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Friday, September 28, 2018

Strategic CSR - Bitcoin

The article in the url below presents a damning assessment of the future of cryptocurrencies by The Bank for International Settlements. Not only do they represent significant volatility, but are open to fraudulent manipulation and present a grave environmental threat:
"The BIS, an 88-year-old institution in Basel, Switzerland, that serves as a central bank for other central banks, said cryptocurrencies are too unstable, consumer too much electricity, and are subject to too much manipulation and fraud to ever serve as bona fide mediums of exchange in the global economy. It cited the decentralized nature of cryptocurrencies -- Bitcoin and its imitators are created, transacted, and accounted for on a distributed network of computers -- as a fundamental flaw rather than a key strength."
Moreover, the nature of the expansion of cryptocurrencies presents a threat to the internet as a whole:
"In one of its most poignant findings, the BIS analyzed what it would take for the blockchain software underpinning Bitcoin to process the digital retail transactions currently handled by national payment systems. As the size of so many ledgers swell, the researchers found, it would eventually overwhelm everything from individual smartphones to servers. 'The associated communication volumes could bring the Internet to a halt,' the report said."
Most relevant from a CSR perspective, however, is the implications Bitcoin mining has for environmental pollution:
"Researchers also said that the race by so-called Bitcoin miners to be the first to process transactions eats about the same amount of electricity as Switzerland does. 'Put in the simplest terms, the quest for decentralized trust has quickly become an environmental disaster,' they said."
As a result, while Bitcoin has gained growing popularity in some circles, it has been ostracized in others, with some banks treating it on a par with other contentious goods, such as guns (see Strategic CSR – Guns). Criticizing cryptocurrencies, however, is not the same as criticizing the underlying technology (blockchain):
"The BIS did say that blockchain and its so-called distributed ledger technology did provide some benefits for the global financial system. The software can make sending cross-border payments more efficient, for example. And trade finance, the business of exports and imports that still relies on faxes and letters of credit, was indeed ripe for the improvements offered by Blockchain-related programs."
Everything I have read about blockchain suggests it will revolutionize the way we write and enforce contracts, which speaks to the nature of 'trust' in our society.
Have a good weekend
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Bitcoin Could Break the Internet, Central Bank Overseer Says
By Edward Robinson
June 17, 2018
Bloomberg Businessweek