BIS REPORT QUESTIONS LONGEVITY, EFFICACY OF PROOF-OF-WORK BASED CRYPTOCURRENCIES

The future of Bitcoin and other cryptocurrencies employing the Proof-of-Work (PoW) consensus mechanism has come under intense scrutiny, ignited by a recent report from the Bank of International Settlements (BIS).This report isn't just another piece of crypto commentary; it's a deep dive into the fundamental mechanics of PoW, questioning its long-term viability and its actual efficiency in securing transactions.The report carefully examines how Bitcoin's protocol validates payments using blockchain technology, with a specific focus on the strengths and weaknesses inherent in PoW algorithms. BIS Report Questions Longevity, Efficacy of Proof-of-Work Based CryptocurrenciesBut it goes beyond simply highlighting potential flaws; it delves into the economic incentives that could undermine the entire system, specifically the profitability of double-spending attacks.This analysis forces us to confront a fundamental question: is the energy-intensive process of PoW truly a sustainable foundation for the future of decentralized finance, or are there inherent limitations that will ultimately necessitate a shift to more efficient consensus mechanisms?

This article will break down the key arguments presented in the BIS report, exploring the challenges it poses to the prevailing assumptions about PoW-based cryptocurrencies.We'll discuss the intricacies of double-spending, the exorbitant costs associated with maintaining PoW security, and the potential implications for the long-term success of Bitcoin and its peers. See full list on bis.orgPrepare to have your understanding of cryptocurrency consensus mechanisms challenged as we unpack this crucial analysis.

Understanding the BIS Report on Proof-of-Work

The BIS report doesn't simply dismiss Proof-of-Work out of hand.Instead, it offers a nuanced critique, highlighting specific areas of concern regarding its efficacy and longevity. A recent report from the Bank of International Settlements (BIS) has cast a spotlight on the efficacy and longevity of the proof-of-work (PoW) consensus and the future of Bitcoin. The paper takes an in-depth look at how the Bitcoin protocol verifies payments using blockchain technology and various consensus algorithms. PoW algorithms are a major point of discussion, with the author suggestingThe core of the argument revolves around the inherent economic incentives within the PoW system and how these incentives might, paradoxically, weaken the very security it's designed to provide.

One of the primary areas of focus is the cost of maintaining payment finality.The report suggests that the resources required to prevent double-spending attacks in PoW systems are exceptionally high, making Bitcoin counterfeiting inherently profitable. via costly computations, ie proof-of-work . Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via double-spending attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive.Let's delve deeper into these concerns.

The Problem of Double-Spending in PoW Systems

Double-spending is a critical vulnerability that PoW systems are designed to prevent.It refers to the scenario where someone successfully spends the same cryptocurrency twice.Imagine buying a coffee with Bitcoin, and then, before the transaction is permanently recorded on the blockchain, using the same Bitcoin to buy something else. The Bank of International Settlements has released a contentious report on the future of Bitcoin s use of the proof-of-work consensus. Please note, this is a STATIC archive of website cointelegraph.com from, cach3.com does not collect or store any user information, there is no phishing involved.PoW aims to make this incredibly difficult, ideally impossible, by requiring significant computational power to alter the blockchain's history.

However, the BIS report argues that the economic incentives aren't always perfectly aligned to prevent double-spending.The report contends that manipulating the blockchain and executing a double-spend attack can be profitable, especially if the cost of doing so is less than the potential gains.

How Double-Spending Works

To understand the BIS's concern, let's briefly outline how a double-spending attack might unfold:

1. A malicious actor initiates two transactions using the same Bitcoin: one to a merchant (Transaction A) and another to an address they control (Transaction B).
2. The actor broadcasts Transaction A to the network, making it appear as a legitimate payment.
3. Simultaneously, the actor starts privately mining a new version of the blockchain where Transaction A never occurred, and only Transaction B exists.This is often called a ""51% attack"" because the attacker needs to control more than 50% of the network's mining power to effectively rewrite history.
4. If the attacker successfully mines a longer chain (the private chain without Transaction A) than the honest miners, they can then release this chain to the network.
5. The network will recognize the longer chain as the valid one, effectively invalidating Transaction A.The merchant loses the goods or services they provided, while the attacker retains their Bitcoin.

