The 2008 Great Recession was one of the biggest financial crises in U.S. history, devastating millions of families’ economic prospects worldwide, including my own.
The Great Depression of the 1930s was the most severe economic recession in the history of the industrialized world.
The one thing that both of these economic crises have in common is an ineffective Federal Reserve.
The former was caused by a massive failure by the Fed to realize the impending housing market bubble despite the advice of several experts. The latter was exacerbated by a Federal Reserve that, post-stock market crash, required banks to keep more money in reserve rather than lower the reserve requirement, which is now the established norm for high-deflation events.
Federal economic policies should be set by market forces, not a central authority that often seems to have little to no idea what they are doing when times of actual crisis come.
But how can we remedy the wholly lackluster performance brought forward by the Fed?
Blockchains are one way to bring more power into the hands of the people and create a more robust, quick-acting system.
Blockchain technology allows a record of any type to be stored throughout a network of independent computers. It’s what enables cryptocurrencies to exist.
The technology has come very far in its 12 years of existence, and there lies a promising future in a system where power is distributed directly to the people rather than to middlemen — such as governments or Federal Reserve chairpeople — that may not act according to our interests.
Though we cannot know for certain, blockchain technology has boundless potential to not only increase government transparency, but fight corruption itself and strengthen our democracy.
According to Carlos Santiso of the Stanford Social Innovation Review, blockchain technology can strengthen accountability in not only the Federal Reserve but in other facets of the government “by leveraging a shared and distributed database of ledgers [which] eliminates the need for intermediaries, cutting red-tape and reducing discretionally.”
In other words, the public nature of a blockchain — which is essentially a fancy record-keeper — means that government agencies will be more easily held accountable.
The most salient and seemingly “easiest” solution to the Federal Reserve problem would be to abolish or curtail the Federal Reserve, as former Republican Congressman Ron Paul argues.
But this may cause more harm than good. According to Princeton University economist Alan Blinder, the Federal Reserve’s independence produces less inflation and superior macroeconomic performance.
The more permanent solution we can fight for is to embrace a middleman-less future. A future where it is not politicians that say they act on our behalf, but instead an amalgamation of everyone’s views through blockchain technology to create a truly democratic system. A future where banks do not have control over our hard-earned money, but we do. A blockchain-based future.
However, there stand some points of argument against a blockchain-based future.
In an article for the Atlantic, Ian Bogost writes that “more computing power means more energy cost to run and cool the machines, which requires more capital and physical infrastructure to support. Those rising costs inspire centralization.”
He says this because of the nature of a proof-of-work blockchain, like Bitcoin’s, where computers are doing thousands of complex math problems that require an amount of electricity that increases marginally with each block added to the blockchain.
Because voting power in the blockchain is based on the amount of work one can do, someone with access to a lot of capital and infrastructure could potentially take majority control over a PoW blockchain.
What he says could be true for proof-of-work blockchains like Bitcoin, but Bogost’s argument doesn’t hold water when talking about proof-of-stake blockchains such as Ethereum, the 2nd largest blockchain by market capitalization, where voting power on the blockchain is no longer held by those who can provide the most computing power but instead spread equally.
Though the Fed continues to provide some value in reducing volatility and better macroeconomic performance, how far are we willing to trust a system governed by a regulatory body that remains intransparent and insufficiently audited?
The Federal Reserve has shown itself to be unable to make the correct decisions when we need them to. Blockchain is the future, and we can either watch the Fed continue to botch its responsibilities or force it to adapt to a decentralized future.