Bitcoin Faces Growing 51% Attack Risk
The Bank for International Settlements (BIS) General Manager Agustin Carstens delivered a strong rebuke of Bitcoin during a speech at the Hoover Institute on January 27, 2021, describing the cryptocurrency as “inherently risky” and warning that its network becomes “increasingly vulnerable to a 51% attack” as the maximum supply of 21 million coins approaches. Carstens explained that diminishing block rewards would reduce miners’ income from processing transactions, leading to longer confirmation times and weaker network security. “Investors must be cognizant that Bitcoin may well break down altogether,” he said, adding that “scarcity and cryptography alone do not suffice to guarantee exchange.”
Bitcoin Lacks Monetary Attributes
Carstens characterized Bitcoin as a “speculative asset” without “the actual value backing” and compared the crypto community to “online gamers.” He criticized its failure to function as a medium of exchange or store of value: “Bitcoin poses as its own unit of account, but fluctuations in value mean it is unrealistic to set prices in bitcoin. This undermines its usefulness as a means of exchange and makes it a poor store of value.” He also cited the network’s electricity consumption—exceeding that of Switzerland—and alleged price manipulation as further signs of impending breakdown.
Private Stablecoins Unacceptable
The BIS chief also targeted stablecoins like Facebook’s Libra (now Diem), arguing that private entities should not operate a public monetary system by issuing coins backed by other assets. “Private stablecoins cannot serve as the basis for a sound monetary system. They need to be heavily regulated and supervised,” Carstens emphasized. He insisted that only central banks should control money issuance, both physical and digital.
Central Bank Digital Currencies Are the Future
Carstens reinforced the BIS’s position that central banks must play a pivotal role in any digital money system: “If digital money is to exist, the central bank must guarantee the stability of value, ensure the elasticity of aggregate supply, and oversee the overall security of the system.” His remarks align with the global push for central bank digital currencies (CBDCs) and reflect ongoing tension between traditional financial authorities and the crypto industry. While Bitcoin advocates view it as digital gold and an inflation hedge, Carstens’ warnings continue to fuel debate over whether cryptocurrencies can ever replace sovereign money.