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Money For Nothing: The First Great Stock Market Boom, Fraud, and Crash

It was called the South Sea Bubble, and it was one of the most precarious financial crises in history. It was also the birth of modern finance. MIT Professor Thomas Levenson unfurls this sweeping tale of one of the greatest financial frauds in history in his new book Money for Nothing: The Scientists, Fraudsters, and Corrupt Politicians Who Reinvented Money, Panicked a Nation, and Made the World Rich. The book explores the connection between the revolutionary advances in science, unveiled in quick succession in the early 18thcentury, with the invention of financial capitalism.

In the early 1700s, England was running out of money after a protracted war with France. The British Parliament attempted to raise funds by selling debt to its citizens. The pitch: pay now and collect the money with interest after the war. The idea was to leverage the stock market—a relatively new invention—where Isaac Newton’s principles of motion were fast being applied to the world of money.

The irresistible lure of the South Sea Bubble
The movers and shakers at the center of London’s stock market had formed the South Sea Company. They hatched a highly successful scheme to turn pieces of the national debt into shares of company stock. Over the spring of 1720, stock prices doubled, doubled again, and then doubled once more. Londoners, from tradespeople to British royals, got caught up in the trend.

Unlike science, though, in which new ideas are tested and retested, this financial revolution was completely freewheeling, and after shooting skyward, the market inexplicably dropped. The “South Sea Bubble,” as it was later dubbed, had devastating consequences for individual investors, Britain’s economy, and the economies of nations around the world.

The end result of this wild ride? Improbably enough, the systems and structures of modern finance. British leaders chose to take a more enterprising lesson from the debacle—that issuing bonds that buyers could trade or use as collateral was a successful way to raise capital. Other countries, understandably, were wary of the practice, and did not adopt it for another century. In the interim, however, Britain raised immense quantities of money, giving it an edge in wars against far more populous and wealthy nations.








In Algorithms We Trust

MIT Sloan Senior Lecturer Michael Casey

“When I confessed on air that I only began to understand the true nature of money after researching cryptocurrencies, it instantly became a headline,” says Wall Street Journal currency reporter and MIT Sloan Senior Lecturer Michael Casey. He made the remark during a 2016 interview with host Laura Shin for the Forbes unChained podcast. “I’m sure some people were shocked and others amused, but I think anyone who listens to the full podcast will appreciate where I was coming from.”

During the interview, Casey reflected on the wholly irrational habit we have of thinking about money as a real thing. “What we conceptualize as a dollar, a euro, a renminbi is actually a complex—and invented—social system for tracking our debts to one another,” he says. One consequence of this epiphany for Casey was that it transformed him from a blockchain skeptic into a blockchain advocate.

A lesson from the history of money
In The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order, Casey and coauthor Paul Vigna note that, for most of its history, currency has been issued by emperors, monarchs, dictators, and democratically elected governments. Those rulers have consistently stamped their images and symbols of authority on bills and coins, reminding citizens of the deep societal connection between money and centralized control.

“The value of a dollar has grown up around a common and quite reliable societal consensus about what underpins it and how much you can redeem with it,” says Casey. “It’s a story we tell that has no intrinsic truth, just a shared understanding. But to function smoothly, our system also requires the authority of governmental entities and the services of trusted intermediaries such as banks. We could not have built our civilization without them.”

But breakdowns such as the 2008 global financial crisis demonstrate how vulnerable our existing model is when trust begins to erode. The crisis also opened people’s minds to innovation. Many became convinced that traditional currency systems, which dominate current global economic activity, should no longer be relied upon as the sole viable option for how we represent and organize the exchange of goods and services.

A new symbol of shared truth
Most of us were raised to view our omnipresent financial institutions as trustworthy keepers of shared truths about our debts and payments. We’ve also accepted, albeit grudgingly at times, the fees that banks and other intermediaries charge for maintaining accurate ledgers of our transactions. Few believed we could create an efficient, viable alternative. That made us dangerously dependent upon the specialized keepers of trusted transactions—bond and securities brokers, insurance agents, financial lawyers, payment processors, and credit card companies.

The advent of cryptocurrency, however, has introduced the prospect of a dramatic shift in the existing balance of power. As Casey and Vigna explain in The Age of Cryptocurrency:

The simple genius of this technology is that it cuts away the middleman yet maintains an infrastructure that allows strangers to deal with each other. It does this by taking the all-important role of ledger-keeping away from centralized financial institutions and handing it to a network of autonomous computers, creating a decentralized system of trust that operates outside the control of any one institution.

