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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 currencie

by cs702 9y ago

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.

cm2187 9y ago
Where I find her position slightly disingenuous is that the role of central banks and of the IMF is precisely to bend the rules when they think it is required, by either printing money or making funds available to states to support them or their currency. So neither central banks nor the IMF will have any interest in a currency which cannot be somewhat manipulated. Where cryptocurrencies might fit in nevertheless is that they are only as strong as the convention to use a common algorithm. And the choice of this algorithm can be influenced or controlled by law or regulations. Hence the said authorities can achieve the same thing they currently do with crypto currencies than with fiat currencies. Might have defeated the original purpose but is a more likely scenario if cryptocurrencies become mainstream.
- lr4444lr 9y ago
  What I don't understand is this: if the supply of bitcoin is controlled by a monotonically rate decreasing algorithm which "approximates the rate at which commodities like gold are mined"[0], how is it going to avoid the mismatch between the cyclical and random nature of economic output and the currency to properly represent it, ie, what central banks are fundamentally designed to do? [0] https://en.bitcoin.it/wiki/Controlled_supply https://en.bitcoin.it/wiki/Controlled_supply
  - cm2187 9y ago
    In my opinion the secret is that the algorithm can be changed anytime. In fact there was a debate recently to amend bitcoin, which in the end resulted in bitcoin cash. So as long as the central bank controls the algorithm (i.e. can force by law or regulations miners to switch to a different algorithm), they have full control on the supply of money. That defeats the original purpose of bitcoin, but that could be their intention. The settlement of the currency could be decentralised but the supply of the currency could be controlled. In my opinion that leaves many other challenges, some fundamental like the concept of public ledger, incompatible with the secrecy of banking (i.e. the payments you make is not public information).
  - ballenf 9y ago
    I think a deeper question to ask is whether the monetary controls of which you speak are designed to serve the masses or to maintain current power and wealth distribution? The world functioned without those things for much longer than we've had them. In the past, the only controls were whether new precious metal or other resource deposits were found. I think the cryptocurrency approach affirmatively rejects the notion that a central bank's controls are a net positive.
    - nosuchthing 9y ago
      I think a deeper question to ask is whether the monetary controls of which you speak are designed to serve the masses or to maintain current power and wealth distribution? Consider how all the major cryptocoin supplies have been minted and distributed. Anyone with established wealth has had disproportionately easier access to take over these cryptocoin networks due to the supplies being produced in quantity early on and at low computational/energy/capital costs. Assuming the existing network is not made obsolete, and if there is any on-going demand then later users will need to sacrifice disproportionately excessive trade into the network as the early adopters simply horde the majority of the supply.
      - ballenf 9y ago
        The difference is that it's a one-time upfront situation, whereas the current monetary systems in place have permanent ongoing rewards: the US federal reserve system where a select few chosen long ago have a permanent guaranteed income return that is written into law. I'd rather have transparency and one-time benefit to a select few than a permanent, secretive benefit. The US federal reserve system works pretty well and I don't really have a huge problem with it. My point is simply that the downsides to cryptocurrencies you rightly highlight have to be viewed in context of the current alternatives.
- xapata 9y ago
  Even if it can't fiat the creation of more coin, the central bank of a high-income country can still extend a nearly infinite amount of credit denominated in that coin.
Iv 9y ago
Oh. Her. The one who oversaw one of the biggest corruption scandal in France (until we get confirmation of the Gaddafi affair) and who was a member of the Sarkozy administration, the closest thing to Trump we had their. Assume she is no smarter than a bad VC who is falling for buzzwords. I don't trust her analysis for a minute.
- dna_polymerase 9y ago
  argumentum ad hominem! Her analysis is actually pretty unbiased and well balanced. I never expected such a open statement from the head of the IMF.
  - candiodari 9y ago
    I would argue that when talking about criminals, known to have committed fraud (which is what corruption is) it is in fact relevant to know this. She has been caught deliberately lying and organizing fraud, anything and everything she says needs to be triple checked and quadruple checked at least. Of course, there's a LOT of high up finance people who have been convicted of fraud and/or corruption directly or indirectly.
  - Iv 9y ago
    Her analysis is pretty standard. If you really want to remove ad hominem then just ignore she was IMF head and assume this is a comment on a BTC enthusiasts forum. This is the exact value I attribute to that comment.
ballenf 9y ago
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 9y ago
  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).
  - ballenf 9y ago
    I see the privacy potential of cryptocurrency the same the privacy potential of the internet: for the average person it will be a disaster.
    - deleted 9y ago
      [deleted]
  - tenaciousDaniel 9y ago
    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.
    - semiel 9y ago
      Yep, and we pretty much know what the solution will look like: zero-knowledge proofs, such as the ones used by ZCash.
thisisit 9y ago
The part which interest me a lot is this: "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." This could be read either ways. This could also mean expanding network to ensure people are able to transact online using dollars held in their accounts but not in physical form ie "virtual dollars". Then there is the word - "virtual currency". Sure bitcoin exists online so it is "virtual" in nature. But the supply control is defined by cryptographic proof so it cannot be created, at least for now, in an unlimited supply. This makes me wonder what is Christine Lagarde even talking about.
- taysic 9y ago
  She explains that quote clearly here: "For instance, think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country—such as the U.S. dollar—some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0. ...citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender."
uncletammy 9y ago
>> ... too energy intensive This argument has become so triggering to me. When I hear this, two things become immediately clear to me about the speaker. They do not recognize the vast economies of scale of a network secured by proof-of-work. They also do not fully understand Bitcoin's value as not only as medium of exchange but also a STORE OF VALUE. The total number of Bitcoin addresses is 2^160. Yes, the Bitcoin network is currently securing 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976 payment addresses. That's enough for each person alive on this earth (~7.44 billion in 2016) to have 196,385,600,286,334,710,857,791,565,804,391,698,421.92 separate bank accounts that all fit in your pocket. How much energy do people think it would take to build a bank (or group of banks) that could collectively account for and secure the wealth in 2^160 bank accounts? Don't even consider that it needs to be accessible from all over the world. It would take A LOT OF ENERGY! Now, how much more energy would it take to also run a payment network on top of it? It would take EVEN MORE. What I want to know from everyone who cites this tired old argument is this. Just what is an acceptable amount of energy to secure potentially all of the wealth in the world?
- monochromatic 9y ago
  Do we need a trigger warning on comments about bitcoin energy consumption now?
- AnIdiotOnTheNet 9y ago
  You've made up a requirement to fit your argument. Why would we need to secure 2^160 bank accounts?
  - Faark 9y ago
    For privacy reasons you probably want to create a new bank account for every atomic "coin" you have and might want to transfer. Also you might want to move them to new wallets in random intervals to make it look like they have been transferred and more difficult to identify/correlate actual transfers. That would of cause be impossible with Bitcoin's current 7 transactions per second. Its a long road ahead til crypto currencies will replace the current banking system, even ignoring POW's questionable energy consumption.
freddref 9y ago
"the underlying technologies are not yet scalable" - What does this mean?
- Torgo 9y ago
  Their number of transactions per second are orders of magnitude lower than VISA. Work is being done to address this, most notably Lightning Network.
  - DennisP 9y ago
    Also sharding, Plasma, and proof of stake.

