University of Pennsylvania professor presents primer on blockchain

Sarah Hammer, professor of finance and law at the University of Pennsylvania, is not 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 in Jacksonville, Hammer said people need to understand blockchain and its place in the world’s financial system.

“We live in a world with a banking sector and a financial sector that is changing significantly,” she said during a luncheon event at The River Club Downtown.

Blockchain is a technology where a network of computers is used to record transactions.

“Blockchain is another way to manage transactions,” Hammer said.

“Instead of a single central database, thousands of computers manage the exact same information at the same time,” she said.

“It’s a new way of managing data and information.”

World Affairs Council in Jacksonville

Hammer is executive 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 equity and financial technology.

She said an advantage of blockchain over a central database is that it is more difficult to launch a cyber attack against a blockchain system, where you have to attack all the computers in the system instead of just one.

Hammer said that financial transactions recorded by the blockchain are considered immutable, because they are difficult to change.

“It’s generally considered almost impossible,” she said.

Blockchain may evoke negative images for some people because they associate the technology with volatile cryptocurrency transactions. But blockchain is just a technology used by cryptocurrency companies.

“It’s not the same as bitcoin and it’s not the same as cryptocurrency,” Hammer said.

“Blockchain is the thing that drives the digital asset.”

Hammer also didn’t offer an opinion on digital currencies, saying “I’m not a cryptocurrency person.”

However, she pointed out that the collapse of crypto trading company FTX had a greater impact than the collapse of investment banker Lehman Brothers in 2008, considered the largest bankruptcy case in US history. Hammer said more people invested with FTX than with Lehman.

“FTX far surpasses 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 only thing in common is the liquidity problem.”

Banks faced liquidity problems as depositors rushed to withdraw their money, spurred at least in part by social media posts questioning the banks’ health, she said.

In addition to teaching at the Wharton Business School, Hammer is an adjunct professor of law at Penn, teaching a course on financial regulation.

She said that coming up with a regulatory framework for cryptocurrency in the United States 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-controlled banks.

“We have a more complicated regulatory framework than many other countries,” Hammer said.