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Blockchain’s next steps 

Simon Johnson on how the technology could spur financial inclusion, and on what has yet to be done.

By Amy MacMillan Bankson  |  June 20, 2017

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Blockchain, a secure, distributed database, is gaining momentum as a technology that could allow greater financial inclusion worldwide (read our explainer of the technology). MIT Sloan professor Simon Johnson has stepped up MIT Sloan’s blockchain offerings with a new independent study course and a re-tooled existing course that examines blockchain’s implications for economic and financial development.

Johnson last month won the Jamieson Prize for Excellence in Teaching for his efforts in designing these and other courses. He collaborated with Professor Christian Catalini, Senior Lecturer Brian Forde, and MIT Media Lab Senior Adviser Michael Casey on the courses.

Here, he explains what’s to come for the buzzed-about technology.

Why hasn’t blockchain taken off yet?
It’s a network effect. Just like Facebook is valuable, because other people you know are on Facebook. Everyone has to agree that it’s worth coordinating moving to blockchain or some new system has to evolve around that. It’s not something that happens instantly. The same thing happened with the internet. The internet was around for a long time before it got any traction … 20 years later, it’s still unfolding. I think it’s fairly common that … technology takes time to diffuse and become more user-friendly.

2017-Johnson-FintechSimon Johnson

What about the potential dark side to blockchain? Because users would receive a private digital key to access information, and because blockchain isn’t controlled by a single entity, what would happen if that key was stolen? 
There’s a dark side to everything. Everything can be misused. Sometimes people will say, ‘Wouldn’t it be better if we had this mutual agreement about who held what?’ So there would be no government land registry, no department of motor vehicles … because those things, they are single points of failure; they are bureaucratic, and they are a pain. But, then you have to recognize, that if we make it decentralized … we are just managing this as individuals. I knew someone — a bitcoin enthusiast — whose computer was hacked in a sophisticated way. Someone got in and was able to steal everything he had stored there. He lost a lot of money. So, I think there are additional steps needed before this becomes suitable for consumers.

How can blockchain help citizens in the developing world?
The developing world is generally characterized by having problems with government, corruption, land titles, and movable property. The main idea is that you could use blockchain to track who owns what and therefore perhaps borrow more easily. Or sell things more easily … the bitcoin blockchain idea is certainly both a libertarian dream because there’s no government, but it’s also a left-wing dream because there’s no powerful oligarchs or banks or anything else … preventing people from being involved in the financial system. Most people are excluded from the banking system because the banks don’t want them as their customers, because they have too little money. And the banks think that [these customers] are too expensive, and they set their fees accordingly. In a purely decentralized system, it should be really easy to include people and give them a means of payment that’s digital.

When you think about blockchain’s future potential, what excites you the most?
Well, the MIT Digital Currency Initiative is working on a currency concept, which would not be a full permissionless blockchain, but it would use some of that approach to have a digital form of cash issued by central banks and that would be a potentially powerful tool for financial inclusion. I think it could be stabilizing with regard how the financial system works. It’s all to be determined, but it could be very interesting.