A liquid, dynamic economy could soon be ready to replace traditional financial markets, which are ill-equipped for our needs. I interviewed Richard Olsen, founder of Lykke, to discuss the possibility of a global, digital marketplace.
"Richard is a pioneer in high frequency finance with extensive entrepreneurial experience and well known for his academic work," reads Olsen's bio featured in the Lykke website. "His ambition is to transform financial markets into a seamless system without the inefficiencies that we today take for granted."
In modern society, technology is advancing rapidly in many sectors - medicine, agriculture, architecture, security - but what about the economy? Why do countries keep using financial models that are becoming increasingly outdated when compared to the ever-progressing technology?
Despite the devastating global financial crash that took place one decade ago, the mechanics of the global economy remains unchanged. The culprits of the crash were bailed out and taxpayers were left to pay the debt. The traditional financial systems have survived, since central banks have been printing money like never before.
Rather than improving the existing system, a more risk-prone economy has been fostered since the crash. Methods such as printing money or quantitative easing can be used as "antibiotics," antidotes that become dangerous if overused, CNN reports.
“The Federal Reserve alone has injected $3.9 trillion dollars via three rounds of asset buying. It started in November 2008, shortly after the financial world went into meltdown, and continued until October 2014.”
People may start to move away from the traditional system if they no longer trust banks or governments, or worry that their assets will be nationalized. In the face of another financial crash, cyptocurrencies offer a new option with endless possibilities to solve this fear-inducing problem, in contrast to traditional commodities such as silver or gold. Olsen says:
“When the day of reckoning comes, in the form of the next financial crisis, the new world will be ready. We will be able to flee the traditional system and move into a digital safe haven.”
New financial markets powered by blockchain technology can bring about a less risky new world where people take care of their own assets. “As new technology is emerging,” Olsen emphasizes, “the old world at the end of its wits.”
According to Olsen, the traditional economic system does not support high dynamics which is necessary in today’s high-paced society. The old financial system is ill-equipped.
The economy, Olsen believes, must support liquidity in order to prosper. To understand this, the economy can be compared to the human body - blood circulation in particular. Our blood has the important role of bringing oxygen into the cells and removing waste, just as the financial market brings assets in as needed and transports them away elsewhere as appropriate.
While we are sitting down and apparently doing nothing, our heart is busy circulating 50 liters of blood every 10 minutes, reusing 5 liters of blood over and over. This means that any slight excess of toxic waste is immediately transported away and is not accumulated in the body. It is the constant movement of the blood that enables this - the blood does not take a moment to rest but keeps going as long as the heart is pumping. The financial system should be inspired by this pattern.
A financial market with a large turnover should be supported by the right design. Increasing the amount of money in circulation is not a viable solution as it devalues our currencies and slows down reactivity. Societies should engineer a system which is self-sustaining and in sync with nature, designed by those who use it. Therefore we must take inspiration from natural systems, like the human body.
A liquid economy in this case refers to the fast-paced movement which creates an almost seamless, integrated experience. Olsen’s project Lykke offers a global marketplace exchange. The system acknowledges that society is dynamic, and “the economy should reflect the movement that underlie the social fabric.”
Blockchain-based systems are able to accommodate a fast-paced, dynamic economy that allows interactions to occur organically. Blockchain technology is at the heart of the emerging industries like sharing economies and barter societies.
For example, Lykke allows assets to be exchanged almost seamlessly. This can be compared to going to a supermarket and accepting a whole array of currencies for each product. Each person has their own asset, and can sell it for whatever asset the other wants. Another example is OpenBazaar, a fully decentralized market place. With the P2P nature of these projects, people are able to directly barter without a third party, and their interaction is dynamic. The removal of a third party allows for interaction to occur faster and more naturally.
Private blockchains, centralized organizations, and patents, limit these organic interactions. Ownership of assets are not in the hands of the people, and privacy is impinged. Blockchain technology allows for freedom of exchange and empowerment, but on the other hand it can be used to continue the same patterns of economic behavior we see in the traditional system.
Although the invention of blockchain promises a hopeful future, its advancement is heading in many different directions, and we should proceed consciously of where wish to proceed as individuals - be that while investing, trading or creating new projects.
Picture from Pxhere.
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Journalist, editor, and graduate of anthropology and international relations. Interested in culture, economics, philosophy, politics, travel, music and art