The RBA’s Tony Richards gave a speech today on cryptocurrencies and the distributed ledger technology (DLT) that underpins them. While both were “fascinating developments both from a payments and a broader economic perspective”, he said bitcoin doesn’t meet the criteria for sound money.

Richards assessed bitcoin’s legitimacy as a currency with reference to three main criteria: as a store of value, a medium of exchange and a unit of account. He said it still misses on all three use cases.

And his reasoning for why it doesn’t meet the medium-of-exchange criteria put the spotlight on one of bitcoin’s main shortcomings: scalability. In other words, bitcoin (and other cryptos) haven’t come close to addressing the scaling issues that result from using a trustless, rather than a permissioned, distributed ledger.

“Many of these shortcomings of cryptocurrencies stem from their design around trustless distributed ledgers and the costly proof-of-work verification method that is required in the absence of a trusted central entity,” Richards said. “In contrast, in situations where there are trusted central entities in well-functioning payment systems, there may be little need for cryptocurrencies.” Such a view would almost certainly be disputed by developers in the crypto community.

A similar report last week by the Bank of International Settlements — which critiqued the scaling capability of cryptos — was met with criticism from some corners, as developers highlighted the advancements in bitcoin scaling technology such as the lightning network. But for now, Richards hasn’t seen enough to convince him of the scaling argument. Read more from…

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