Winds of Change: The Case for New Digital Currency

https://www.imf.org/en/News/Articles/2018/11/13/sp111418-winds-of-change-the-case-for-new-digital-currency

by T-A • 8 years ago

73 33 8 years ago

chroem-• 8 years ago

If cryptocurrency is like bittorrent for finance, then this proposal is like downloading DRM-encumbered music from a walled garden marketplace. I think I'll pass.

hanniabu2• 8 years ago

cryptocurrencies seek to anchor trust in technology. So long as they are transparent.....Still, I am not entirely convinced. Proper regulation of these entities will remain a pillar of trust.

I don't think they understand that the purpose of cryptocurrencies is to remove the need for trust. Trust in the math, not the banker. AKA the economy should be built off the monetary system rather than the monetary system being built off the economy.

PeterisP5• 8 years ago

You can't remove the need for trust - that need is inherently beyond the reach of math.

If I want to use money to pay for some goods, I need trust that I can get that money back if the goods won't arrive. Math alone can't provide that, it needs something extra, e.g. a trusted escrow service in the case of crypto.

If I want to use money as a store of value, I need trust that the value is going to stay stable and maintain liquidity in the long term. Math alone can't provide that, that trust is inherently social. I also need reasonable trust that the money isn't likely to get stolen - math isn't sufficient for that, and our current experience shows that crypto assets are more vulnerable in practice than e.g. bank deposits, maintaining appropriate "opsec" is tricky and people fail in that too frequently.

And for your other point, the economy existed before a monetary system and currently works off of many monetary systems - however, for a monetary system the only criteria that matters is if it's good for what the economy needs; if some system does not fit these needs, then it won't get used much and is not particularly relevant.

SuddsMcDuff• 8 years ago

This is the elephant in the room, and the key component of cryptocurrencies which is yet to be solved. Cryptocurrencies can trustlessly manage intangible tokens which were themselves issued on the blockchain. But when you want to interact with real world, tangible assets, blockchains can only manage proxies of the real asset. There has not yet been a trustless way to ensure the link between the tangible asset and the blockchain proxy.

walterbell• 8 years ago

Yes, just as internet messaging and videoconferencing have made travel for F2F meetings more important, "trustless" cryptocurrency increases the value of "mathless" trust mechanisms.

randaouser2• 8 years ago

If I want to use money to pay for some goods, I need trust that I can get that money back if the goods won't arrive. Math alone can't provide that, it needs something extra, e.g. a trusted escrow service in the case of crypto.

No need for extras, you can do this today on Ethereum with Hashed Time Lock Contracts

nobody2712• 8 years ago

Well there are smart contracts which can act as an escrow service. I don't know how that works in reality, though. If smart contracts have to be deterministic how can they be used to guarantee that, say, a delivery was made? I want to belieber.

rstuart4133• 8 years ago

You can't remove the need for trust - that need is inherently beyond the reach of math.

That hides more than it reveals. Yes, trust is beyond math.

Measuring value is also beyond math. However there are ways of measuring value that aren't amenable to math (eg, how much you like a diamond) and ways of measuring value that are amenable to math (how much you are willing to pay for the diamond). The first worked method fine in a subsistence economy. The second way is how our current economy works. We are not completely and utterly dependent on being able to measure and transfer value with math. If we could not do it capitalism would not exist, nor would our society or way of life.

And so it is with trust. You can trust a banker not to embezzle your money because he has a reputation, mouths to feed, or he's your brother, or he will be perused by government agents armed with big guns, or any number of the other reasons we do now - none of which are easily quantified. Or you can trust him because he can't undo his decisions without corrupting a while pile of others and do to that he had to expend the net energy output of New Zealand for days. One is amenable to being manipulated with math, and one isn't.

Because the trust provided by crypto currencies can be quantified and manipulated with math we have smart contracts. Smart contracts mean the example you gave about trusting someone to deliver the goods means a computer can be the escrow agent and it is all done automatically the 99 times in 100 there is no dispute.

Yes, the OP was wrong in that crypto currencies allow us to replace trust with math. But only a little wrong. Crypto currencies allow us to manipulate and transfer trust with math, which is not so different.

jrruethe• 8 years ago

An alternative solution to requiring a 3rd party escrow is to use the concept of "mutually assured destruction". The general idea is that each party deposits twice the value into a shared 2-of-2 multisig wallet. Then, two transactions are generated: 1 for completing the purchase, and one for completing a refund. Both parties need to sign one of the transactions, or all their funds remain locked up, so there is an incentive to cooperate and come to an agreement without needing a 3rd party involved. It isn't perfect, because there are other drawbacks such as needing a large amount of money up front, but it is a trustless alternative.

This page explains it better: http://nashx.com/HowItWorks

_nalply• 8 years ago

There is still the need for trust... in the implementation of software!

