Can ‘Smart Financial Contracts’ Avert the Next Global Financial Crisis?

The financial system is in dire need of transparency, and blockchain, believes Ralph Kubli, a board member of the Switzerland-based Casper Association. Luckily, the industry is waking up to blockchain’s benefits. BeInCrypto spoke with Kubli about how openness, standardization, and “smart financial contracts” can make all the difference.

The global financial crisis of 2007-9 was an epochal moment for both finance and technology. The monumental levels of negligence, and the resulting economic fallout, turned an entire generation against the excesses of Wall Street. The event even spurred the creation of Bitcoin, the world’s first cryptocurrency and the first successful implementation of blockchain.

A Lack of Transparency Caused the Financial Crisis

Of course, one of Bitcoin’s pluses is its transparency. It exists on a distributed public ledger, or blockchain, which is visible to anyone who wants to look. A level of transparency that the pre-2008 financial system badly needed, according to Kubli.

“The problem leading to the 2008 crash was opaqueness in financial products surrounding cash flows,” he told BeInCrypto.

In particular, the lack of transparency in mortgage-backed securities before the financial crisis was a ticking time bomb. Investors and regulators had difficulty assessing the quality and risks associated with these complex financial products, leading to a loss of confidence in the market.

Banks sold high-risk products as safe. “But they had low-quality products bundled in as well,” observed Kubli. “Investors were not necessarily educated on the risk they were taking, and once things began to default, it caused a massive ripple effect through the entire economy.”