Sarah Hammer, a professor of finance and law at the University of Pennsylvania, isn’t ready to say whether blockchain technology is a good thing or a bad thing.
However, during a May 31 presentation to the World Affairs Council of Jacksonville, Hammer said people need to understand blockchain and its place in the world financial system.
“We live in a world of a banking sector and a financial sector changing significantly,” she said during a lunch event at The River Club Downtown.
Blockchain is a technology where a network of computers is used to record transactions.
“Blockchain is a different way of managing transactions,” Hammer said.
“Instead of a single central database, thousands of computers are managing the exact same information at the same time,” she said.
“It’s a new way of managing data and information.”
Hammer is managing director of the Stevens Center for Innovation in Finance and senior director of the Harris Alternative Investments Program at the Wharton School at Penn, where she focuses on private capital investments and financial technology.
She said one advantage of blockchain over a central database is it is more difficult to launch a cyberattack against a blockchain system, where you would have to attack all the computers in the system instead of just one.
Hammer said financial transactions recorded by blockchain are considered immutable, because they are difficult to alter.
“It’s generally considered almost impossible,” she said.
Blockchain may conjure negative images for some people because they connect the technology to volatile cryptocurrency transactions. But blockchain is just a technology used by cryptocurrency companies.
“It’s not the same thing as bitcoin and it’s not the same thing as cryptocurrency,” Hammer said.
“Blockchain is the thing that powers the digital asset.”
Hammer also wasn’t offering an opinion on digital currencies, saying “I’m not a cryptocurrency person.”
However, she did point out that the collapse of crypto trading company FTX had a bigger impact than the 2008 collapse of investment banker Lehman Brothers, considered the largest bankruptcy case in U.S. history. Hammer said more people invested with FTX than with Lehman.
“FTX far exceeds any bankruptcy in history,” she said.
Cryptocurrency may have played a role in some of this year’s high-profile bank failures but it was not a central cause, Hammer said.
“The banks that failed had very different business models,” she said.
“The one thing in common is the liquidity issue.”
The banks faced liquidity issues because depositors rushed to take out their money, spurred at least in part by social media posts questioning the health of the banks, she said.
Besides teaching at the Wharton business school, Hammer is an adjunct law professor at Penn, teaching a course on financial regulation.
She said coming up with a regulatory framework for cryptocurrency in the U.S. will be difficult because of the number of agencies that regulate the banking system.
Three federal agencies regulate nationally chartered banks: the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.
In addition, there are 50 state regulators with jurisdiction over state-chartered banks.
“We have a more complicated regulatory framework than many other countries,” Hammer said.