The International Monetary Fund has just issued an urgent call for cooperative international regulation of cryptocurrencies. They are worried about multiple plausible scenarios in which the new technology could have disastrous economic and social consequences.
Traditionally, bankers tend to err in the direction of conservatism, so one would expect them to be cautious about such a radical, disruptive new financial technology. However, you'd also expect them to speak in measured terms framed not to cause panic, but their warnings about cryptocurrencies are uncharacteristically dire, verging on apocalyptic. Unfortunately, they may still understate the dangers.
Human financial systems have evolved over thousands of years and, like the human body, have all sorts of adaptations for times of crisis. A human-designed system (like any or all cryptocurrencies) has not been shaped by evolution, but by programmers who NEVER anticipate everything. The likelihood of collapse in a crisis is simply much higher in an artificial system.
That's what happened in 1987 when program trading crashed the stock market. Fortunately in that case the damage was relatively contained, and regulations were quickly introduced to reduce the risks. Unfortunately, there's no guarantee that every collapse will have so few lasting effects. Moreover, cryptocurrency is much more important and dangerous than program trading ever was.
It seems to me that if cryptocurrency isn't properly regulated by governments, it will be controlled by the most ruthless and greedy among the 1%. Those are the only two choices I see. Governments are far, far, far from perfect, but the ruthless rich are even less likely to anticipate and avoid a crypto-precipitated economic collapse.
Unfortunately, political reality means that cryptocurrency won't even begin to be properly regulated until we've endured some predictable disasters. Every technology enables new disasters, and the cryptodisasters are coming soon. Because we cannot anticipate the precise form disasters will take, we can only hope that the coming cryptodisasters will be as minor as the stock market dropping 20% one day in 1987.