Even if you read the source code carefully and ocmpile the software yourself, you trust the compiler and the operating system to do the right thing.

randaouser2• 8 years ago

No, you dont need to trust the software per say; there is a need to understand how software works in order to participate. That knowledge gap for most people will result in them trusting a 3rd party auditing of the software. You do much the same when you allowed your bank to share information with equifax... what happened there? One of many issues with trusting corps to do the right thing [EDIT: spelling]

TeMPOraL• 8 years ago

the purpose of cryptocurrencies is to remove the need for trust. Trust in the math, not the banker

By exchanging trust for energy.

Cryptocurrencies are the best example of trust being a tangible thing - it can be quite literally converted to Kilowatt hours. This shows how incredible trust is as an energy use optimization device. We should be finding ways to be able to safely depend more on trust, not less.

larrysalibra• 8 years ago

This currency could satisfy public policy goals, such as (i) financial inclusion, and (ii) security and consumer protection; and to provide what the private sector cannot: (iii) privacy in payments.

If financial inclusion and privacy in payments were actual public policy goals, cryptocurrencies would be a lot less attractive.

In reality, the real public policy goals are:

1) Financial exclusion: using denial of access to the state run financial system as a political, law enforcement, social control and tax collection tool.

3) "Know your customer" and "anti-money laundering" (AML/KYC) rules that remove privacy in payments to make it easier to use the state run financial system as described in 1). These regulations in practice exclude the the poorer people in society - the people Lagarde like means when she says "financial inclusion" - that can't meet requirements like "proof of address" and can't meet the minimal balance / month fee requirements that have come about from these AML/KYC regs.

fro0116• 8 years ago

I don't disagree with your points around the public policy goals of currency, but suggesting that minimal balance / monthly fee requirements come from AML/KYC regulations is quite the stretch. I'd wager those come from greed, pure and simple.

The banks charge those fees because they can. If we got rid of AML/KYC regulations and reduced the banks' costs around regulatory compliance, do you think the banks will pass the savings onto customers or pocket the difference? I know where I'm putting my bet.

AnthonyMouse4• 8 years ago

If we got rid of AML/KYC regulations and reduced the banks' costs around regulatory compliance, do you think the banks will pass the savings onto customers or pocket the difference?

The existing banks, on their own? Surely not. But complicated and expensive regulations like that are the main reason we don't have more, smaller banks, and they would be happy to gain customers by charging lower fees. Then the existing banks would have to compete and do the same.

erikpukinskis• 8 years ago

We need two things to operate productively without the State:

Cryptocurrency is one. It does the job of the mint.

The second piece, is we need a set of contracts that allow us to never take ownership of assets anymore.

Instead of "here's a dollar, please may I have a taco", we'll say "please may I have a taco, here are my contracts" and the chef will ask the computer, "are this one's contracts aligned enough that I give them a taco?"

There will be times you need to create revenue, which will be taxable, but it won't be the default.

I'm not talking about tax evasion here. I'm talking about operating in a way that human activity can't be modeled as a transfer of assets. Essentially widening your friends and family circle to temporarily include arbitrary individuals.

divan• 8 years ago

This is suprisingly good and even refreshing speech after reading tons of very opinionated pro- and contra-crypto articles.

Financial system design still have this chicken or the egg problem – we need to design fintech systems aligned with offline social interaction patterns as much as possible, but their (current) design changes our social interaction patterns in return as well.

It's still fascinating to see how the world reimagines and reconsiders the nature of money. And not only in cryptopunks community, but in such a huge powerhouses as IMF as well.

hkt2• 8 years ago

I feel like one day, central banks are going to be attacked by private banks and the means of attack will be cryptocurrency. The aim will be to get rid of central bank deposits and seize control of the payments system - once the central bank deposits are gone and we're cashless, this will become easy. They could even base it offshore to avoid consumer protections. If we're lucky when this happens, it will be a test of the remaining power of nation states. If we're unlucky, they'll roll over as the most basic means of exchange is privatized.

netcan• 8 years ago

Because of bitcoin, cryptocurrency has a strong association with "free money," which is basically a dissent theory of macroeconomics that doesn't want central banks to have control. This was written by a central banker, so obviously there's a belligerence here...

In any case... Idk what I think about free money. Macroeconomics is hard.

OTOH, I think cryptocurrencies have other disruptive potential even if we want to keep our current macroeconomics, central bank control over interest rates.

It's the kind of technology that turns a £100bn industry into a £1bn one. There are several clunky inefficient financial services sub-industries that could potentiall be digitised by good implementation of blockchain tech.

The problem is too-big-to-fail. Besides actual central banking, does Christine Lagarde see her job as protector of the financial services industry? If so, she's going to build bureaucracy that maintains the status quo.

Winds of Change: The Case for New Digital Currency

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