Crypto has ‘amplified financial risks’ in emerging markets, central banks warn(ft.com)
ft.com
Crypto has ‘amplified financial risks’ in emerging markets, central banks warn
https://www.ft.com/content/dc6d7505-03b5-4cc2-8fc9-6e3ea2efa63a
50 comments
Those of us fortunate to live within a, mostly, good economic system don’t need cryptocurrency. I don’t have a problem saying that. But I also have the imagination to wonder if it will always be the case. And the empathy to understand that not every human is as fortunate as myself. People making broad statements about a technology seem to do so only from their current perspective. “Crypto is useless” for example, really means: “crypto is useless to me.”
My arguments against crypto are never about 'not useful for me'.
You either never heard arguments or ignore them but there are not just theoretical but also real life shows us that it doesn't work.
Your poor person who needs to save their hard cash in a dictatorship can either buy things, get dollars or euros (like what they do in Iran) or try to find someone to take their risky local currency to exchange it for a better digital one.
One were this poor person needs to understand backup strategy, fraud, computer and smartphones.
This is so naive it's ridiculous.
And continue to ignore EVERYTHING bad which happens to crypto the last 3 years.
Of course Sam and others those are NEVER crypto issues right?
Btw the poor people would benefit more from less CO2 instead of some crypto shit.
You either never heard arguments or ignore them but there are not just theoretical but also real life shows us that it doesn't work.
Your poor person who needs to save their hard cash in a dictatorship can either buy things, get dollars or euros (like what they do in Iran) or try to find someone to take their risky local currency to exchange it for a better digital one.
One were this poor person needs to understand backup strategy, fraud, computer and smartphones.
This is so naive it's ridiculous.
And continue to ignore EVERYTHING bad which happens to crypto the last 3 years.
Of course Sam and others those are NEVER crypto issues right?
Btw the poor people would benefit more from less CO2 instead of some crypto shit.
I've lived in both a bad economy and a good economy. Having your money in USD is always a safer bet in bad economies.
> “Crypto is useless” for example, really means: “crypto is useless to me.”
No. It means "crypto is useless for every single use case it's advertised as a solution for except illegal money transfers, and even then the number of caveats is as long as the equator"
> “Crypto is useless” for example, really means: “crypto is useless to me.”
No. It means "crypto is useless for every single use case it's advertised as a solution for except illegal money transfers, and even then the number of caveats is as long as the equator"
Nobody can steal my crypto, I don't need a physical vault for gold coins, and I can buy stuff around the world in minutes. Am in North America.
> Nobody can steal my crypto,
"Once the victim connected their crypto wallet, it was immediately drained of $900,000 in the USDC stablecoin"
"The "interchain stablecoin protocol" Harbor announced on August 19 that they had experienced an exploit that drained some of the funds in the project pools"
"The Exactly Protocol, an attempt to "decentralize the credit market" built on the Optimism layer-2 network, was exploited. An attacker has siphoned more than 7,160 ETH (~$12 million) from the project"
"Blockchain Capital co-founder Bart Stephens has filed a lawsuit against as-yet-unknown individuals who he says stole $6.3 million in cryptocurrency from him."
"Exploiters stole around 471 ETH (~$857,000) from the RocketSwap project "
"The Zunami Protocol stablecoin-focused yield farming aggregator was exploited for more than $2.1 million"
> I can buy stuff around the world in minutes
I've been able to do that in seconds for nearly 20 years now. Was/am in Eastern Europe, Turkey, EU. No crypto necessary
"Once the victim connected their crypto wallet, it was immediately drained of $900,000 in the USDC stablecoin"
"The "interchain stablecoin protocol" Harbor announced on August 19 that they had experienced an exploit that drained some of the funds in the project pools"
"The Exactly Protocol, an attempt to "decentralize the credit market" built on the Optimism layer-2 network, was exploited. An attacker has siphoned more than 7,160 ETH (~$12 million) from the project"
"Blockchain Capital co-founder Bart Stephens has filed a lawsuit against as-yet-unknown individuals who he says stole $6.3 million in cryptocurrency from him."
