Industry News Central Bank of Spain does not believe Crypto is the Remedy for the Traditional Payment System

Central Bank of Spain does not believe Crypto is the Remedy for the Traditional Payment System

February 19, 2019

The dilemma about the role of cryptocurrencies inside of the traditional banking sector has been a long-standing one. The most radical of the cryptocurrency ecosystem see this process as a dead alley in the development of a field that was never intended to work besides the traditional finance models, but completely ignore and evade it. Others think that cooperation is necessary to change the status quo where the mainstream financial system mostly ignores cryptocurrencies.

Finally, some think that the actual way forward is for the traditional banking sector to somehow incorporate cryptocurrencies which can also remain independent of any direct influence. Yet, as the recent news from Spain’s central bank shows, the development of the latter idea is not gaining much traction in the eyes of the traditional financial sector. In fact, the road ahead on that issue might be an impossible one for the foreseeable future.


The Bank of Spain or the BDE believes that digital currencies, especially bitcoin will not be able to resolve the problems that are currently faced by all big payment system. Carlos Colesa, the bank’s Deputy General Director for financial innovations and market infrastructure stated this opinion in a report that was published on February 17. The study was named “Bitcoin: a solution for payment systems or a solution in search of a problem?” but BDE has termed it an occasional paper.

This means that the bank might not fully share the stance and opinions of the author but still finds it relevant. The author, Colesa, used a comparison between bitcoin and the regular payment systems as well as the financial intermediaries in the process of monetary transactions. According to the report, the blockchain network behind the bitcoin processes about a quarter of a million of daily transaction. This is a small volume when compared to the global values of these activities, even those which are defined on a much smaller national level. For example, the SNCE (Sistema Nacional de Compensacion Electronica) or the Spanish major retail system, handles about 7.2 million payments per day according to the 2017 statistics.

However, because miners have to approve all of these transactions, payments in bitcoin are notoriously slow and a period of waiting is often unpredictable. This means that some transactions could pass through in a matter of seconds while others take hours and hours, without any transparent reason why this takes place. Because of this, the capacity of the entire system is limited by the process of proof of work (PoW). The report also notices that an absence of any central governing body impedes any needed or useful improvements to the same system.

Security and Storage

The traditional financial system has its security drawbacks, but at the same time, it also comes with numerous redundancies and fail-safe procedures. For example, if a bank and its account get compromised and funds are taken away, the bank’s insurance policy will recuperate all of the lost funds. Other non-governmental systems, like PayPal, also offer the same assurances. But, as Colesa notes, a combination of public and private keys is not a reliable system and opens the network to scams and fraud.

Additionally, it opens the option for accidental loss of private keys in which case the funds cannot be recovered by any means. This is similar to the stance of other bitcoin skeptics who are saying that the network actually has many of the features of a centralized system. This mainly reflects itself in the power of the mining pools which act as key gatekeepers of the network. With their say, the network can undergo changes or, in theory at least, reach a status where the small number of players control the entire bitcoin system thanks to the sheer power of the influence their hashing power wields.

A Small Factor on the Global Level

Colesa concludes that there is a small likelihood that the bitcoin network will be able to impact the finance sector. Based on its current modifications, features, and abilities, the author does not see the possibility of BTC presenting itself as a sustainable and long-term alternative to the established payment systems, either local or those on a global scale.

Its potential as a concept might show this as an option but the actual network, even one that could be imagined which functions on a higher operational level would still not be adequate. In other words, as Colesa sees it, the entire current and future potential of the bitcoin network does not make a difference on the global level when it comes to ordinary users looking for an alternative for traditional monetary transfers.

BDE Keeps its Guard Up

BDE earlier in February issued a reminder to its users and other citizens about the risks of using cryptocurrencies. The document they published shows that the digital currencies are still not regulated in Spain and that the digital exchanges are not authorized by the government or the central bank to store any funds. Additionally, Pablo Hernández de Cos, the governor of BDE said that the cryptocurrencies cannot replace regular money either as a common exchange or as a payment means. This shows that while the report of Colesa is not an official bank document, its content is more than shared with the top bank officials.

In many ways, the position of the BDE is not surprising but unlike many other skeptics of cryptocurrencies, this at least comes with a tone and arguments that are not baseless. It is true that cryptocurrencies come with a range of the huge problem, but the key element is that, like many huge digital ventures, like esports or social media, simply did not exist two decades ago. In comparison, the traditional banking system has been around for hundreds of years. This shows that crypto might not be there yet or anytime soon, but the leaps it makes cannot be repeated by its banking contemporaries. This alone represents a huge possibility for its continued development and the places this process might eventually reach not just for bitcoin but also the entire ecosystem.

Source: CoinDesk