Possibilities abound
“Thinking of bitcoin and other cryptocurrencies as alternatives to the dollar is the least interesting—and least useful—possibility for blockchain technology,” Casey says. “Many of the countless token systems out there are actually smart contracts that exist for the purpose of running blockchains. Those blockchains function as incentive systems that run in a decentralized fashion around a particular objective.”

One example Casey cites is Basic Attention Token (BAT), a blockchain-based digital advertising ecosystem that is built on top of Ethereum. “The BAT utility token works as a governance system for the media world,” explains Casey. “In the BAT ecosystem, publishers earn BATs from advertisers based on the amount of attention users give to the ads. Publishers then spend their BATs to publish more content on the platform. Users, in turn, receive some BATs for viewing ads, and they can use those tokens to purchase premium content or services on the platform. That direct exchange of value among the primary participants eliminates the costs associated with intermediaries in traditional media ecosystems.”

Casey also sees enormous potential in cryptocurrency to move value between native currencies without the expense and friction of intermediaries. “The World Bank estimates that 1.7 billion adults worldwide don’t have access to bank accounts,” he says. “That means that when family members earning money abroad want to transfer some portion of it back home, they must pay exorbitant fees. Developers now are exploring the use of blockchain technology to move funds across the world phone-to-phone—with Facebook’s Libra project being the latest to dive into this financial inclusion push. These ideas threaten to disrupt the existing financial-institution architecture, but that may be a small price to pay for onboarding billions of hitherto excluded people into the global digital economy.”

Bad News for Autocrats

MIT Sloan Professor Simon Johnson, Faculty chair of the MIT Sloan Fellows MBA program

MIT Sloan Professor Simon Johnson, Faculty chair of the MIT Sloan Fellows MBA program, thinks researchers, technologists, academicians, and entrepreneurs are overlooking a crucial aspect of cryptocurrencies. Amidst thousands of ongoing discussions about the uses, abuses, and transformative effects of cryptocurrency technologies in commerce and finance, he notes that very few people are considering its likely effects on politics around the world—especially in societies under the control of autocratic regimes.

The topic is timely, Johnson believes, because authoritarianism is on the march worldwide. In an opinion piece for The Business Timeshe cites the most recent Economist democracy index, which indicates that half the countries around the globe were less democratic in 2017 than in 2016. More dire still is the assessment that only five percent of the world’s population lives in fully democratic states.

How cryptocurrencies can resuscitate democracies
One can easily imagine why an autocrat would not want people to have access to potentially untraceable, but secure, digital records. “For starters, with access to such records, a citizen could make payments or donations that bypass the banking system and its embedded surveillance,” writes Johnson. “Rules that restrict political organisation would become easier to defy.”

By way of example, Johnson describes a hypothetical system for collecting, storing, and sharing political grievances and protests that is structured like the user-controlled health-records platform MIT colleagues are developing. “There is potentially no limit to how ingenious people can become with regard to writing so-called smart contracts, which will trigger payments or other transactions (like sending protest messages) when particular events occur,” Johnson contends. “For activists around the world, the only constraint is their creativity.”

Revolutionary models for accessing capital
In a 2018 article for Consensus MagazineJohnson describes yet another paradigm-shifting aspect of cryptocurrencies in general and initial coin offerings (ICOs) in particular. A common feature among various ICOs is how potential investors are wooed by the promoters of these platforms. “While many will describe their tokens…as pre-sold, negotiable ‘products’ with a utility function that gives the holder access to the system’s services,” he writes, “so far the most disruptive aspect of this idea lies in how it changes the fundraising dynamic.”

According to Johnson, an ICO is fairly straightforward in that sense. The developer of a useful technology seeks to prefund it in a manner that shares the resulting value with early users and those willing to provide risk capital. Given that access to capital is a key constraint for such ventures in our economy, “ICOs offer a more direct route for both tapping and deploying funds, for matching founders with investors. That turns out to be quite revolutionary, although also controversial.”

Although many citizens around the world may feel discouraged by recent trends in politics and economics, Johnson believes the momentum may be changing thanks, in part, to the rise of cryptocurrencies. “I would not be surprised if the pendulum begins to shift back in favor of those who would prefer more open systems and a greater degree of productive political and economic competition.”

Simon Johnson’s latest book Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, with coauthor and MIT Economics Professor Jonathan Gruber, examines the lessons of the post World-War II American success story and lays out a plan that will create the industries of the future—and the jobs that go with them.

