A nightmare

As if the financial community were not already beset by all kinds of problems, just about the last thing it needs is to have a developing technological nightmare.

Yet, that seems to be in the offing. A block chain technology that generates a permanent, tamper-proof digital record forthwith of all transactions is appearing and has revolutionized which transparent transaction records are held by a wide number of participants in a network. Eventually, when fully developed, it will become essential to the specific needs of all institutions and companies ensuring security.   It is the technology behind the digital currencies like Bitcoin for one.

Digital currency experts seem to think this is more secure against hackers, rather than a central registry for thousands of transactions. It would be a nightmare for those trying to crack down on this but theoretically, it would be good for helping track cheaters and money launderers. 

This system would be transparent and systemize events, rather like the taxi business has become with Uber.  Regulators would benefit as this system would record and report all transactions. A block chain register might make it easier to track down ownership for tax purposes. With all this data, it might facilitate monetary policy as authorities would know existing situations.  Still, with so many transactions, it is unlikely this would work as it is so complicated.

To laymen such as this columnist, it seems to be so complex that it would not facilitate transactions at all. Speculators in markets engage in literally billions of transactions so this probably would apply another hurdle on top of an already demanding situation.

The root of the problem seems to be enthusiasm for mindless speculation. The investment community has been able to digest technology, thus far, but this new system is mind boggling. Rather than trying to adapt, it would be far more sensible to take a different path, which would be avoiding split-second investment decisions and transactions that are unrelated to longer trends.

Is the investment community going to a financial gambling casino?  Very low interest rates seem to encourage this type of activity but do not raise the esteem and credibility of the financial industry.  Let us hope this is a passing phase. 

Ever since the widespread use of technology, the investment community assumed that IBM would be a salvation. Yet, it led to so much data that the system was overwhelmed. At one point the inspired investment community operated on a shorter working day just to be able to digest the technologically-generated data. Some firms were so inundated – such as Falkner, Donaldson and Sullivan in the United States – that they could not cope and in 1968 they went bankrupt.



Bruce Whitestone