Many basic claims of cryptocurrencies are simply not true, says GlobalData
Research company says cryptocurrencies don't offer efficient, scalable or cost-saving transactions
Despite the claims of their proponents, cryptocurrencies fail to meet the basic technical standards necessary for them to function effectively as currencies, according to GlobalData, a leading data and analytics company.
The company's latest report, ‘Cryptocurrencies - Thematic Research' notes that while blockchain and Distributed Ledger Technology (DLT) will play a role in supporting the modernization of many financial systems, the notion that blockchain itself will deliver massive savings is a "fantasy", the company said.
Gary Barnett, Chief Analyst for Thematic Research at GlobalData, comments: "Many of the most basic claims made by proponents of cryptocurrencies simply are not true. We are told that cryptocurrencies speed transfers up, that they help to eliminate middlemen and that they are free of cost, but none of this is true.
"Cryptocurrency transactions are not free. For example, at its peak the per transaction cost for bitcoin exceeded $50, which is not exactly a great way to buy $25 worth of groceries. While the cost per transaction hovers around $1 when the bitcoin network is not under load, it will inevitably rise if transaction volumes grow again.
"Furthermore, no cryptocurrency is widely accepted and transacted. The number of retailers and businesses that accept cryptocurrencies as payment for goods and services is vanishingly small, and those that do typically report very low volumes of cryptocurrency transactions by comparison to other means of payment."
Another issue is that cryptocurrencies cannot scale. The Visa payment network is capable of supporting 24,000 transactions per second (tps) at peak rates and regularly averages in the region of 1,500 tps. Bitcoin, meanwhile, struggles to achieve a transaction rate over 10 tps, while bitcoin cash can handle around 60 tps. The only cryptocurrency which comes close to Visa's average is Ripple, which is capable of 1,500 tps.
GlobalData's report also points out that claims that the combination of cryptocurrencies and blockchain will lead to financial institutions reducing costs in back office systems by as much as 80% are absurd.
Barnett adds: "The costs associated with financial systems are as much a result of poor, dated, or simply inefficient processes rather than any underlying problem with the technologies that are used to process transactions.
"The valuations currently applied to cryptocurrencies have no basis in fact; cryptocurrencies represent a classic bubble, in which valuations are purely the result of speculation on the likely behavior of the market rather than a clear-eyed assessment of underlying value."