"Exploiters stole around 471 ETH (~$857,000) from the RocketSwap project "
"The Zunami Protocol stablecoin-focused yield farming aggregator was exploited for more than $2.1 million"
> I can buy stuff around the world in minutes
I've been able to do that in seconds for nearly 20 years now. Was/am in Eastern Europe, Turkey, EU. No crypto necessary
You sure? Bitcoin Core dev lost all his 200 BTC crypto via hack...
Hope you understand bitcoin security better than him.
https://cointelegraph.com/news/bitcoin-core-developer-claims...
Hope you understand bitcoin security better than him.
https://cointelegraph.com/news/bitcoin-core-developer-claims...
Really like how the whataboutism adds useful thoughts.
That guy claimed his cloud VM was compromised. Few would consider that to be a secure way to keep a secret, and it could be a boating accident story. Boating accidents do happen.
That guy claimed his cloud VM was compromised. Few would consider that to be a secure way to keep a secret, and it could be a boating accident story. Boating accidents do happen.
Your reaction is how everyone reacts before their own crypto is stolen.
I don't know how crypto proponents think they can simultaneously wave away this level of fraud but still seek economy-wide adoption.
I don't know how crypto proponents think they can simultaneously wave away this level of fraud but still seek economy-wide adoption.
His cloud VM was supposedly hacked. That was not hacking crypto, it was hacking a generic cloud account.
And why presume what I may or may not be advocating?
And why presume what I may or may not be advocating?
https://news.ycombinator.com/item?id=37268750
Hope you're diversified...
Hope you're diversified...
How do you store your USD if you live in, say, Zimbabwe or Argentina?
Cash. You store them as cash.
Many countries that are unstable from the "first-world" point of view, but stable enough to provide a banking system with deposit or savings accounts in USD or Euro. And yes, people use those (I did).
Many countries that are unstable from the "first-world" point of view, but stable enough to provide a banking system with deposit or savings accounts in USD or Euro. And yes, people use those (I did).
> a totalitarian state has imposed top-down laws that interfere with that productive economy — then crypto will help "route around" that totalitarian state, and thereby help the economy.
I don’t think this fits the technology: blockchains are perfect for totalitarian states since they prevent anyone from hiding from the tax collectors and police. The only way it helps is if the government is too weak to enforce its laws, at which point that’s probably the least of your concerns.
I don’t think this fits the technology: blockchains are perfect for totalitarian states since they prevent anyone from hiding from the tax collectors and police. The only way it helps is if the government is too weak to enforce its laws, at which point that’s probably the least of your concerns.
> prevent anyone from hiding from the tax collectors and police
Only if you use chains with traceable transactions.
Only if you use chains with traceable transactions.
You also have to only buy things available purely on that system from people you are certain don’t collaborate with the government. If all of those assumptions aren’t true, your activity can be tracked with increasing precision and the authorities will see local transactions which you can’t explain otherwise and demand explanations.
The schemes Zcash and Monero use have never been tested at scale with a sophisticated adversary. The statistical methods used are probably fine for keeping your friends from knowing what you buy but it’s less clear that a government which can observe network traffic and receive KYC data from compliant merchants or compromised devices won’t be able to rule out some of the decoys over time, and since it’s a blockchain you’re gambling that this will hold true forever.
The schemes Zcash and Monero use have never been tested at scale with a sophisticated adversary. The statistical methods used are probably fine for keeping your friends from knowing what you buy but it’s less clear that a government which can observe network traffic and receive KYC data from compliant merchants or compromised devices won’t be able to rule out some of the decoys over time, and since it’s a blockchain you’re gambling that this will hold true forever.
> The schemes Zcash and Monero use have never been tested at scale with a sophisticated adversary
Monero's ring signatures are not the same as ZCash's zero-knowledge crypto. Monero obfuscates, but ZCash hides completely, cryptographically.
https://z.cash/learn/is-zcash-traceable/
Monero's ring signatures are not the same as ZCash's zero-knowledge crypto. Monero obfuscates, but ZCash hides completely, cryptographically.
https://z.cash/learn/is-zcash-traceable/
That’s the hope anyway - even if the cryptography is perfect against all future attacks (remember they’ve already had at least one flaw in earlier versions) there are still things like timing attacks:
https://crypto.stanford.edu/timings/
Nation states are some of hardest attackers since they can do things like monitoring network traffic to correlate with chain activity or compel some fraction of the participants to surrender data. I know some smart people work on Zcash but there’s no safety net when all of the transactions are public and immutable.
https://crypto.stanford.edu/timings/
Nation states are some of hardest attackers since they can do things like monitoring network traffic to correlate with chain activity or compel some fraction of the participants to surrender data. I know some smart people work on Zcash but there’s no safety net when all of the transactions are public and immutable.