The success of this attack hinges on the attacker's ability to outpace the honest miners, which requires substantial computing power. A recent report from the Bank of International Settlements (BIS) has cast a spotlight on the efficacy and longevity of the proof-of-work (PoW) consensus and the future of Bitcoin. The paper takesBut the BIS argues that as mining rewards decrease over time (as Bitcoin's block reward halving continues), the incentive to engage in this type of attack increases.

The Economic Incentives and the Cost of Security

The BIS report emphasizes the critical role of economic incentives in maintaining the security of PoW systems. BIS Report Questions Longevity, Efficacy of Proof-of-Work Based Cryptocurrencies Janu TradingBTC A recent report from the Bank of International Settlements ( BIS ) has cast a spotlight on the efficacy and longevity of the proof-of-work ( PoW ) consensus and the future of Bitcoin .Miners are incentivized to maintain the network's integrity because they receive block rewards (newly minted cryptocurrency) and transaction fees for validating transactions.However, this incentive structure isn't static. A recent report from the Bank of International Settlements (BIS) has cast a spotlight on the efficacy and longevity of the proof-of-work (PoW) consensus and the future of Bitcoin. The paper takes an in-depth look at how the Bitcoin protocol verifies payments using blockchain technology and various consensus algorithms.As the block reward decreases over time, miners become increasingly reliant on transaction fees for their revenue.

This creates a potential vulnerability: if transaction fees are insufficient to cover the cost of mining, miners might be tempted to engage in activities that are detrimental to the network, such as double-spending or colluding to manipulate the blockchain. Rodney J. Garratt, Maarten R. C. van Oordt (2025) Why Fixed Costs Matter for Proof-of-Work Based Cryptocurrencies. Management Science 69(11): .The report posits that if the cost of an attack is less than the potential reward from that attack, it makes economic sense for a powerful actor to undertake it.

Why Fixed Costs Matter

The BIS report specifically highlights the importance of **fixed costs** in this equation. news: BIS Report Questions Longevity, Efficacy of Proof-of-Work Based Cryptocurrencies at Cash Tech NewsMining operations require significant upfront investment in specialized hardware (ASICs) and ongoing expenses for electricity and infrastructure. Live Prices. Bitcoin; Binance Coin; Bitcoin Cash; Cardano; Dogecoin; Ethereum; Litecoin; NEO; RippleThese fixed costs create a barrier to entry, but they also create a situation where existing miners are under pressure to maximize their revenue, potentially leading them to consider less-than-honest actions.

The reference to Rodney J.Garratt and Maarten R. [ad_1] A recent report from the Bank of International Settlements (BIS) has cast a spotlight on the efficacy and longevity of the proof-of-work (PoW) consensus and the future of Bitcoin. The paper takes an in-depth look at how the Bitcoin protocol verifies payments using blockchain technology and various consensus algorithms. PoW algorithms are a major [ ]C. van Oordt's (2025) paper, ""Why Fixed Costs Matter for Proof-of-Work Based Cryptocurrencies,"" emphasizes the impact of these fixed costs on the stability of PoW systems.The higher the fixed costs, the greater the temptation for miners to deviate from honest behavior, particularly as block rewards diminish.

The Future of Bitcoin and Proof-of-Work

The BIS report doesn't necessarily predict the imminent collapse of Bitcoin or other PoW cryptocurrencies.However, it does raise serious questions about their long-term sustainability and security.The report implicitly suggests that alternative consensus mechanisms, such as Proof-of-Stake (PoS), may offer a more viable path forward.

Proof-of-Stake as a Potential Alternative

Proof-of-Stake operates on a fundamentally different principle than Proof-of-Work.Instead of relying on computational power to validate transactions, PoS systems rely on validators who ""stake"" a certain amount of the cryptocurrency.These validators are then randomly selected to create new blocks and validate transactions.If they act dishonestly, they risk losing their staked cryptocurrency, creating a strong disincentive for malicious behavior.

