Blockchain and cryptocurrencies distributed system as alternative structure. If trust in centralized authority is questioned and people's solution is to go to other sources, wouldn't a wide network of information source be better? The result is a distributed network as the alternative system with a distributed network approach. As seen in diagram B, information is now decentralized and transparent as opposed to diagram A, which emanates from a common point.
The world of finance is also built on the foundation of centralization. Household and business transactions are recorded at banks. In turn, interbank settlements are recorded at a centralized authority. Trust indeed plays a key role in the financial system.
2008 saw the collapse of Bear Stearns and Lehman Brothers raising the question, can banks be trusted? Apparently these events showed us that banks cannot be trusted not only by clients, but also by each other as counterparties. The result is a global financial crisis, also commonly referred to as the GFC, to prevent a global meltdown. Central banks as well as the bank for international settlements. BIS, an international organization with a mission to support central bank's pursuit of monetary and financial stability through international cooperation and to act as a bank for central banks stepped in and worked to save the banks by injecting liquidity into the global banking system. Since liquidity is provided by the central banks, we can trust the liquidity, right? The next slide shows the increase in liquidity by the US Federal Reserve.
These two charts display the balance sheets of the US Federal Reserve for the years 2007 and eight and 2018 and 19. Let's focus on the funding side of the balance sheets. As we can see from the 2007 and eight balance sheet on the left, the total liabilities in capital increased from 914.8 billion US dollars to nearly 2.3 trillion US dollars, almost a 150% increase by 2018. The total liabilities and capital of the US Federal Reserve is reported at over 4 trillion US dollars. A closer look at the 2007 and eight balance sheet indicated that the funding from capital increased from 18.5 billion to 21.1 billion in US dollars, a 14.1% increase, whereas the funding from liabilities increased from 877.9 billion to 2.2 trillion US dollars. A whopping 150% increase. This, And similar actions by other central banks raised the general concern. Can central banks be trusted? If not, what alternative structures are there to prevent the central authority from going rogue? Features of a distributed network can be applied to the alternative financial structure. These include one decentralized records and information records and information to be shared or accessed by all parties in the network, and two distribution to enhance transparency. Distributed here means that everyone participating in the network gets an identical copy of the ledger making all transactions transparent.