I like to think the government has a unique and sophisticated rubber-hose attack, just auditing you.
That’s one of the big questions here: if repressive governments are in your threat model, does a given system mean a normal person is likely to leave too much data on their devices? It’s really easy to imagine checks on all of the phones seized from protesters, anyone suspected of spending beyond their reported income, etc. so something which doesn’t make it really easy to purge old history is pretty risky - not least because if they catch you hiring anything there’s a nasty problem of convincing them that there’s nothing more still hidden.
I did not know this is possible - can You give an example of blockchain with this property?
zcash is one. https://en.m.wikipedia.org/wiki/Zcash
Monero, and zero-knowledge ones: zcash and more recent Mina which supports smart contracts.
It's incredible how often we must refer to this classic xkcd when talking about crypto "security": https://xkcd.com/538/
> If the people of a country include a large criminal element that would forcefully put themselves in the position of rentier middleman, extracting all margin from interactions in the economy for themselves and so starving the country of growth capital
Isn’t this the business plan of every failed/fraudulent crypto exchange?
Isn’t this the business plan of every failed/fraudulent crypto exchange?
I mean "forcefully" literally. You voluntarily enter into a relationship with Uber, AirBnB, etc; and other companies can enter the same market. You don't voluntarily enter into a relationship with the guy who comes into your shop demanding protection money. Nor with the gang who corners the market for e.g. bananas, by "negotiating" with both the producers and the large commercial buyers at gunpoint.
Keyword here is "forcefully", when you use an exchange, you willingly do so.
> then crypto will help "route around" that well-meaning state, and thereby reinforce the criminal capture of the economy.
How is it possible that these rent-extracting middlemen (whatever it means, mafia?) can _not_ be in control of the state long term? If they capture the profits that power the state in the end, wouldn't it be correct to describe it as a state-in-another-state, state-in-transition or just two-competing-states situation? Crypto seemingly helps with both mafia and the govt for an ordinary user, cause they both have similar powers when it comes to control of crypto txs (almost zero).
How is it possible that these rent-extracting middlemen (whatever it means, mafia?) can _not_ be in control of the state long term? If they capture the profits that power the state in the end, wouldn't it be correct to describe it as a state-in-another-state, state-in-transition or just two-competing-states situation? Crypto seemingly helps with both mafia and the govt for an ordinary user, cause they both have similar powers when it comes to control of crypto txs (almost zero).
> Crypto seemingly helps with both mafia and the govt
Crypto never helps the state (in isolaton†); insofar as part of a state's responsibilities include issuing and controlling a fiat currency, setting import/export controls for that currency, etc., then the existence of crypto only serves to interfere with state control.
Crypto helps a criminal gang insofar as it helps it evade state control over e.g. moving large amounts of wealth into/out of the country.
Consider for a moment: when Pablo Escobar was selling billions of dollars of drugs, it was just as much of a logistical challenge to move the money while avoiding state interception, as it was to move the drugs. Crypto completely obviates that logistical challenge.
> How is it possible that these rent-extracting middlemen (whatever it means, mafia?) can _not_ be in control of the state long term?
Because the country as a whole is small, and other nations do not recognize the legitimacy of the criminal-gang-as-state and will continually help the citizens of the country to take down the criminal gangs whenever they rise close to that level of power.
Also because the gangs just don't have popular support. Ruling by fear can work if your economy is based on resource extraction and that resource extraction can be mostly automated; but it doesn't work at all if your economy relies on productive bottom-up trade interactions between citizens. The gang only had something to exploit insofar as there was still a slightly-productive economy for it to parasitize; if it manages to capture the entire economy, then at that exact point, that economy is dead, and there is nothing more to extract.
(But really, you don't need a theory behind it, you can just see that it doesn't happen in practice. Venezuela never became a true kleptocracy; Haiti still isn't a kleptocracy; etc.)
