A decade has gone by since one of the biggest bloodbaths in the global financial and banking sector – The 2008 financial crisis. Of course, the global community has put-in a collective effort to rise from the abyss, but the most pertinent questions today is ‘have we done enough to prevent such crisis in the future?’. Here is what a majority of the people believe according to the latest poll by International Monetary Fund (IMF):
It’s been 10 years since the start of the global financial crisis. With the lessons learned since then, do you think the world is better prepared now?
— IMF (@IMFNews) September 13, 2018
Analysts Predict The Next Doomsday Is Near
Several economists and financial analysts have raised a red alert saying that the world is heading towards the next big financial crisis. And many big financial institutions predict that this could come as early as 2020.
Over the last decade, central banks and government institutions have pumped enough liquidity into the global financial market. However, analysts say that we have already exhausted all the tools and resources that could deal with the next big financial downturn.
The then Britain Prime Minister Gordon Brown recently spoke to The Guardian saying “We are in danger of sleepwalking into a future crisis.” Mr. Brown believes that the next financial crisis could possibly stem from the Asian market due to the amount of lending done through the shadow banking system.
He also said that the government agencies and central banks are busy playing the blame game. Mr. Brown also said that the government agencies have done little to hold the financial banking institutions accountable for their misdeeds. “There has not been a strong enough message sent out that government won’t rescue institutions that haven’t put their houses in order.”
The former Britain Prime Minister has also criticized Donald Trump’s protectionist policies. “Trump’s protectionism is the biggest barrier to building international co-operation.” He further added: “Countries have retreated into nationalist silos and that has brought us protectionism and populism. Problems that are global as well as national and local are not being addressed.”
Although analysts argue that central banking institutions still stand vulnerable and unprepared for the next big crisis, the global community has found its own alternative. Yes, you guessed it right! I am talking about the decentralized cryptocurrencies.
Was Bitcoin An Outcome of the 2008 Financial Crisis
It was on September 15, 2008, when Wall Street banking giant Lehman Brothers filed for insolvency. Just a month later on October 31, 2008, an anonymous identity under the name of Satoshi Nakamoto published the Bitcoin whitepaper. The timing couldn’t have been more perfect which has caused many to believe that Bitcoin is an outcome of the 2008 financial crisis.
Bitcoin was certainly not an over-night invention as the protocol is expected to have prepared years below the financial crisis. Emin Gun Sirer, Cornell computer science professor and blockchain researcher, said that there was a timely motive behind this launch. Sirer said: “It’s very clear that Satoshi was affected by the events that led up to the financial crisis of 2008, and then it’s obviously recorded in the genesis block as well.”
Similar view is presented by Sarit Markovich, clinical associate professor of strategy at the Kellogg School of Management at Northwestern University. “The quest to be decentralized can be tied to a financial crisis, but if we didn’t have bitcoin it’s likely something else to challenge centralized payment systems would have emerged.”
The Bitcoin whitepaper puts forward a completely decentralized approach reducing the dependency on central banks. The paper described “a purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.”
Satoshi in the whitepaper also talks about the weakness of the trust-based model of the banking institutions. “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”
Bitcoin v/s Centralized Financial Institutions
There’s absolutely no doubt to it that Bitcoin, and cryptocurrencies in general, faced a lot of friction from centralized banks and government institutions. The reason is pretty simple that the Bitcoin model provides a threat to the monopoly of centralized financial institutions.
The blockchain technology supporting Bitcoin presents a serious alternative to the existing banking SWIFT systems, for global fund transfers. Not only is the blockchain technology fast, it also relatively very much cheap in terms of fund transfers. Although the banking institutions have criticized digital currencies for long, they still have shown considerable interest in the applications of the blockchain.
In a word with CoinDesk, an early Bitcoin adopter and minder said that “in the very beginning” there was “a great deal of discussion about the anarcho-capitalist and/or libertarian ideals” that bitcoin appeared to make possible.
Stefan Thomas, ex-CTO of Ripple Labs said:
“A lot of people early on in the bitcoin community were very worried that central banks would look at this as a fundamental threat to one of the key, key, pillars of power of the government, which is the ability to issue currency. And so a lot of people early on stayed anonymous, they did not reveal their real identities.”
However, to be noted, Bitcoin is still far away from posing threat to fiat currencies. The Bitcoin blockchain technology is still in its initial stage and not robust enough to handle millions of users at a time. Bitcoin developers are currently working on its scalability solutions – The Lightning Network.
Many big giants from the Wall Street have openly criticized Bitcoin. Warren Buffet, the world’s biggest investor, has even gone calling Bitcoin as “rat poison squared.”
It remains to be seen as of now whether digital assets give a formidable challenge to fiat currencies going ahead. Sirer said: “It’s turned out, that undoing the Fed and replacing money as we know it is actually a tall order, and it has to happen in stages if it’s going to happen at all. There’s a lot to be had from playing nice with the existing system and making it better.”