Economic Crash: Can We Prevent It with Blockchain?
This groundbreaking technology may be a way to stop history from repeating itself.
Due to the slowing trend of economic growth in recent years, most Malaysians are faced with the chilling thought that our country might be at risk of falling into our next period of recession since 2008. Even after reassuring words against such a threat from our Deputy International Trade and Industry Minister, Dr Ong Kian Ming, such positivity is still a far cry from a solution against the rising tide of fear that Malaysia is about to enter a recession. The recent Malaysian economic performance still shows a worrying result and recession is not as unrealistic as it seems. However, based on several financial journals of research, blockchain technology has been recognized as the key to avoiding an economic downward spiral into recession.
Blockchain is a distributed ledger that is known to be widely deployed in the finance and economic sectors of certain entities worldwide, and in many other industries in the near future. This is mainly due to the fact that blockchain ensures a high level of unchallenged transparency and security from the way it functions as a decentralized mechanism in its operations. These benefits have attracted numerous investors in just a few years since its discovery in 2009. Just like the Internet, blockchain technology is a formidable source of data sharing when everyone is using it on the same network. This is the main reason why many scholars and blockchain developers are very optimistic about the future of blockchain technology as they predict the mass adoption of such technology in various industries in the near future.
So the question is, how does blockchain prevent an economic recession? Most of the researchers believe that the financial crisis of 2008 that dragged numerous countries into a recession was caused by a lack of transparency and accountability in mortgage financing. Indeed many factors and participants contributed to the creation of bad mortgages, along with the selling of bad securities and assurances throughout the housing financial value chain. Due to the lack of accountability on all sides, mortgage financing with its once great promise of managing risk became a massive generator of risk and directly contributed to the financial collapse worldwide.
This issue drew a lot of concern from the finance and banking industry, possibly bringing about the solution to use blockchain technology in the industry. This is because blockchain technology is able to deliver the transparent characteristic and secure footing that the industry desperately needs.
The first contribution that blockchain technology could provide to the current economic state is its ability to efficiently prevent fraud and instantly recognize bad debtors. With blockchain technology, a bank can now use smart contracts and digital cryptographic identities to prevent fraudulent transactions and identify poor creditors. This creates an immutable record of the exact terms of the contract and will only execute when the terms are fulfilled. The loan fraud can be avoided by using the digital identities to find out the loan history of each and every customer. These record will be hard to hack because a hacker will need to compromise every single system on a network to break such a transaction chain. This in turn also improves the security of which information is stored.
Next, blockchain technology can be of service by maintaining the financial security of banks worldwide. With the immutability and append-only function of blockchain, it is easier for banks to keep open records of transaction that can be tracked easily. Tracking the cash flow can help the banks find and mitigate the economic threat that has the possibility to occur due to bad policies, bank operations, and human errors. Besides, blockchain can also promote stronger security by providing access for financial institutions to obtain information. The financial institution can determine risks and potential points of failure within the economic system. Generally, if the banks have more information on the cash flow and financial performance, they can perform better and avoid any possibilities of causing a financial collapse.
As one of the most revolutionary forms of technology in recent years, blockchain technology has the potential to change the way we see the financial industry and provide users with a better understanding of transactions within such a secure network. With the introduction of blockchain in financial sectors within Malaysia, the possibility of our nation falling into recession will be minimized and in line with that, will ensure a stable economy for our country moving forward.