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Shaping the future of finance

Money without government? Emperors without Clothes?

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I finally hit the nail on the head about why you can’t have money without government. It’s because you can create as open a system, complex a platform, distributed an idea, decentralised a currency as you want but, unlike most industries, without some form of supervisory oversight the whole system collapses.

So, when we talk about the democratisation of financial services through decentralisation, it’s all well and good in principle. But if someone loses my money, where do I go to get it back?

The liberati claim that the power of crowds take over. Just like with eBay or Airbnb, everyone gets a star rating and bad actors can be weeded out this way. The problem with that is that the star rating system can be rigged, and the accountability bucked. I learned this years ago when Second Life’s Linden Labs refused to support their collapsed bank. I also learned similar lessons when Mt.Gox collapsed and others. The difference between Ginko Financial and Mt.Gox is that they lived in an unregulated world where real money was being traded with fake accounts. When that system collapsed, the owners of Ginko and Mt.Gox could just run away with the money and without any accountability, as there was no central supervisory oversight and, with that therefore, accountability.

When you deal with banks and banking, they have accountability. They have a license, backed by central supervisory oversight, to look after your money. If they fail in that duty, they are liable … within the limits of their compensation schemes, but at least they are accountable.

I think this is the one fundamental things that most naïve young bucks fail to understand when they target changing the banking system. They look at the banking system as old and creaking, stupid and boring, arrogant and clumsy … and they’re right about much of that, but the system became that system for a reason. It’s called regulation.

The regulation comes from the government via a centralised authority, that is typically the national bank. These centralised structures look after the citizens by maintaining stability of structure. If the structures meltdown, then they ensure the firms are liable. You don’t have that on the internet.

That’s the reason you cannot have decentralised finance without supervisory oversight.

So, then we come onto the second debate about who should that oversight belong to? The crowd? Well no, for the reasons I gave earlier. The technology? Maybe blockchain could verify and maintain everything? Nope, as that would make it too easy. You wouldn’t have all the banks creating standardised structures, agreed by all counterparties, that blockchain could be layered into, if it were that easy.

Nope. The bottom-line is that for all the great ideas about disintermediation, decentralisation, democratisation and such like, it may work in industries where a lost transaction is meaningless but, in finance, every transaction has importance. Every transaction is money and value. Every transaction has the possibility to make a living or ruin a lifetime of work.

That’s why you cannot have money without government. The core question is then: who is the government of the internet?

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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