How Blockchain Can Protect the Global Economy
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For many investors and analysts, the 2008 financial crisis is a powerful demonstration of what happens when the financial world puts too much trust in centralized institutions. While cryptographers and computer scientists had already developed ideas for digital cash and some of the mechanisms involved in modern-day cryptocurrencies, the events of 2008 were in many ways a set of catalysts for the digital currency space as it exists today. Satoshi Nakamoto’s famous bitcoin white paper was published in the same year as the financial crisis.
While it’s impossible to go back in time, some supporters of blockchain believe that, if the new technology had been in existence earlier in the century, it might have prevented 2008’s events from happening in the first place. A recent report by Coin Telegraph highlights some of the members of the cryptocurrency community who believe that distributed ledger technology could now help to prevent subsequent global financial turmoil as well.
Issues of Trust
Fintech journalists Paul Vigna and Michael Casey have written on the subject of trust as a social resource. Indeed, Vigna and Casey point to a breakdown of trust as a potential primary issue in the collapse of Lehman Brothers a decade ago. The authors believe that, although many analysts see the 2008 crisis as the result of issues involving short-term liquidity, the deeper cause of the subprime mortgage bubble was more accurately described as society’s imperturbable trust in financial institutions, their record-keeping systems and their practices. Because of this trust, bankers were not caught when they manipulated their ledgers in order to resell assets with little or no value over many years.
Lehman Brothers posted earnings of more than $4 billion just months before folding. For Vigna and Casey, this suggests that the firm’s financial statements were not based in reality. For these two authors, the issue comes down to the complexity and the outdated nature of bank accounting. When things went wrong at Lehman, the firm was able to hide its troubles by engaging in shady accounting practices.
Blockchain for Trust and Transparency
Taking Vigna and Casey’s argument, a large portion of the 2008 events were able to happen because of a severe lack of transparency in the financial status of big banks, as well as a limitless public trust in those banks. Certainly, while the 2008 crisis may have challenged society’s trust in major financial institutions, overall that sense of trust remains to a high degree. Further, transparency remains a m