Christine Lagard says Blockchain Can Be Used to Help Regulate Bitcoin
Good with the Bad, but Never Ugly for Crypto
Lagarde begins her blog post by saying that the technology behind these “crypto-assets” – the blockchain – can deliver significant benefits which even led central banks to consider issuing their digital tokens.
“It is an exciting advancement that could help revolutionize fields beyond finance. It could, for example, power financial inclusion by providing new, low-cost payment methods to those who lack bank accounts and in the process empower millions in low-income countries.”
Despite her inclusive tone and positive recognition of the virtues of cryptocurrencies, she reminds readers that what makes cryptocurrencies so attractive is also what makes them so dangerous.
Lagard points out the fact that cryptocurrencies are built on decentralized networks that do not need a central authority. This characteristic gives cryptocurrency transactions an element of anonymity which can result in money laundering or the ability to finance terrorism.
She also mentions volatility as another threat that cryptocurrencies pose as well as the ability to create considerable vulnerabilities to the traditional financial world.
Another downside she considers is that it can also be freely used for illegal transactions, referring to the online criminal marketplace Alphabay. Before being taken offline, the dark web site was able to sell more than $1 billion in illegal goods and services through “crypto-assets.”
Lagard ends up calling for a regulatory framework to face up to the challenges cryptocurrencies pose.
The head of the IMF revealed that many organizations have already started to develop their first insights which later will be used to set up a regulatory framework to which several countries already agreed to accept.
She goes on to say that the starting point should be “focusing on policies that ensure financial integrity and protect consumers in the crypto world just as we have for the traditional financial sector.”
Lagard also refers that the same rules that to protect consumers in both digital and non-digital transactions should be the same which would help increase transparency and alert buyers to potential risks.
She concludes saying that “countries will have to decide collectively that this path is worth pursuing. Promisingly, the Group of Twenty [G20] has agreed to put crypto-assets on the agenda of its November 2018 summit in Argentina.”
Using the Blockchain to Monitor Cryptocurrencies
Besides recognizing the disruptive potential of cryptocurrencies, Lagard also praised the enormous capabilities that the blockchain has to offer by stating that its potential can be harnessed to monitor all cryptocurrency activity closely.
Lagard hopes to fight “Fire with Fire” referring to the fact that the same innovations powering cryptocurrencies can also be used to help impose regulation over them.
Lagard claims the following:
“Biometrics, artificial intelligence, and cryptography can enhance digital security and identify suspicious transactions in close to real time. This would give law enforcement a leg up in acting fast to stop illegal transactions. This is one way to help us remove the ‘pollution’ from the crypto-assets ecosystem.”
The Managing Director of the IMF concludes that by leveraging technology for the public good, the potential of crypto-assets can be harnessed to ensure that it can cease to be a haven for illegal activities or money laundering.