Decentralized Finance— Tackling the Issues of Big Data & Financial Sovereignty
In October 2008, the U.S financial system collapsed. “Too-big-to-fail” banks took excessive risks at the expense of American taxpayers. As central banks lowered interest rates and printed cash, a pseudonymous entity named Satoshi Nakamoto was finalizing the white paper of a concept called Bitcoin. Satoshi’s creation of bitcoin was not in direct reaction to the crash, but it was, and still is, an effort to solve the fundamental problem of financial sovereignty.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” — Satoshi Nakamoto after mining the first bitcoin block (2009)¹.
Today, the issues are still present. Banking is still politically beholden. We still lack solid financial infrastructure. We still distrust institutional solvency. At least we still have the dollar, right? Wrong. 20% of all U.S dollars were printed in 2020².
If the average American cannot trust the banks or the dollar, what makes banks think that they can trust themselves?
According to Lessig in Crawford’s Critical Questions for Big Data, social systems depend on four forces — the market, the law, social norms, and architecture — all of which are at odds with one another. Crawford’s writing allows us to understand big data and its effects on social systems. With the increasing capabilities of AI and algorithms that display large-scale behavioral patterns, it is important to ask which big data systems in finance are driving bank practices and which are regulating them.
The kryptonite of global finance remains what it was in 2008 — the placement of blind trust in central banks and institutional players. The same can be said about big data in consumer tech. We mindlessly trust platforms that utilize our data to perpetuate algorithms for corporate gain. Ethics aside, Big data is here. Yet, who is to say that our financial system will remain?
The question remains unanswered, but Satoshi’s bitcoin and blockchain network provide the framework for a decentralized future by eliminating the aspect of institutional trust. Instead of validating transactions through a third-party, blockchain technology stores user information in immutable blocks which can be verified by all involved parties.
In a world of decentralized finance, tax payers wouldn’t have to rely on the archaic system that relies on banks trusting each other. Of course our global monetary system would need to be rendered ineffective, but was it ever truly effective? Eventually, block-chain technology will expand into central banking and beyond. Its transparency is the ultimate answer to Crawford’s issues with big data. It is accessible by all and owned by none. It securely stores information instead of processing flawed models. Above all else, it grants financial sovereignty to users instead of processing their data for profit.