---
† Western countries have adopted a policy of not doing much to interfere with the growth of crypto. This is realpolitik. Crypto most interferes with states that try to most-heavily manipulate their financial system. Right now, those states it most interferes with, are states that Western countries want to economically hobble, lest they end up at war with them. The US, for example, is very happy to see Chinese capital flight to US investments, enabled via crypto despite China's best efforts.
Crypto never helps the state (in isolaton†); insofar as part of a state's responsibilities include issuing and controlling a fiat currency, setting import/export controls for that currency, etc., then the existence of crypto only serves to interfere with state control.
Crypto helps a criminal gang insofar as it helps it evade state control over e.g. moving large amounts of wealth into/out of the country.
Consider for a moment: when Pablo Escobar was selling billions of dollars of drugs, it was just as much of a logistical challenge to move the money while avoiding state interception, as it was to move the drugs. Crypto completely obviates that logistical challenge.
> How is it possible that these rent-extracting middlemen (whatever it means, mafia?) can _not_ be in control of the state long term?
Because the country as a whole is small, and other nations do not recognize the legitimacy of the criminal-gang-as-state and will continually help the citizens of the country to take down the criminal gangs whenever they rise close to that level of power.
Also because the gangs just don't have popular support. Ruling by fear can work if your economy is based on resource extraction and that resource extraction can be mostly automated; but it doesn't work at all if your economy relies on productive bottom-up trade interactions between citizens. The gang only had something to exploit insofar as there was still a slightly-productive economy for it to parasitize; if it manages to capture the entire economy, then at that exact point, that economy is dead, and there is nothing more to extract.
(But really, you don't need a theory behind it, you can just see that it doesn't happen in practice. Venezuela never became a true kleptocracy; Haiti still isn't a kleptocracy; etc.)
---
† Western countries have adopted a policy of not doing much to interfere with the growth of crypto. This is realpolitik. Crypto most interferes with states that try to most-heavily manipulate their financial system. Right now, those states it most interferes with, are states that Western countries want to economically hobble, lest they end up at war with them. The US, for example, is very happy to see Chinese capital flight to US investments, enabled via crypto despite China's best efforts.
The institution that controls the currency will always fight any alternative currency.
That's one big piece of the value proposition of Bitcoin: it is governed by user consensus, not political power.
That's one big piece of the value proposition of Bitcoin: it is governed by user consensus, not political power.
I think the better word is clarified.
There's no data here... it's just a statement by bankers about banks.
It's going to get upvoted entirely for the sentiment, but there's literally no new info here.
It's going to get upvoted entirely for the sentiment, but there's literally no new info here.
don't discount the lucky 10k so easily
https://xkcd.com/1053/
https://xkcd.com/1053/
The article is devoid of substance.
> All but two of the top 20 countries for crypto adoption are emerging markets, with countries like Venezuela, El Salvador and Nigeria becoming test beds for whether cryptocurrencies could offer a balm to countries ravaged by inflation and depreciating official currencies.
There is a reason why people in Venezuela and Argentina flock to currency different from the wildly inflating fiat currency.
> But the central banks group said that crypto assets increased financial stability risks in emerging market economies, as a weaker rule of law could make it harder to enforce contracts, while “inconsistent enforcement can create confusion and raise market risk”.
These countries already have weak rule of law. If anything, smart contracts could be an improvement where presidential candidates are assassinated and narco terrorists bribe judges and police.
> All but two of the top 20 countries for crypto adoption are emerging markets, with countries like Venezuela, El Salvador and Nigeria becoming test beds for whether cryptocurrencies could offer a balm to countries ravaged by inflation and depreciating official currencies.
There is a reason why people in Venezuela and Argentina flock to currency different from the wildly inflating fiat currency.
> But the central banks group said that crypto assets increased financial stability risks in emerging market economies, as a weaker rule of law could make it harder to enforce contracts, while “inconsistent enforcement can create confusion and raise market risk”.
These countries already have weak rule of law. If anything, smart contracts could be an improvement where presidential candidates are assassinated and narco terrorists bribe judges and police.
So to evade hyperinflation one uses an asset which is more volatile, and in the case of BTC, is deflationary by nature. Which as in _investment_ is fine, but as a means of payment not, as the whole essence of a _sensible_ amount (2-3%) of inflation is a driver for economic growth. The problem with this statement is that using one evil to escape the other which doesn't make sense.
