Blockchain could revolutionize global banking

The era of globalization is drawing to a close. Evidence of that has been made clear by President Trump’s withdrawal from global affairs, his attempt to build an economic and physical wall around the United States. It’s a clumsy attempt to express the genuine concerns of Americans who have been left out of the prosperity reaped by a few.

     image: Urban Forex

Two billion people around the world have no access banking. They are unable to make loans to start small businesses; they have no credit, and no means of sending or receiving money.

And the rest of us have is rigged banking system. We are nickeled and dimed in every banking transaction and pay exorbitant interest rates on credit cards.

We are told that a healthy banking system is fundamental to a healthy economy. Yeah, right. Banking funnels money into the pockets of the rich who have so much that it just lays around in piles, uninvested, while worthwhile social programs and enterprises go threadbare.

When U.S. banks failed during the Great Recession of 2008 -because of bad business practices- they were bailed out with taxpayer’s dollars. They were rewarded for bad investments while homeowners who couldn’t pay bank-approved mortgages were thrown out on the street.

Not only is there an asymmetrical relationship between banks and clients in terms of wealth distribution, there is also an imbalance of transparency. While banks know exquisite details about us, we know practically nothing about them. Social scientist Shoshana Zuboff calls this one-sided, extractive interaction “surveillance capitalism.”

The technology of blockchain holds promise to restore balance and eliminate excessive fees through use of a universal digital currency, or cryptocurrency.

The first digital currency, Bitcoin, leaves people wondering. It has a reputation of being highly speculative.  But there are many versions of cryptocurrencies that would work and many possible versions of blockchains –the digital ledger which records transactions.

The advantages of cryptocurrencies over banking are that your money is held in a digital wallet and easily accessed; credit card payments are quicker and less expensive; you remain relatively anonymous (pseudonymous) with minimal information shared; you are the master of your money, there are no banks or boundaries to the flow of money.

If it all seems to be too good to be true, there are hurdles. One is just who controls access to your digital money. If banks control applications that access cryptocurrency wallets, we can expect business as usual. Cultural anthropologist Natalie Smolenski explains:

“This is the crux of blockchain’s catch-22: the public won’t use blockchains without user-friendly applications. But user-friendly applications often achieve that ease through centralization, which replicates the conditions of control that blockchains sought to circumvent (Scientific American, January, 2018)”

A new era would bring public control of cryptocurrencies. As Bitcoins have demonstrated, we already have a blockchain that is open-source and maintained by a global network of volunteer core developers. We have a network of individually-owned computers that process the indelible transactions –a process called “bitcoin mining.”

“Creating digital identities whose existence is independent from governments and corporations is the next grand challenge that blockchains both pose and could help solve,” says Smolenski.

With the dawn of the era of a “Universal New Deal,” cryptocurrencies could redistribute wealth and put money in the hands of those who will spend it.

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The rise and fall of globalization

As the sun sets on globalization, what will a new day bring? The new era will face challenges of rampant parochialism, environmental destruction, inequality and greed.

image: Timetoast.com

The dawn of globalization was unremarkable. Yanis Varoufakis, professor economics and former finance minister of Greece gives the date:

“On Aug. 15, 1971, then-president Richard Nixon announced the ejection of Europe and Japan from the dollar zone. Unnoticed by almost everyone, globalization was born on that summer day (Globe and Mail).”

Before Globalization, it was the dawning of a New Deal (1944). A clever plan, it gave America’s former enemies the resources to rebuild through arrangements such as the Marshall Plan. As an industrial power, the U.S. had shiny new things to sell; now Germany and Japan had money to buy them.

The New Deal ushered in a Golden Age of prosperity. Well-paying jobs, unionization, opportunity grew.  The middle class expanded and inequality shrank.

As a baby boomer, I remember that era. After I graduated from the Southern Alberta Institute of Technology in Electronics, I had a choice of well-paying secure, jobs. After I quit one job and traveled around the world, I easily found another.

The era of globalization in the 1970s promised to reduce global poverty. Before it began to rot at its core, it blushed with ambition.

“Mr. Nixon’s decision was founded on the refreshing lack of deficit phobia particular to American decision-makers,” says Varoufakis. “Unwilling to rein in deficits by imposing austerity . . . Washington stepped on the gas to boost them.”

World-wide prosperity also produced global industrialization. Americans went into debt to buy exports from Germany, Japan and later, China. The American administration didn’t seem to notice, or didn’t care, that cheap global labour was at the heart of industrial decay at home. Why should they care when money was pouring into the U.S. as well as cheap goods?

The flow of global money into the U.S. seems counterintuitive. If Americans were buying global goods, it would seem that the money should be flowing the other way. The magic of Wall Street made it happen.

The deregulation of banks was a catalyst for the financial wizardry of Wall Street. Global investors were attracted by higher interest rates generated by mystical, incomprehensible, investment devices such as derivatives. A lot of the investments went into loans to home-owners who had no way of repaying them.

Then, in 2008, the rabbit no longer emerged from the magician’s hat and the whole financial edifice fell apart.

All that remains of the sad tatters of globalization is massive inequality and loss of jobs in the Western world. Most money sits idle in the hands of the rich while the poor struggle without. Varoufakis characterizes it:

“Its crisis is due to too much money in the wrong hands. Humanity’s accumulated savings per capita are at the highest level in history.”

As globalization sinks below the horizon, two options emerge. One is the walled-state proposed by President Trump and the Brexiters in the U.K. The other is a Universal New Deal that redistributes global wealth, creates new jobs, and lifts the burden of consumer debt.

If such a new deal seems unlikely, it’s worth remembering that the first New Deal and globalization were as well. And if we need an issue to rally around and mobilize action, as World War II once was, we need look no further than the biggest threat to humanity: climate change.