Cryptocurrencies have no intrinsic worth and are useless as a form of exchange. They entail exorbitant transaction costs. They are very slow. Together they have turned into an ecological nightmare.

They are not backed by the assets and revenues stream of an established state. Most can be rendered worthless by fraud or digital manipulation. They are essentially ponzi schemes that masquerade as citizen currencies beyond government control.

Such are the broad findings of the Bank for International Settlements, the Swiss-based ‘bank of central bankers’ and the leading global authority on the crypto-craze.

While several central banks are examining possible use of blockchain technology for payments systems - such as Canada’s ‘Project Jasper’, Japan’s ‘Project Stella’, and Singapore’s ‘Project Ubin’ - none has yet found compelling reasons to issue their own state-controlled cryptos.

The report said Bitcoin alone uses as much electricity as Switzerland. This is needed to run the vast network of computers used by ‘miners’ to verify transactions for the distributed ledger. “Put in the simplest terms, the quest for decentralised trust has quickly become an environmental disaster,” it said.

Cryptos are not in fact safe. They are vulnerable to a breakdown in confidence or an attack by those with computing firepower. “Trust can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded. A cryptocurrency can simply stop functioning, resulting in a complete loss of value,” said the report, a chapter in the BIS’s forthcoming annual report.

Bitcoin 'mining' alone uses as much electricity as Switzerland, often from coal-plants in China credit: BIS

The BIS says all currency systems face an inherent problem. If they are ‘scalable’ and can expand easily to foster commerce and trade, they can also be debased easily. This is the trade-off that has bedevilled currencies since they began in modern form in China, India, and Asia Minor around 600 BC. Sustained episodes of stable money are rare. “Trust has failed so frequently that history is a graveyard of currencies,” it said.

Room 68 of the British Museum is dedicated to failed commodity coinage and paper currencies, discarded when the political order behind them collapsed or because inflationary abuse destroyed trust. The Kipper-und Wipperzeit (clipping and culling era) of competitive coin debasement by German princes in the early 17th century has pride of place.

The crypto-craze is in one sense a response to the global financial crisis of 2008, and a libertarian backlash against quantitative easing by the US Federal Reserve and fellow central banks, but it does not come up with a viable alternative. Bitcoin and others fail the basic test of a working currency. “The more people use a cryptocurrency, the more cumbersome payments become. This negates an essential property of present-day money,” said the report.

There is a speed limit on the number of transactions added to the ledger at any given point in time. New blocks are rationed by intervals. If the ceiling is hit, the system backs up. “With capacity capped, fees soar. Transactions have at times remained in a queue for several hours, interrupting the payment process,” said the report. In one episode, Bitcoin transaction costs spiked to $48. Visa and Mastercard can together handle 5,600 transactions a second, and margins (not the merchant fee) are wafer thin.

Visa and Mastercard are much faster and more efficient than Bitcoin credit: BIS

The BIS said the crypto-nexus would eventually require a terabyte of computing capacity since ledgers grow by a hundred bytes with every transaction. This could bring the internet to a halt. Moreover, Bitcoin is limited to a maximum of 21 million coins by its protocol. It would be viciously deflationary as a currency. There is no responsible authority to regulate the value of these currencies according to economic need and fluctuations in demand. “Cryptocurrencies simply do not scale like sovereign moneys”.

The report makes clear that the drawbacks are not just the teething problems of a young technology. They are structural and inherent in the concept. The need to protect cryptos against cheating - “the double-spending problem” - is what leads to the immense and cumbersome apparatus that renders them economically useless.

Nor does the system guarantee “finality of payment”. You can lose your money. “Although users can verify that a specific transaction is included in a ledger, unbeknownst to them there can be rival versions of the ledger. This can result in transaction rollbacks. Cryptocurrencies can be manipulated by miners controlling substantial computing power. One cannot tell if a strategic attack is under way because an attacker would reveal the (forged) ledger only once they were sure of success,” it said.

There is a risk with “forking” when cryptos split. The single month of January alone brought forth Bitcoin ALL, Bitcoin Cash Plus, Bitcoin Smart, Bitcoin Interest, Quantum Bitcoin, BitcoinLite, Bitcoin Ore, Bitcoin Private, Bitcoin Atom and Bitcoin Pizza forks. “Theoretical analysis suggests that coordination on how the ledger is updated could break down at any time, resulting in a complete loss of value,” it said.

Bitcoin transaction costs spiked to $48 during congestion last year. It is inherently unworkable for buying a cup of coffee credit: BIS

Many libertarians turned to cryptos because they do not trust banks and governments. Yet they ended up having to trade through unregulated “crypto wallet” providers or “crypto exchanges”, leaving them at the mercy of digital theft. “Some of these (such as Mt Gox or Bitfinex) have proved to be fraudulent or have themselves fallen victim to hacking attacks.” Almost a quarter of initial coin offerings (ICOs) are opaque ventures or “fraudulent Ponzi schemes”.

The BIS says there is social value in ‘permitted’ blockchain payment schemes such as the World Food Programme’s ‘Building Blocks’ system for handling food aid in the Middle East. It uses an Ethereum protocol. Much can be done with blockchain to improve trade finance and the processing of $540bn of remittances each year. But such “cryptopayment” systems are not to be confused with cryptocurrencies.

That bubble has now definitively burst. Bitcoin has crashed from $19,187 to $6,474 since peaking in December. Most of the leading cryptos have dropped by two-thirds or more, slashing their notional value by at least half a trillion dollars. There is no obvious floor. These currencies are not redeemable. Nothing stands behind most of them. The BIS report is the final authoritative nail in the coffin.