Countries with a weak rule of law shouldn't (monetary wise) not be made weaker by using a volatile and highly (let's not deny it..) manipulative asset.
Countries with a weak rule of law shouldn't (monetary wise) not be made weaker by using a volatile and highly (let's not deny it..) manipulative asset.
Bitcoin has been very stable against the USD for a while now.
And that's just bitcoin, stable coins are more reliable.
And of course inflation only robs holders, at least volatility goes in your favour half the time.
I also would not call it an investment: there is no reason to expect prices to rise. Bitcoin does not grow in the way a company can (making shares an investment) or pay interest like a bond. It's at best a speculative asset, like maybe gold?
And that's just bitcoin, stable coins are more reliable.
And of course inflation only robs holders, at least volatility goes in your favour half the time.
I also would not call it an investment: there is no reason to expect prices to rise. Bitcoin does not grow in the way a company can (making shares an investment) or pay interest like a bond. It's at best a speculative asset, like maybe gold?
Agreed with this nuance w/ regards to investment vs. asset. But IMHO even if volatility goes in your favor half the time it's still not a viable alternative. If the value of an asset is dependent on what a future buyer is willing to pay for it without taking the implicit value into consideration I leave it as an exercise to the reader how this will end ;-)
> Bitcoin has been very stable against the USD for a while now.
But isn't stable against itself. People who got in first are infinitely richer than people who would buy it a generation from now.
But isn't stable against itself. People who got in first are infinitely richer than people who would buy it a generation from now.
Same for grandpa who got in first with farmland and just sold to housing developers. At least people a generation from now can go to GitHub and fork the btc or eth open source code and make a run at starting their own chain.
> At least people a generation from now can go to GitHub and fork the btc or eth open source code and make a run at starting their own chain.
And that will help them how exactly? There are thousands of chains and coins with total adoption and value of zero
And that will help them how exactly? There are thousands of chains and coins with total adoption and value of zero
>And that's just bitcoin, stable coins are more reliable.
Until they submit to agnostic third party audits, they're not stable.
Until they submit to agnostic third party audits, they're not stable.
I always thought the word "contract" in crypto was more of a metaphor than an actual contract. Kind of like how filesystems have "folders" even though the "folders" in a filesystem aren't anything like real folders at all.
The "contract" is just a computer program with the bytecode deployed on-chain.
> If anything, smart contracts could be an improvement where presidential candidates are assassinated and narco terrorists bribe judges and police.
You cannot fix social issues with limited code dealing with digital assets only written in esotheric programming languages so impenetrable that their own authors and multiple audits routinely miss trivial exploitable issues.
You cannot fix social issues with limited code dealing with digital assets only written in esotheric programming languages so impenetrable that their own authors and multiple audits routinely miss trivial exploitable issues.
capital routes around capital controls
news at 11
news at 11
It feels like BIS is confused here, and I say that as a crypto minimalist.
Yes, ther are many scams in crypto, but the basest of things, sending magic beans between people, is fairly solid. Not without risks, but if you have no alternative, it's pretty good IMHO.
Saying crypto is bad because of scams is like saying dollars are bad because of Nigerian scammers. Can't trust these grannies with their dollars...
Yes, ther are many scams in crypto, but the basest of things, sending magic beans between people, is fairly solid. Not without risks, but if you have no alternative, it's pretty good IMHO.
Saying crypto is bad because of scams is like saying dollars are bad because of Nigerian scammers. Can't trust these grannies with their dollars...
No undo button results in lots of scams, you don't say.
If the people of a country have a "common law" underlying their bottom-up interactions, that already works on its own as a basis for a productive and growing economy — but a totalitarian state has imposed top-down laws that interfere with that productive economy — then crypto will help "route around" that totalitarian state, and thereby help the economy.
If the people of a country include a large criminal element that would forcefully put themselves in the position of rentier middleman, extracting all margin from interactions in the economy for themselves and so starving the country of growth capital — and the state has imposed top-down laws that interfere with that rent-extraction, in an attempt to get the economy going in the right direction — then crypto will help "route around" that well-meaning state, and thereby reinforce the criminal capture of the economy.