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Many people are familiar with bitcoin, the cryptocurrency that doubled its price four times in 2017 before falling again in the new year. Fewer people are familiar with blockchain, bitcoin’s underlying technology that has the potential to affect every industry.
MIT Sloan senior lecturer Michael Casey realized that blockchain’s disruptive potential shouldn’t be underestimated when he was writing his 2015 book " The Age of Cryptocurrency." That book explored how digital money could upend the financial system, but while writing it Casey and his coauthor, Wall Street Journal reporter Paul Vigna, realized that blockchain and its broader applications was going to be as big a story.
In their new book “ The Truth Machine: The Blockchain and the Future of Everything,” Casey and Vigna delve into why blockchain is so important and how it could shift balances of power. “We realized that there was a deeper conversation to be had just around why decentralized recordkeeping, which is what the blockchain is, has such importance,” Casey, who is also a senior advisor for the Digital Currency Initiative at MIT’s Media Lab, said.
In a recent interview, Casey discussed blockchain's potential applications — and where he sees the technology going in the future.
Why is blockchain a "truth machine"?
The truth we're talking about is one we take for granted: the consensus of facts.
This goes back to the idea that human beings have built constructive civilizations because we have the capacity to arrive at consensus. And then, with that agreed notion, we can enter into economic exchanges and build things collectively.
This is an interesting way of thinking about what's going on here, because the blockchain is a machine that allows us to arrive at that sort of truth. Previously, we had to rely on centralized institutions to deliver us their truth. We might audit Apple's quarterly results every three months, but with this assumption that their record is truth. And then we built everything on top of that. But the blockchain is a decentralized mechanism for arriving at that, removing the capacity of these big gatekeepers to set what that truth is.
Why is this decentralization so important?
Decentralization is valuable for resolving what I call "th e cost of trust." The world is burdened with enormous costs because people can't trust each other.Skyscrapers are filled with accountants who are constantly reconciling their ledger with the ledger of the other company they're working with. This results in multiple, centralized ledgers that have to be reconciled because people don't trust each other, and that reconciliation process is incredibly time-consuming and costly.
Anything that talks about a common shared record might be expensive from a computational perspective, because you need multiple computers within the same ledger — but because it starts to attack this heavy cost of trust you start to see how this solution, expensive as it may be, could well be worth it.
If we get to this point where the record of transactions is universally recognized at any given time to be absolutely accurate, and we have real-time accurate data, you don't need audits. You don't need quarterly reports. I think this is potentially the most disruptive technology we've encountered in a while.
In the book you discuss that the World Food Program is using blockchain to track food distribution. How are they doing that?
The challenges of keeping track of people and their transactions have real-world implications that we don't think of naturally. More than 30,000 Syrian refugees live in the Azraq refugee camp in the Jordanian dessert. For these people, if there's some error in the system — either because one of the merchants hasn't updated their information or their ID recorded payment for food that wasn’t distributed — they can get shut out of the system. And then they can't get food.
The World Food Program is running a pilot program for 10,000 of these refugees using blockchain to look at every single transaction. It gives them assurances, so people who are desperate are able to come back and — if there ever was a challenge to them receiving food — audit the record and say it's all there. I paid or I didn't pay.
One of the main benefits is the sheer efficiency of it. The World Food Program has millions of clients around the world. They're now able to have a single source of data around that. They're able to stitch together multiple sources of information into one coherent thing and use that without having to do these heavy, time-consuming reconciliation processes.
What other applications are there for blockchain?
Supply chains are a huge use because you have the problem of mistrust. There's a series of entities along a chain. They have a common goal, but they have mistrust because every buyer wants to buy low and every seller wants to sell high.
The idea is that, if we created a common set of records that shows the system’s transactions, people could be more open with the information they share. It could also have a huge impact on efficiency. If everybody along a supply chain is able to keep track of information, they can plan how much they need to buy of something without being wasteful. And waste is as much of a contributor to climate change as anything else. So we have a real gain to be had in that way.
I'm also really excited about energy. I'm working on a project with the Digital Currency Initiative in Puerto Rico where we're looking to use the blockchain as kind of an accounting back-end for a distributed microgrid of people who own their solar panels and are able to trade directly with each other, rather than having an intermediary. That matters because without that intermediary — the public utility that sets the price — they have the capacity to bring the market forces of clear price signals into a community that can make better decisions about it. We're calling it an energy democracy.
Where is blockchain technology headed over the long term?
The notion of a token economy — we can now basically create different systems of value exchange that are another form of money. Whereas a dollar is agnostic about what it's being used for, a token can only be used for certain things. We could effectively move to what might be a digital barter world, where assets and relationships and community values can become tokenized. Those community values are important because you can imagine designing different economic pools around each token.
You could attack the Tragedy of the Commons (a problem where people try to use more than their fair share of a common resource) in certain settings because now we have rule sets baked into the token. Just simply by using it, because those rules are embedded into it, we're all participating in a way that is in the community's interest.
That's a pretty powerful idea — that your medium of exchange can become a governance model for the community that's using it. It removes the need for a regulator, and has to be built around your community.
These are all visions of the future. But it's the core issue that everyone's fighting for: How do I create a token that can make these disparate, misaligned interests of people come together around a common interest, and how might that change the world?