The lack of trust stemmed from complex derivative contracts which allowed people to create bets on thing they did not own with massive upsides. The cascade was in the contracts creating disproportionate problems in the books of banks + the fact that the CDOs themselves were falling apart in value.
Something like this could have easily* been created via ETH and automatically cascaded without and brakes and caused a chaotic meltdown that would be TRUELY destroyed the trust, not in ETH, but in the other people which we could lend money to and stop the growth of the economy which credit is built on.
* in a world where we used ETH to make these contracts normally as we do today using English and our existing Property/Tax/etc. laws.
Blockchains can reduce counterparty risk in a transaction, but there's no technical solution to the fact that trust is required between, for example, a lender and a borrower. The idea that you can just sprinkle some blockchain dust and avoid financial crises is naive.
>but there's no technical solution to the fact that trust is required between, for example, a lender and a borrower.
No, it does not. However, if someone lends bitcoin to a borrower, it does not involve third parties, and therefore cannot "run" like a fractional reserve bank.
Someone (A) can loan Bitcoin to another person (Bank), with the terms that if he asks he can have it back at any time, and he'll also receive a small percentage of interest each year.
Bank can then lend 90% of the money to a third person (C), betting that A will not ask to get all his money back at the same time. To decrease this risk, he does this with lots of people so he is covered in case only a few ask all of it back (but still is in trouble if too many of them do at the same time).
A still has money (his assets are very liquid as he can ask for them back at any time, very liquid assets are what we call money), C has money, the sum is more than the initial amount, so money was created through fractional reserver banking.
That's all fractional reserve banking is, and nothing about Blockchain prevents it.
>That's all fractional reserve banking is, and nothing about Blockchain prevents it.
Implicit in my comment was the idea that it would be a bad idea to start a fractional reserve bank which used a currency of account that wasn't available in infinite supply from a nearby government.
Also, I merely stated a way in which Bitcoin could be used as a sound bank, not that all possible banks which use Bitcoin are sound.
Of course it could. How could anyone who cares to lend individuals or small companies have so much of their own money that they can just do that with their time? They start this thing called a "bank" or "investment group" or "hedge fund" (etc.) and they use other people's money to invest or provide credit and either return an agreed amount over time (interest) or whatever they manage to gain - a fee (ROI - management fees, which is usually % of $ under management or % of profits gained (more rare)).
What you're suggesting is we get rid of credit and investing other people's money or, rather, that we use a system which makes that system impossible.
Financial organizations will be able to provide zero-knowledge proofs of their aggregate resource commitments, including distributions of credit score attestations. Organizations can lend to each other on the basis of those.
> Financial organizations will be able to provide zero-knowledge proofs of their aggregate resource commitments, including distributions of credit score attestations. Organizations can lend to each other on the basis of those.
This is pure meaningless buzzwords. Blockchain doesn’t solve any problem in the financial space besides providing a means to conduct financial fraud.
GP referenced technology, you said the technology was "buzzwords" and then insulted Blockchain with ad hominem. Grow up.
Zero-knowledge proofs can be provided to show trustless distributions of data (credit score attestations for example, or resource commitments), and can definitely lead to things like the ability to share trustless commitments. FWIW, only ZCash really uses zero-knowledge proofs right now, and even then just for private transactions (a subset of all transactions made in ZCash). Maybe read a bit before attacking something?
Unfortunately his comment is what passes as "sound analysis" on bitcoin and other cryptocurrencies for the moment. In a few decades statements like that will be cringe-worthy.
In a few years that statement will be completely mainstream. ZKPs are going to revolutionize finance and other accountability structures, with or without blockchain.
Not at all. Blockchains don't protect against poor investments or too much risk in any way. If we had a run on the banks you might have an argument but that didn't happen.