PoS offers several potential advantages over PoW:

• Lower Energy Consumption: PoS requires significantly less energy than PoW, making it a more environmentally friendly option.
• Increased Scalability: PoS can potentially process transactions faster and more efficiently than PoW.
• Reduced Risk of Centralization: PoS can be designed to be more resistant to centralization than PoW, where mining power tends to concentrate in the hands of a few large players.

However, PoS also has its own set of challenges, including the risk of ""nothing at stake"" attacks and concerns about wealth accumulation among validators.Ethereum's transition to Proof-of-Stake, known as ""The Merge,"" demonstrates a practical example of a major cryptocurrency attempting to address these concerns while embracing a less energy-intensive consensus model.

Addressing Common Questions About the BIS Report

The BIS report has undoubtedly sparked a lot of debate within the cryptocurrency community.Here are some answers to common questions that arise in response to its findings:

Does the BIS Report Mean Bitcoin is Doomed?

Not necessarily.The report highlights potential vulnerabilities, but it doesn't definitively state that Bitcoin is destined to fail.Bitcoin has proven remarkably resilient throughout its history, and its community has consistently adapted to overcome challenges.The report should be viewed as a call to action, urging the Bitcoin community to address the identified vulnerabilities and explore potential solutions.

Is a 51% Attack Inevitable?

A 51% attack is always a theoretical possibility in any PoW system.However, the cost of launching such an attack on Bitcoin is currently astronomically high, making it economically unfeasible for most actors.As the block reward continues to decrease, the economic incentives may shift, potentially increasing the risk of a 51% attack.But this doesn't mean it's inevitable.Continued development and enhancements to the Bitcoin protocol could mitigate this risk.

What Can Be Done to Address the Concerns Raised in the Report?

Several potential solutions exist to address the concerns raised in the BIS report:

1. Layer-2 Scaling Solutions: Technologies like the Lightning Network can reduce the burden on the main Bitcoin blockchain, decreasing transaction fees and increasing scalability.
2. Fee Market Optimization: Improving the efficiency of the Bitcoin fee market can ensure that miners are adequately compensated for their work, even as the block reward decreases.
3. Protocol Enhancements: Ongoing development of the Bitcoin protocol can address potential vulnerabilities and improve its overall security.
4. Exploration of Hybrid Consensus Mechanisms: Combining aspects of PoW and PoS could potentially create a more secure and efficient consensus model.

Practical Implications and Actionable Advice

So, what does all this mean for the average cryptocurrency user or investor?Here's some practical advice based on the BIS report's findings:

• Stay Informed: Keep abreast of the latest developments in the cryptocurrency space, particularly regarding consensus mechanisms and security vulnerabilities.
• Diversify Your Portfolio: Don't put all your eggs in one basket.Consider diversifying your cryptocurrency investments across different projects with varying consensus mechanisms.
• Understand the Risks: Recognize that all cryptocurrencies carry inherent risks, including the risk of security breaches and protocol failures.
• Support Innovation: Support projects that are actively working to improve the security and efficiency of cryptocurrency consensus mechanisms.
• Be Patient: The cryptocurrency space is still in its early stages of development.Expect volatility and be prepared for unexpected challenges.

Conclusion: A Call for Continued Innovation

The BIS report serves as a valuable contribution to the ongoing debate about the future of cryptocurrency.By raising important questions about the longevity and efficacy of Proof-of-Work based cryptocurrencies, the report forces us to confront the challenges that lie ahead and encourages us to explore innovative solutions.While it highlights potential vulnerabilities in the Bitcoin protocol, it also underscores the importance of continued research, development, and community engagement in ensuring the long-term success of decentralized finance.

The key takeaways from the report are:

• The cost of securing PoW systems against double-spending attacks can be exceptionally high.
• Economic incentives play a critical role in maintaining the integrity of PoW networks.
• As block rewards decrease, miners may be tempted to engage in malicious behavior.
• Alternative consensus mechanisms, such as Proof-of-Stake, may offer a more sustainable path forward.

Ultimately, the future of cryptocurrency hinges on our ability to address these challenges and build more secure, efficient, and sustainable consensus mechanisms.The BIS report is not a death knell for Bitcoin, but rather a wake-up call, urging the community to embrace innovation and adapt to the evolving landscape of decentralized finance.What steps will you take to stay informed and contribute to the future of crypto?