Sam Bankman-Fried, CEO of the FTX exchange, was the latest to criticize the Bitcoin network. In an interview with the Financial Times, Bankman-Fried said that BTC will not scale as a payments network.
In fact, the executive stated that BTC itself does not serve as a payment network. However, he stressed that cryptocurrency has potential as a store of value.
“The BTC network is not a payments network and it is not a scalable network,” Bankman-Fried told the Financial Times.
Guilt of the Work Test
According to Bankman-Fried, the main obstacle is in the form of BTC mining. More specifically, the cryptocurrency uses the Proof of Work (PoW) algorithm, which validates BTC transactions.
In recent years, PoW has come under fire from environmentalists and governments. Although most mining uses clean, renewable energy, the activity is seen as polluting and harmful. The argument was used by the Chinese government in 2021 to ban BTC mining from the country.
But one thing is fact: BTC transactions are not particularly fast. According to data extracted from Blockchain.com, the average number of transactions per second (TPS) on BTC over the last 30 days is approximately 2.58.
When compared to traditional payment networks like Visa or Mastercard, BTC performs much slower. This was Bankman-Fried’s criticism that BTC could not be used as a currency.
However, BTC’s scalability is being built through second layers such as the Lightning Network. In these cases, BTC could support millions of TPS, far surpassing the capacity of Visa and Mastercard, as well as most cryptocurrencies.
Bankman-Fried himself admitted this possibility in a tweet written after the interview in the Financial Times.
“To be clear I also said that it _does_ have potential as a store of value. The BTC network can’t sustain thousands/millions of TPS, although BTC can be xfered on lightning/L2s/etc.”
FTX CEO turns to alternatives
While spouting criticism of BTC, Bankman-Fried also spoke about alternatives. In this regard, the CEO of FTX defended cryptocurrencies that use Proof of Stake (PoS). In his words, these networks offer low transaction costs and high speeds.
“The things you’re doing millions of transactions a second with need to be extremely efficient, lightweight, and energy-efficient. Proof-of-stake networks are,” said Bankman-Fried.
These types of networks consume much less power. Instead of maintaining an uninterrupted farm of computers to mine BTC, PoS networks rely on validators who “gambled” (or deposited) a large amount of cryptocurrency native to the network.
By performing their functions correctly, these validators earn an income. If, however, they validate fraudulent transactions, they will be punished with the loss of part of the funds initially staked.
But PoS networks are also criticized, especially for two factors: less security against attacks (since they are not protected via computing power) and risk of concentration (whoever has more coins can control the network).