
IMF Head Foresees the End of Banking and the Triumph of Cryptocurrency - imartin2k
https://fee.org/articles/imf-head-predicts-the-end-of-banking-and-the-triumph-of-cryptocurrency/
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cs702
These sections of the speech resonate with me:

"For now, virtual currencies such as Bitcoin pose little or no challenge to
the existing order of fiat currencies and central banks. Why? Because they are
too volatile, too risky, too energy intensive, and because the underlying
technologies are not yet scalable. Many are too opaque for regulators; and
some have been hacked.

But many of these are _technological_ challenges that could be addressed over
time. Not so long ago, some experts argued that personal computers would never
be adopted, and that tablets would only be used as expensive coffee trays. So
I think it may not be wise to dismiss virtual currencies."

"IMF experience shows that there is a tipping point beyond which coordination
around a new currency is exponential. In the Seychelles, for example,
dollarization jumped from 20 percent in 2006 to 60 percent in 2008."

"Why might citizens hold virtual currencies rather than physical dollars,
euros, or sterling? Because it may one day be _easier_ and _safer_ than
obtaining paper bills, especially in remote regions. And because virtual
currencies could actually become more _stable_."

The person speaking: Christine Lagarde, Head of the International Monetary
Fund.

~~~
ballenf
What she doesn't state is that central bankers are going to be the biggest
supporters of cryptocurrency once they get to endorse one that is fully
trackable (BTC fits the bill pretty well on that front).

It's one of the unexpected paradoxes that cryptocurrency is going to be the
greatest threat to privacy since the cell phone and not many people see it
coming.

This is the reason I agree with her -- it will further consolidate power.

~~~
arca_vorago
Indeed, this is one of my primary points as well. I've been trying to tell
people like Max Keiser that for all its good, BTC is _not anonymous_ , which
is one of the primary functions of cash. The totalitarian surveillance society
would love to track everyone's purchases.

On top of that, the other problem is that in a fiat fractional reserve system,
there's not much stopping the big central bankers from poofing some old
currency into existence so they can buy up lots of BTC et al.

That's why right now I am leaning towards Monero and similar at least semi-
anonymous coins (without having to use a tumbler separate).

~~~
tenaciousDaniel
As a counter point, you could argue that the pseudonymous nature of
cryptocurrency is simply another technological hurdle that, like the
scalability problem, can be overcome in time.

~~~
nobodyorother
Not really. The trouble with deanonymization in a network is that as soon as
anyone fails to follow the proper privacy protocol, the entire network can be
unmasked through the social graph.

For example, Flickr users have been identified by their Twitter connections:

[https://arstechnica.com/tech-policy/2009/03/pulling-back-
the...](https://arstechnica.com/tech-policy/2009/03/pulling-back-the-curtain-
on-anonymous-twitterers/)

~~~
glenneroo
I would imagine Palantir has been working on this since cryptocurrencies
started being becoming popular, even though they have denied it[0]. Or
somebody else such as SABR[1].

[0] [https://www.coindesk.com/palantir-quantum-bitcoin-cloud-
mini...](https://www.coindesk.com/palantir-quantum-bitcoin-cloud-mining/) [1]
[https://bravenewcoin.com/news/sabr-palantir-for-the-
blockcha...](https://bravenewcoin.com/news/sabr-palantir-for-the-blockchain/)

------
ploggingdev
One question : the deflationary nature of cryptocurrencies means that early
adopters are rewarded disproportionately. Is this a bug or a feature? It seems
unfair for the late adopters and is also one of the reasons people draw
parallels to a ponzi scheme. I've not come across a good explanation for this,
so any thoughts?

~~~
centimeter
Early adopters are rewarded proportionally to the risk they took (and the work
they put in).

Bitcoin wouldn’t even be here today if the early adopters hadn’t spent many
years making it usable and valuable. Why would anyone who was uninvolved
expect to profit from that?

~~~
AnIdiotOnTheNet
What's the incentive for anyone uninvolved in the early stages to become
involved? The hope that the value will increase indefinitely? If that's true
then there is will be no liquidity as no rational person is willing to part
with an appreciating asset.

It's precisely this deflationary effect of earlier adopters profiting at the
expense of later adopters that makes the whole thing seem like a pyramid
scheme.

~~~
centimeter
The incentive is that bitcoin is (for some uses) superior to existing
payment/wealth storage technology even if you can’t make a bunch of money on
it.

~~~
dleslie
It really isn't. If my physical wallet is stolen I can call my bank and have
the cards cancelled and interim charges reversed; and I am guaranteed fraud
protection at their expense. If my BTC wallet is stolen I'm fucked.

~~~
DennisP
Personally, the more I use my cryptocurrency hardware wallet, the more I feel
horrified that in legacy systems I make payments by giving merchants the
ability to withdraw as much of my money as they want. It's a fundamentally
insecure system, made sort of workable by layering on hacks like manual
overrides, statistical fraud protection, and banks just eating the losses.

------
ubernostrum
Remember that when a government or government-ish bureaucracy does something
that hurts Bitcoin/cryptocurrency, it's proof that big-government bureaucrats
are hopelessly incompetent and shouldn't be trusted with anything.

But when they do something that helps Bitcoin/cryptocurrency, it's validation
from the wise, eminently competent leaders who have proved once again why we
trust them with such power.

~~~
optimuspaul
that's sarcasm right?

------
upofadown
>... no clearing delays, ...

I think ultimately this is the aspect of virtual currencies that will create
the biggest change in the world. The great majority of the messing around with
money has traditionally involved overcoming time delays in the system. A world
without payables or receivables would have to look quite different.

Without the friction of delayed payments the whole world economy might turn
into a giant kanban[1] system. Everything would be a gig at whatever scale.

* [1] [https://en.wikipedia.org/wiki/Kanban](https://en.wikipedia.org/wiki/Kanban)

------
bandrami
Meh. She's got a history of being an austerity fan. Since cryptocurrencies
basically guarantee pro-cyclic austerity programs, of course she's going to
push them.