by cs702 9y ago

cm2187 9y ago

Where I find her position slightly disingenuous is that the role of central banks and of the IMF is precisely to bend the rules when they think it is required, by either printing money or making funds available to states to support them or their currency. So neither central banks nor the IMF will have any interest in a currency which cannot be somewhat manipulated. Where cryptocurrencies might fit in nevertheless is that they are only as strong as the convention to use a common algorithm. And the choice of this algorithm can be influenced or controlled by law or regulations. Hence the said authorities can achieve the same thing they currently do with crypto currencies than with fiat currencies. Might have defeated the original purpose but is a more likely scenario if cryptocurrencies become mainstream.

lr4444lr 9y ago
What I don't understand is this: if the supply of bitcoin is controlled by a monotonically rate decreasing algorithm which "approximates the rate at which commodities like gold are mined"[0], how is it going to avoid the mismatch between the cyclical and random nature of economic output and the currency to properly represent it, ie, what central banks are fundamentally designed to do? [0] https://en.bitcoin.it/wiki/Controlled_supply https://en.bitcoin.it/wiki/Controlled_supply
- cm2187 9y ago
  In my opinion the secret is that the algorithm can be changed anytime. In fact there was a debate recently to amend bitcoin, which in the end resulted in bitcoin cash. So as long as the central bank controls the algorithm (i.e. can force by law or regulations miners to switch to a different algorithm), they have full control on the supply of money. That defeats the original purpose of bitcoin, but that could be their intention. The settlement of the currency could be decentralised but the supply of the currency could be controlled. In my opinion that leaves many other challenges, some fundamental like the concept of public ledger, incompatible with the secrecy of banking (i.e. the payments you make is not public information).
- ballenf 9y ago
  I think a deeper question to ask is whether the monetary controls of which you speak are designed to serve the masses or to maintain current power and wealth distribution? The world functioned without those things for much longer than we've had them. In the past, the only controls were whether new precious metal or other resource deposits were found. I think the cryptocurrency approach affirmatively rejects the notion that a central bank's controls are a net positive.
  - nosuchthing 9y ago
    I think a deeper question to ask is whether the monetary controls of which you speak are designed to serve the masses or to maintain current power and wealth distribution? Consider how all the major cryptocoin supplies have been minted and distributed. Anyone with established wealth has had disproportionately easier access to take over these cryptocoin networks due to the supplies being produced in quantity early on and at low computational/energy/capital costs. Assuming the existing network is not made obsolete, and if there is any on-going demand then later users will need to sacrifice disproportionately excessive trade into the network as the early adopters simply horde the majority of the supply.
    - ballenf 9y ago
      The difference is that it's a one-time upfront situation, whereas the current monetary systems in place have permanent ongoing rewards: the US federal reserve system where a select few chosen long ago have a permanent guaranteed income return that is written into law. I'd rather have transparency and one-time benefit to a select few than a permanent, secretive benefit. The US federal reserve system works pretty well and I don't really have a huge problem with it. My point is simply that the downsides to cryptocurrencies you rightly highlight have to be viewed in context of the current alternatives.
xapata 9y ago
Even if it can't fiat the creation of more coin, the central bank of a high-income country can still extend a nearly infinite amount of credit denominated in that coin.

