The International Monetary Fund Has a Dystopian Vision for the Blockchain
IMF head Christine Lagarde wants to “fight fire with fire” in order to regulate cryptocurrencies.
IMF managing director Christine Lagarde. Image: Wikimeddia/ Michael Wuertenberg
The International Monetary Fund is an ideological enemy to Bitcoin and decentralized virtual currencies in general. The Washington, DC-based organization centrally controls a global system of payments and loans, often given to struggling nations on the condition that they impose strict austerity. Now, the IMF wants to use the same technology behind Bitcoin to regulate it.
In a blog post on Tuesday, IMF head Christine Lagarde wrote that cryptocurrencies need regulation in order to crack down on crimes like money laundering and terrorist financing. This is relatively uncontroversial as regulators in the US and abroad are circling the industry and deciding how it will be policed. More interestingly, Lagarde wrote that the “same innovations that power crypto-assets can also help us regulate them,” and that the IMF can “fight fire with fire.”
All of a sudden, the same decentralized record-keeping properties that make the blockchain subversive also make it a surveillance platform without equal
For example, Lagarde suggested that Know Your Customer (KYC) requirements for cryptocurrency exchanges could combine biometrics (identification using physical characteristics like a fingerprint or iris), machine learning, and cryptography. This would allow police to “identify suspicious transactions in close to real time” and “give law enforcement a leg up in acting fast to stop illegal transactions,” she wrote. (KYC requirements would presumably only affect purchases made through exchanges, and cryptocurrencies can be purchased a number of ways, even offline.)
Blockchains allow multiple parties to log and timestamp digital information without having to trust each other, and keep a record of interactions going back to the very beginning. On a blockchain, participants are represented by strings of numbers and letters known as addresses. You can trace funds moving from address to address, but there’s usually no way of telling who that address belongs to. This anonymity feature, paired with the irreversible nature of transactions, can make blockchain technology a powerful tool for subverting authorities.
With biometrics and machine learning (possibly to automatically flag suspicious transactions), the anonymity factor is gone. All of a sudden, the same decentralized record-keeping properties that make the blockchain subversive also make it a surveillance platform without equal. A secure and verifiable way to track people, and not just their anonymous payments, works in the interests of organizations that Bitcoin was ostensibly set up to overthrow.
The IMF really doesn’t seem threatened by Bitcoin. “As I have said before, it would not be wise to dismiss crypto-assets; we must welcome their potential but also recognize their risks,” Lagarde wrote.
Lagarde suggested that “distributed ledger technology” can verify information communicated between regulators and industry participants. Lagarde didn’t invoke “blockchain” specifically here possibly because, as The Verge recently noted, a definition of what a blockchain is or isn’t can become loose to the point of non-existent once system design starts drifting away from Bitcoin. If this system ever comes into being, it might not look at all like Bitcoin or even Ethereum’s blockchain. It might not be appropriate to call it a “blockchain” at all, but some sort of new mutation.
A utopian case for Bitcoin and cryptocurrencies in general, if one even exists, is still struggling to articulate itself as merchant adoption hasn’t caught on nearly a decade after the first block of Bitcoin transaction data was generated, and prices continue to fluctuate too wildly for it to be considered a store of value. Lagarde’s blog shows that it’s much easier to imagine an opposite, dystopian scenario right now.
And it’s clear that the financial establishment isn’t afraid of Bitcoin or the blockchain, so much as it’s licking its chops to strip it for parts and use it in ways that would make Satoshi Nakamoto (Bitcoin’s anonymous inventor) balk.
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