Will Blockchain Protect the World Economy from Financial Crises?

At least that's what many crypto visionaries and financial experts often claim - the latest being Pang Huadong, the former vice president of North American investment banking for J.P. Morgan Chase.

The ex-Wall Street executive offered little detail beyond his observation that blockchain is capable of reducing global financial risks and establishing trust at a low cost.

In order to pin down Huadong's argument, it wouldn't go amiss to review how other influential crypto thinkers have reflected on the relationship between financial crises and blockchain technology.

The root cause of what happened during the subprime mortgage bubble and then carried over to the whole global banking system was society's unquestioning faith in financial institutions and the integrity of their record-keeping systems and practices.

As Alex Tapscott observed in his 2016 book Blockchain Revolution, maintaining financial security via increased transparency of capital flows is one of the key areas in which blockchain technology may play its part in avoiding the next big financial disaster.

Finally, Tapscott believes that widespread adoption of DLT in the financial sector will help eliminate shadow banking from the whole industry - a layer of institutions that acts as a financial intermediary but operates outside of the regulated space.

A radical answer that blockchain might offer to the threat of financial crises lies in the technology's capacity to redefine the whole global financial system and to make banks - in their current form - obsolete.

As Blockchain at Berkeley's Urvi Guglani predicts in a Medium post, banks - as trusted intermediaries - might fade away within the next two decades.

All the solutions offered above presume an advanced state of blockchain technology adoption, with all actors in the banking sector - as well as regulators and even individual customers - interacting on a shared distributed ledger.

Way more plausible is the scenario under which the banks, by getting ahead in the blockchain development race, are aiming to come up with an infrastructure that operates on their terms.