Iv 9y ago

Oh. Her. The one who oversaw one of the biggest corruption scandal in France (until we get confirmation of the Gaddafi affair) and who was a member of the Sarkozy administration, the closest thing to Trump we had their. Assume she is no smarter than a bad VC who is falling for buzzwords. I don't trust her analysis for a minute.

dna_polymerase 9y ago
argumentum ad hominem! Her analysis is actually pretty unbiased and well balanced. I never expected such a open statement from the head of the IMF.
- candiodari 9y ago
  I would argue that when talking about criminals, known to have committed fraud (which is what corruption is) it is in fact relevant to know this. She has been caught deliberately lying and organizing fraud, anything and everything she says needs to be triple checked and quadruple checked at least. Of course, there's a LOT of high up finance people who have been convicted of fraud and/or corruption directly or indirectly.
- Iv 9y ago
  Her analysis is pretty standard. If you really want to remove ad hominem then just ignore she was IMF head and assume this is a comment on a BTC enthusiasts forum. This is the exact value I attribute to that comment.

ballenf 9y ago

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 9y ago
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).
- ballenf 9y ago
  I see the privacy potential of cryptocurrency the same the privacy potential of the internet: for the average person it will be a disaster.
  - deleted 9y ago
    [deleted]
- tenaciousDaniel 9y ago
  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.
  - semiel 9y ago
    Yep, and we pretty much know what the solution will look like: zero-knowledge proofs, such as the ones used by ZCash.

thisisit 9y ago

The part which interest me a lot is this: "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." This could be read either ways. This could also mean expanding network to ensure people are able to transact online using dollars held in their accounts but not in physical form ie "virtual dollars". Then there is the word - "virtual currency". Sure bitcoin exists online so it is "virtual" in nature. But the supply control is defined by cryptographic proof so it cannot be created, at least for now, in an unlimited supply. This makes me wonder what is Christine Lagarde even talking about.

taysic 9y ago
She explains that quote clearly here: "For instance, think of countries with weak institutions and unstable national currencies. Instead of adopting the currency of another country—such as the U.S. dollar—some of these economies might see a growing use of virtual currencies. Call it dollarization 2.0. ...citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities. If privately issued virtual currencies remain risky and unstable, citizens may even call on central banks to provide digital forms of legal tender."

uncletammy 9y ago

>> ... too energy intensive This argument has become so triggering to me. When I hear this, two things become immediately clear to me about the speaker. They do not recognize the vast economies of scale of a network secured by proof-of-work. They also do not fully understand Bitcoin's value as not only as medium of exchange but also a STORE OF VALUE. The total number of Bitcoin addresses is 2^160. Yes, the Bitcoin network is currently securing 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976 payment addresses. That's enough for each person alive on this earth (~7.44 billion in 2016) to have 196,385,600,286,334,710,857,791,565,804,391,698,421.92 separate bank accounts that all fit in your pocket. How much energy do people think it would take to build a bank (or group of banks) that could collectively account for and secure the wealth in 2^160 bank accounts? Don't even consider that it needs to be accessible from all over the world. It would take A LOT OF ENERGY! Now, how much more energy would it take to also run a payment network on top of it? It would take EVEN MORE. What I want to know from everyone who cites this tired old argument is this. Just what is an acceptable amount of energy to secure potentially all of the wealth in the world?

monochromatic 9y ago
Do we need a trigger warning on comments about bitcoin energy consumption now?
AnIdiotOnTheNet 9y ago
You've made up a requirement to fit your argument. Why would we need to secure 2^160 bank accounts?
- Faark 9y ago
  For privacy reasons you probably want to create a new bank account for every atomic "coin" you have and might want to transfer. Also you might want to move them to new wallets in random intervals to make it look like they have been transferred and more difficult to identify/correlate actual transfers. That would of cause be impossible with Bitcoin's current 7 transactions per second. Its a long road ahead til crypto currencies will replace the current banking system, even ignoring POW's questionable energy consumption.

freddref 9y ago

"the underlying technologies are not yet scalable" - What does this mean?

Torgo 9y ago
Their number of transactions per second are orders of magnitude lower than VISA. Work is being done to address this, most notably Lightning Network.
- DennisP 9y ago
  Also sharding, Plasma, and proof of stake.