Panama Papers: Cryptocurrencies Unlock Financial Transparency

News, Opinion | September 30, 2019 By:

Do you remember the Panama Papers? Do you remember when in 2014 a network of the world’s richest and most powerful people was revealed to have been hiding their wealth in illegal offshore bank accounts and secretive, dubious investments?

You might remember the term or some of the news coverage, but the true scope of the story has been mostly forgotten. In part that is due to the fact that tax evasion, in many forms,  has become so widespread that the discussion feels clichéd. Most of us accept that the world’s elite play by a different set of rules, a set of rules that they create for themselves.

However, the revelations of the Panama papers and later the Paradise Papers offered the public definite proof of widespread corruption. Members of the royal family, prime ministers, cultural figures and famous celebrities all participated in a clandestine system to avoid paying their share to society and to profit from questionable or restricted enterprise. Yet, no one seemed to care. Daphne Caruana Galizia, one of the journalists responsible for revealing this widespread corruption, was in fact assassinated in Malta for her expository work, and still, no elites have been meaningfully held to account.

Why? Why has this unacceptable economic and social injustice prevailed atop a seemingly global indifference?

Many factors, of course, place our societies at the mercy of the elite classes, but chief among them must be utter opacity of our financial systems. At every turn, the financial system seems to have been designed to obscure its inner workings. From taxes to lending cycles, to the laws surrounding investment, the mechanisms of finance seek to mystify and alienate the everyday economic actor. In this way, the most powerful economic agents have the ability to set and exploit the rules of our financial systems in perfect privacy, without being bothered by popular sentiment, or (in the case of the Panama Papers) legal ramifications.

Despite the misinformed opinions of some institutionalists and skeptics, cryptocurrency is society’s best opportunity to transform the financial system into a free, fair, and transparent one. Much is made of the pseudo-anonymity of transactions, but of course, Bitcoin and other cryptos are fundamentally distributed ledgers that make every on-chain interaction a matter of public record.

Highlighting this point, there was a lot of noise around a recent whale transaction on the Bitcoin network. On September 5, 2019, one wallet moved a balance of 94,504 BTC (over one billion dollars at the time of the transaction) to another. This instantly became news in the crypto community. Critics have contended that this sort of transaction reflects the air of secrecy and criminality surrounding cryptocurrencies. But of course, these wallets are subject to journalistic investigation. How many other billion-dollar transactions have happened behind closed doors?  Not only with national fiat currencies but complex financial instruments. How many “whale movements” are constantly affecting our economy, with no public recognition whatsoever?

It is, of course, easy to point out the lack of transparency in certain aspects of blockchain technology because public accountability is a foundational presupposition of the technology. In our current financial system, it is difficult to point out a moment of dubious behavior because these systems are hidden so thoroughly from public view that even asking the right questions requires expert knowledge of high finance.

Through blockchain technology, interested observers, enthusiasts, and watchdogs will be able to keep tabs on major transactions and report on the networks these wallets uphold. ` This all leads to a more natural relationship with the price. In this nascent stage, it may be true that whales can exert undue influence on the price movements. However, as the network grows, decentralized currencies will become practically impervious to price manipulation. With the landscape of the financial system in full view, economic actors and their choices will determine the prices their communities deem fair. No central authority will be able to arbitrarily value their currencies, nor will hidden activity or backroom dealings balloon their debt lending cycles so drastically.

That last point is perhaps the most meaningful one. With financial transparency comes financial responsibility. Economic crises, like the 2008 U.S. mortgage crisis, were a direct result of the unaccountable practices of high finance. No one knew what the banks were doing; it remains unclear if the banks even knew what they were doing when they collateralized, aggregated, and aggressively encouraged the American public to take out loans that lenders knew could never be repaid. In the transparent systems that cryptocurrencies posit, the most staked actors can be held to account. Exploitation and financial ensnarement will become obvious and attributable to the public, and therefore a primary layer of defense against such criminal actions.

Cryptocurrencies offer a kind of financial reality most of us believe we are living in. It is high time we actually begin to do so.