Bitcoin has no future as a payments network because of its inefficiency and high environmental costs, according to one of crypto’s most influential chief executives.
Sam Bankman-Fried, founder of the digital asset exchange FTX, said the proof of work system of validating blockchain transactions, which underpins Bitcoin, is not capable of scaling up to cope with the millions of transactions that would be needed to make the crypto token an effective means of payment.
“The Bitcoin network is not a payments network and it is not a scaling network,” said Bankman-Fried.
His comments came as the fast-growing cryptocurrency market was hit by a punishing sell-off that left Bitcoin down by more than 35 per cent since January, at its lowest level since late 2020.
Bitcoin is still seen by some crypto enthusiasts as a way to conduct everyday transactions.
Countries such as El Salvador and the Central African Republic have adopted Bitcoin as a legal tender. But recent research by American academics found that Bitcoin has scarcely been used for daily payments in El Salvador, despite the rollout of Bitcoin ATMs and other measures to encourage its use.
The 30-year-old billionaire, who has expanded FTX into one of the world’s largest virtual asset exchanges, said an alternative type of blockchain known as proof of stake, or other technological innovations, will be required to create a functional crypto payments network.
Ethereum has been working to move to a proof of stake system, which is intended to be less energy intensive.
“Things that you’re doing millions of transactions a second with have to be extremely efficient and lightweight and lower energy cost. Proof of stake networks are,” said Bankman-Fried.
His criticisms of Bitcoin underscore serious environmental concerns about the amount of energy needed to run proof of work crypto systems. Some European regulators have called for a ban on the systems owing to their carbon emissions.
Mining Bitcoin consumes more energy than many countries, including Norway and Sweden, according to Cambridge university’s Bitcoin Electricity Consumption Index.
“It has to be the case that we don’t scale this up to the point where we’re spending 100 times as much eventually as we are today on energy costs for mining,” Bankman-Fried said.
FTX has used carbon offsets to compensate for the company’s emission, which Bankman-Fried said was worthwhile but not a complete solution “because you just run out of things to offset at some point”.
But despite his views on Bitcoin, Bankman-Fried said he still believed the world’s biggest digital asset had a place in the crypto market.
“I don’t think that means Bitcoin has to go,” he said, adding that the token may still have a future as “an asset, a commodity and a store of value” akin to gold.