Bank of America analyst Francisco Blanch has issued a report on Bitcoin that contains some major errors, revealing a rather poor understanding of how the new technology works.
Blanch claims that Bitcoin can only handle about 14,000 transactions per hour, and that there is a direct and inevitable correlation between the increase in value and the increase in energy consumption of mining.
The first error is rather trivial, because it reveals a lack of knowledge of a technology that is fundamental to the scalability of the Bitcoin network, namely the Lightning Network.
While it is true that the number of transactions that can be recorded on the Bitcoin blockchain is very limited, the Lightning Network allows for a virtually unlimited number of transactions.
Not being aware of the existence of the Lightning Network, a protocol that has been in use for some time, reveals a lack of knowledge of the technology behind Bitcoin.
The second error is less obvious, but no less serious.
In fact, the Bitcoin network does not necessarily need high energy consumption. This is only due to the autonomous decisions of the miners competing with each other to mine BTC, so it could be reduced without any particular problem by e.g. government intervention.
In other words, consumption will only increase in proportion to value if there are no policy interventions to disincentivize power consumption by miners. These disincentives could also be determined and enforced immediately if desired, so the problem of high energy consumption is fundamentally a problem of political will, not the technology behind Bitcoin.
Finally, Blanch also makes a third mistake, much more serious than the other two because it is a financial one, not a technical one.
He claims that CBDCs issued by central banks could somehow replicate Bitcoin, but this is not possible at all. Bitcoin in fact is a currency with a deflationary nature, while all central bank currencies, even the natively digital ones, are and will always be inflationary.
In light of these numerous and serious errors, it is safe to assume that this analyst’s understanding of Bitcoin is still decidedly poor.