I would say it’s about choice, not an “our finance” vs “their finance” (at least not primarily). I don’t think the traditional finance systems needs to be overthrown but I do think people have a right to choose an alternative open system if they choose. If it was an “our finance” vs “their finance” problem, people could just build a new centralized system without the properties offered by the blockchain.
I can only assume that adopting this form of finance would involve a huge change in lifestyle for most people. Those changes should be adopted by choice, not because a government has capriciously pulled the rug out from under you.
It seems our difference in opinion comes from our definition of value.
I know people point to the current system and infrastructure of stock exchanges, SWIFT, the IMF, Central Banks, Retail and Commercial Banks, Internet Banks (Such as Stripe, Paypal, ETC.), Credit Unions, Savings and Loan Associations, Investment Banks and Companies, Brokerage Firms, Insurance Companies as working good enough. But for me... Occams razor hits me hard. Doesn't it seem weird that through this complex system of interactions, we can recreate all of that in Code? If there was no value in it, why did we create all those institutions in the first place?
If we can recreate those in a more humane, democratized, decentralized way, I think it's worth the .001% of the global financial system that it currently is. Even if it's grabbing 5% of the current headlines.
Currently the financial system generates profit while destroying value. It's out of control and only serves the interest of those who already have considerable amounts of capital.
Finance is a legit use case. If you think it's not then by extension you have to write off the legacy financial system as well.
Think about something like private/public pensions, annuities etc. A cogitating being knows that they are getting older and will need money for retirement, but they also should know that there are essentially just 4 ways to make an investment grow without any labor input from the investor: the bond market, the stock market, the real estate market and private lending to companies or individuals.
Now with the possible exception of private lending a citizen can do all the above, and remember they also know that they will need money for retirement. So tell me again why do they need public/private pensions and annuities? And why we allow such actors to operate given they redundacy considering the fact that they are preying on people's fears that they won't be able to make it in the future?
If crypto preys on people's greed then the legacy financial system preys on people's fears. They are 2 equally bad behaviors.
Because we are inextricably wrapped up in the financial system? And getting rid of it would cause massive pain, real and metaphorical.
What replacement financial system do you envisage?
I cant think of a revolutionary financial system that I'm confident, could be better. And if its evolutionary, why would you chuck out what we've got?
Coming from the finance world here... Maybe the problem here is more how money is a societal construct, not a technological one, even though it can be represented technologically. With all due respect, people like Marc Andreessen seem to think that the constraint here is a technological one, when the technology to do a lot of what they're talking about has been around a long time. It's that, for non-tech related reasons, people prefer things working a certain way.
I can see things like blockchains improving back office settlements and clearing, sure, but... whatever?
Disrupting the actual financial system is nothing short of disrupting how society who gets what, and what gets done. This is not a technological problem you're dealing with.
It's inevitable only if we decline to regulate capital. Just as it's also inevitable that a speeding truck will crash, unless the driver puts on the brakes at some point. There is nothing in the laws of physics that dictates that our financial system must be as it is. It is the result of our collective choices, and we can change it when it becomes in our best collective interest to do so.
I think for me the disconnect is that in developed financial systems most of these points are not a big issue or not even desirable given current regulation and supervision.
Few examples: (i) immutable data can clash with privacy laws, (ii) double spend is generally not a problem in centralized systems, (iii) distributed ledgers means you don't have full control of your books and records, (iv) ownerless contracts cause problems with KYC/CFT/AML/sanctions, (v) there are still courts and government force that can compel people to do things etc. ...
In order to really use these it would need a sizeable shift on how the financial structure looks like. That might happen but a lot of what I see is just a fast run through the best errors in finance over the last hundred years. For example, I see mispriced contracts because people don't understand forwards, free options being giving away etc., stuff that to me (not a lawyer) looks like ignoring securities laws, ...
I am not totally bearish on some of these ideas and technologies, but right now I think they are used and envisioned too narrowly by trying just to replace things that are often poorly understood. Example: I think the idea of making market making directly investable is great (i.e. not just being shares of an investment bank or similar). There are probably real applications outside of crypto (index components vs ETF maybe). Similarly, for DeFi to really "make it", I think it needs to be able to do unsecured lending.
Over my lifetime I've been increasingly feeling more against the finance industry as it is. After working in fintech I got staunchly against it.
I don't think that finance as an industry shouldn't exist. It does provide a lot of benefits for cashflow, investments, etc., I do understand its role and benefits. My gripe is exactly with the over-financialisation of everything, the increased risks that over-leveraging in multiple sectors create, finance introduced itself as the weakest chain in the link, we got to the point where banks are definitely more powerful than the most poweful economy in the world, simply because a failure in the system can become systemic with a few levers being pulled.
We created a system which every other system in the world is a dependent of, we have a single point of failure on something that by itself generates no value in real terms. It does generate value by increasing our leverage, that is it. We've became hostages of the financing industry and of the risks they take, not us.
This is unfair, finance is basically an abstraction over our resource constrained world. We didn't get to choose not to live in a world with limited supplies of everything, and removing money from the equation doesn't change that constraint.
Given that we've chosen money as our method of resource allocation, it makes sense people who want access to more resources would try to optimise their profit building strategies, and smarter people are going to make better choices. It is why financial hubs, such as London or New York, have more resources to play with and so can provide a higher quality of living.
I assume you're being downvoted because you seem to have misread the author's statement and created a strawman argument. He posited that the financial system's algorithm's purpose is to answer, "what should we do?". You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole.
I think how we finance it is a very, very big part of the problem and the two probably can't really be separated. I think it actively encourages bad solutions.
This is a very closed minded view. You're basically saying that every inefficiency in the current financial system is justified and we shouldn't try and change them?
It’s very important because if you don’t like the standard finance system and want to use an alternate one that isn’t corrupted by greed and incumbents, the best way to do that is… to buy it through the current financial system?
It gives credibility to the thing that explicitly does not want credibility. Or at least didn’t. Maybe it does now. I don’t know.
I kind of agree with what you said, but not at this time. We need focus on value, but after the corona situation has passed. Right now we need to focus on not letting the whole system collapse.
We don't need to merge two different ways for the financial system to collapse.
reply