditions under which this is not true.

"In particular, the model suggests bitcoin would be majority attacked if it became sufficiently economically important - e.g., if it became a 'store of value' akin to gold - which suggests there are intrinsic economic limits to how economically important it can become in the first place," he writes.

Taken together, the recent critiques raise concerns about whether crypto has much fundamental value at all, at least in its current forms.

Could developers address the concerns and fix them? Perhaps, but the most damning criticism of all is the simplest: More than nine years after bitcoin was introduced, it has yet to find any practical applications, other than as an object of speculators' enthusiasm. Until it proves it can do some real-world job better than ordinary cash or credit cards, it will continue to bleed credibilty.

Associated Graphic

THE GLOBE AND MAIL, SOURCE: BIS ANNUAL ECONOMIC REPORT 2018


Huh? How did I get here?
Return to Main Jeffrey_Simpson Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

space  Advertisement
space

Need CPR for your RSP? Check your portfolio’s pulse and lower yours by improving the overall health of your investments. Click here.

Advertisement

7-Day Site Search
    

Breaking News



Today's Weather


Inside

Rick Salutin
Merrily marching
off to war
Roy MacGregor
Duct tape might hold
when panic strikes


Editorial
Where Manley is going with his first budget




space

Columnists



For a columnist's most recent stories, click on their name below.

 National


Roy MacGregor arrow
This Country
space
Jeffrey Simpson arrow
The Nation
space
Margaret Wente arrow
Counterpoint
space
Hugh Winsor  arrow
The Power Game
space
 Business


Rob Carrick arrow
Personal Finance
space
Drew Fagan arrow
The Big Picture
space
Mathew Ingram arrow
space
Brent Jang arrow
Business West
space
Brian Milner arrow
Taking Stock
space
Eric Reguly arrow
To The Point
space
Andrew Willis arrow
Streetwise
space
 Sports


Stephen Brunt arrow
The Game
space
Eric Duhatschek arrow
space
Allan Maki arrow
space
William Houston arrow
Truth & Rumours
space
Lorne Rubenstein arrow
Golf
space
 The Arts


John Doyle arrow
Television
space
John MacLachlan Gray arrow
Gray's Anatomy
space
David Macfarlane arrow
Cheap Seats
space
Johanna Schneller arrow
Moviegoer
space
 Comment


Murray Campbell arrow
Ontario Politics
space
Lysiane Gagnon arrow
Inside Quebec
space
Marcus Gee arrow
The World
space
William Johnson arrow
Pit Bill
space
Paul Knox arrow
Worldbeat
space
Heather Mallick arrow
As If
space
Leah McLaren arrow
Generation Why
space
Rex Murphy arrow
Japes of Wrath
space
Rick Salutin arrow
On The Other Hand
space
Paul Sullivan arrow
The West
space
William Thorsell arrow
space





Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space

© 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Help & Contact Us | Back to the top of this page