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Melanie Swan, Philosophy and Economic Theorist, New School for Social Research

 

Please tell us about your interest in financial technology.

I have always been inspired by trying to solve large-scale problems in the world with the most effective and empowering tools, which typically means technology. Decentralized networks like the Internet have been one of the most powerful technological arrivals in the contemporary era. Whereas the first phase of the Internet allowed the transfer of information, the next phase focuses on the secure transfer of value such as money, property, securities, and hard assets, particularly via blockchain technology. Blockchain’s secure value transfer functionality provides a significant opportunity to transform some of the last remaining sectors not yet re-engineered for the Internet era such as economics and finance.

How well are financial companies adapting to the rapid pace of FinTech development?

The most successful financial industry implementations of FinTech and blockchain could be in those companies who are already addressing how to fundamentally re-engineer their business models, not merely update their operations. In a blockchain economy, financial asset-related (and indeed all) value chains could become increasingly streamlined and automated, obsoleting many current intermediary functions such as custody, titling, and insurance. These functions could be replaced by algorithms. Companies across the financial landscape are realizing that blockchain is not a separate industry as much as a new underlying technology with applications in every sector. Developing a leadership edge could include offering blockchain-based services to clients, and leading industry-wide blockchain initiatives. Many businesses have opportunities for digital value transfer and re-inventing the value chain across network coupling points. Internally, there may be applications for cost-savings, for example in quality assurance, test, audit, compliance, sales quoting, finance, treasury, accounting, and expense management. 

What risks do you see in the development and implementation of FinTech?

One of the key risks of blockchain technology that is not yet being discussed is systemic risk implications. With blockchain making the financial sector more tightly integrated, markets and trading instruments might be even more correlated than they already are. The fear is that at worst, it could be that distributed ledgers operated by algorithmic smart contracts could essentially turn the market into one giant HFT (high-frequency trading) vehicle. Already, without current FinTech advances, black swan events in markets indicate that what might seem to be diversified portfolios are not, and that regional markets, asset classes, and time frames are much more correlated than imagined. Systems-level complexity simulations of market behavior would be useful. One perspective is that more tightly-correlated financial markets could be seen as progress. As finance moves into the automation economy as itself an automated operation of efficiency, it could behave more like a utility than a margin-rich business. This could trigger significant disruption in the structure of financial and investment services industries. This would be fine if overall risk were also declining, but corresponding steps to reduce global risk such as orchestrating an orderly transition to the automation economy do not seem to be contemplated. 

What is your overall take on the present, future and philosophical implications of blockchain?

Some of the philosophical implications of blockchain are that all economic and financial concepts might be questioned and rethought. This includes risk, value, uncertainty, probability, resources, assets, liabilities, interest, time, transaction, and exchange. The current economic and financial systems are just one way that we have thought about organizing access to resources, and responding to the assumed problem of the protection of the future value of assets, but there could be others. One question is what risk might mean in decentralized financial networks. The idea that risk would somehow become decentralized too (i.e.; more manageable and predictable) since assets can be settled instantaneously via blockchain, is perhaps facile. It is more likely that the notion of risk would need to be rethought in a different conceptualization. There could be several mindset shifts at the systemic level to support a transition to decentralized networks. In economics, these could include shifting from labor to fulfillment as the object of productive activity in the economy, scarcity to abundance, and centralization to decentralized network models. In finance, these could include moving from ownership to access, point values to topological ranges, and insufficiency to assurity.  

To learn more about the Finance Disrupted event, please click here.