~~~
alfonsodev
> cryptocurrencies basically guarantee pro-cyclic austerity programs

I never heard about this, can you elaborate a bit more this idea, or point me
to some article about it?

~~~
grey-area
If you can't print your way out of debt (fixed money supply), the corollary is
that you would be forced to cut in times when debt was in short supply (not
able to borrow, no surplus), you wouldn't be able to simply create debt out of
thin air as all the central banks have over the last decade, with yet to be
seen side-effects (aside from the asset bubbles).

------
deepGem
I have a question. This might turn out to be stupid. What happens if the value
of 1 bitcoin falls below the required threshold i.e the cost of energy +
hardware to mine. I do understand that the probability of such an eventuality
might be close to 0.

~~~
jcbrand
It will become uneconomical to mine and therefore people will stop doing so,
causing the hash rate (and therefore the cost of energy + hardware required to
mine) to plummet, eventually making it economical again.

~~~
klochner
Hashing does not materially impact the global price of electricity.

Also, hardware is a fixed cost, fixed costs don't affect the price at which
miners would stop mining.

------
andreif
Can a bank make huge amounts of crypto money out of thin air? Then lend them
to other banks so that they can also make more crypto money out of thin air?
And then lend them to people for buying houses and cars, paying for education
and medical services, so that our economy can reach record heights? It seems
to be an important part of money, required for our civilization to exist.

~~~
DennisP
Sure they can. And so can you.

------
chx
Note:

> For now, virtual currencies such as Bitcoin pose little or no challenge to
> the existing order of fiat currencies and central banks. Why? Because they
> are too volatile, too risky, too energy intensive, and because the
> underlying technologies are not yet scalable. Many are too opaque for
> regulators; and some have been hacked.

This I can fully accept: there can be a future where some cryptocurrency
becomes the world standard. Sure. Doesn't change all my critiques about the
_current situation_ which are so often downvoted.

~~~
colordrops
The problem is that every single article about crypto has people like you
coming out of the woodwork and commandeering the thread to "critique"
cryptocurrency. Not everyone who uses or is interested in crypto claims it is
perfect or will save humanity.

The incessant criticism with every thread is about as sensible as complaining
about python's general shortcomings in every article about a new python
library.

~~~
fauigerzigerk
This article isn't the equivalent of talking about a new Python library
though. It's the equivalent of "W3C Head Foresees the End of Programming and
the Triumph of Python".

~~~
colordrops
I agree actually. I'm just explaining why the person gets downvoted in other
threads.

------
liberte82
Christine Lagarde is one smart lady. The fact that she's talking about this is
very interesting.

------
creatrixcordis
i’m surprised not a single interest group has hired a company like cambridge
analytica to influence popular opinion of bitcoin, or a fake news network to
aid in pushing the price higher, not that we would know about it, the big
players in bitcoin would benefit from a scheme like this, it would be a small
investment for greater returns, i am interested to see if it will ever reach a
point where people will feel comfortable with it’s volatilty, but i strive to
understand how the control of bitcoin network and its software is not in the
hands of who contribute code, are we trusting a few now compared to a few
banking institutions, is that the underlying tradeoff?

~~~
lucaspiller
How do you know they have not? As I understand Cambridge Analytica work rather
discretely, so how do you know a piece on Bitcoin by say NYT (or even this!)
isn’t funded by them?

~~~
endgame
While they probably work on discrete campaigns, you may have meant
"discreetly".

------
emodendroket
Seems like the headline oversells what she's saying.

------
cm2187
I'd keep in mind that the head of the IMF is a political appointee, and in
this case a former lawyer and politician. I would take technological and
banking advice from Lagarde with a pinch of salt.

~~~
mseebach
She's been a very well respected minister of finance for a major economy.
She's literally an expert on the subject she's speaking on (which is economy,
not technology) - and she's not giving advice, she's offering an analysis.

------
watertom
That’s possible the funniest thing I’ve read in years.

Governments, banks and corporations aren’t going to let it happen.
Cryptocurrency will either be co-opted by these groups or outlawed altogether.
The people who run the world aren’t about to give up control. In the U.S. we
can’t get net neutrality, because the people who run things want more control.

~~~
hossbeast
You're assuming they have the power to stop it.

------
dandare
> too volatile, too risky, too energy intensive

I am no expert but those three are features, not defects.

1/ Until there will be a central authority linking cryptocurrencies to the old
financial system - impose taxes in CC - it will be volatile.

2/ Computer security is not something that can be definitely solved.

3/ Proof of work is the core concept of the blockchain. Maybe there will be
some other CC technology in the future not based on blockchain that will not
require proof of work, but that is outside of this discourse.

~~~
amelius
If only we could replace "proof of work" by "proof of useful work".

~~~
joosters
Absolutely! And even ‘proof of stake’ alternatives tend to degrade into ‘proof
of work’ (citation required: unfortunately I’m on mobile and don’t have the
link to the relevant papers to hand!)

Note: Even basic forms of proof of ‘useful’ work, like using the heat from the
miners’ CPUs, just act like a subsidy and push the cost of competitive mining
further away, rather than making the blockchain more efficient...

~~~
DennisP
Proof of stake degrades to proof of work if you don't have a solution to stake
grinding and "nothing at stake," but recent proof of stake designs do. See for
example the discussion here: [https://github.com/ethereum/wiki/wiki/Proof-of-
Stake-FAQ](https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ)

