According to a new release by the International Monetary Fund (IMF), rapid growth in Bitcoin and other cryptocurrencies would lead to “new vulnerabilities in the international financial system” as banks and financial institutions seek to adjust. The IMF cited cybersecurity concerns that could expose inherent instabilities in the banking sector.
The IMF World Economic Outlook report
According to the October 9th IMF World Economic Outlook report –
“Cybersecurity breaches and cyber attacks on critical financial infrastructure represent an additional source of risk because they could undermine cross-border payment systems and disrupt the flow of goods and services. Continued rapid growth of crypto assets could create new vulnerabilities in the international financial system.”
Cybersecurity is certainly a growing concern and the number of hacks and scandals have increased. However, this is a wider systemic crisis and it is unfair to say that DLT is the cause of this rise. To conflate cryptocurrency with cybercrime is misleading. Additionally, all technological advances bring both risks and benefits.
Adoption of cryptocurrency by financial institutions
Banco Santander recently adopted Ripple’s xRapid service, settling cross-border transfers in XRP. Other banks could soon follow, and the effects of this are unknown. Ripple is arguably the most suitable network for the migration of the legacy financial infrastructure to a decentralized and transparent system, despite being a corporate entity. Banks may soon have no choice except to adopt Ripple’s network as it is trusted, advanced, fast, and designed specifically for banks and large financial institutions as a real-time gross settlement system.
Speaking at a Swell conference recently, bitcoin bull Tom Lee mocked central banks, asking them if they liked the SWIFT protocol because it was backward compatible with the Abacus. The point being that the SWIFT system is outdated and has no benefits when compared to the existing alternatives.
The IMF – missing the point
Coins such as BTC, ETH, LTC, XRP, EOS, and XLM are currently being examined for the effects large scale adoption will have on existing financial institutions. There are currently operations underway to create derivative products and investment models that would integrate them into the already existing structure. However, the basic aim of these cryptocurrency tools is not to integrate, but to dissolve. The “new vulnerabilities in the international finance system” are a core feature of the technology, not an unwanted side effect. The purpose of such cryptocurrencies is as a replacement, not as a complement, and the current infrastructure is not expected to exist in an era of hyperbitcoinization and mass DLT adoption.
The IMF has issued many reports on the apparent dangers of DLT adoption. IMF director Christine Lagarde has also stated that increased use of cryptocurrency would lead to illicit activity by criminals, indicating that – “It’s clearly a domain where we need international regulation and proper supervision. There is probably quite a bit of dark activity [in cryptocurrencies]” However, it has been established that criminals still prefer cash to cryptocurrency and the overall cryptocurrency industry is no more than a drop in the ocean compared to current and ongoing fiat financial scandals.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.