Making the World More Liquid

Silvana Lopez, SF ’16

“The hype—and occasional hysteria—surrounding cryptocurrency has tended to muddy the waters around blockchain technology,” says, CEO and cofounder of The Blockchain Challenge (TBC). “What sometimes gets lost in the murkiness is the immense potential of cryptocurrency-type applications to transform fundamental economic activities among financially underserved populations.”

When Lopez and TBC cofounder and CTO Natalie Gil, SF ’17, launched their blockchain-based startup in 2018, the possibility of helping stagnant microeconomies become more fluid was an important part of their vision.  “I’m far more excited about how cryptocurrencies can improve the lives of farmers and villagers in developing countries than whether bitcoin will replace traditional monetary systems,” Lopez says.

Where cryptocurrencies and developing economies meet
By convening global interdisciplinary teams—entrepreneurs, programmers, psychologists, economists, and others—TBC is helping to create the “next cool thing” in blockchain while simultaneously enlivening small-scale, regional economic activities. “Cryptocurrency technology can be very useful in promoting sustainable development,” says Lopez. “A tokenized local digital credit system, for example, is more than just a medium for purchasing and saving. It’s also a public window into the economic activity of a community.”

Such windows, Lopez explains, serve to decentralize and democratize access to information that is the basis for fair exchanges of goods and services in market-based economies. “With local blockchain solutions, you give all players—institutional, self-employed, formal and informal sector workers—transparent access to the same supply-chain data, historical pricing trends, crop yields, and so on. Any information that’s relevant to an economic ecosystem can be gathered, verified, secured, and shared with confidence.”

Lopez cites the Peruvian fishing industry as an example of how transparency can empower economic actors in low-income communities. “Most commercial fishermen in Peru are artisans. They don’t necessarily understand how blockchain stores, validates, protects, and tokenizes every activity in the chain from production to consumption. What they do understand is how to use that information to protect their livelihoods by tracking fishing stocks, ensuring regulatory compliance, and getting fair prices for their daily catches. If fishermen find more solutions that help them achieve that, they definitely will adopt them.”

A boost to collective bargaining and liquidity
One of the community-based blockchain projects that TBC collaborated with is Quipu, a local digital market that enables trade through a mutual credit system using a local currency. Quipu features a mobile app that captures real-time transaction data such as the type of goods and services offered and sold, their geolocations, prices, and available supplies. “In the global economy, many low-income communities have suffered from asymmetrical access to this type of information,” explains Lopez. “By decentralizing trading information so that everyone has access to it, individuals responsible for collective bargaining agreements with large external purchasers can negotiate better deals.”

Although Lopez is quick to point out that cryptocurrency technology isn’t the solution to every category of economic activity, she believes it will be transformative in developing countries. “Blockchain and tokenization in small markets change incentive structures and prioritize local producers and consumers in the value chain. Community wealth is enhanced by increased liquidity and transparency. The technology, when deployed with those objectives in mind, can serve as a disruptive tool to build economic justice in low-income regions around the world.”

Humanizing Business Transactions

Jennifer Hongbo Jiang, SF ’17

Like many of her colleagues in the realm of global banking, BlockTEST cofounder Jennifer Hongbo Jiang, SF ’17, was initially skeptical of cryptocurrency initiatives. “I have to confess that within 20 seconds of first hearing about bitcoin, I was sure it was a scam,” Jiang says. A decade’s worth of executive experience at financial giants JP Morgan, Merrill Lynch, and Citigroup had disposed Jiang to be wary of monetary vehicles that appeared impossible to value.

While Jiang never expected to give bitcoin a second thought, the blockchain-based currency came across her radar again when she was preparing a talk on cryptographic technology. “I decided to read the white paper, and I was blown away,” she says. “I realized that it was a genius of an invention. I became obsessed with the technology—though not yet convinced of the value of its potential applications.”

The fun part of blockchain
Not long after her partial conversion, Jiang spent an afternoon with the head of cryptocurrency initiatives at the Central Bank of China. “I was impressed by the level of China’s interest in cryptocurrency. The conversation propelled me on to additional research. When I was accepted into the MIT Sloan Fellows program, I chose a thesis topic that allowed me to dive deep into the consensus mechanism of distributed ledger technologies such as bitcoin.”That experience not only changed my opinion, it changed my entire career path.”

From Jiang’s perspective, the fundamental question that the bitcoin platform solved was how to use technology as a means of establishing trust in a trustless community. “Existing monetary systems incorporate some degree of trustlessness,” she says. “When you walk into a store with dollars in your pocket, it doesn’t matter if you and the cashier are complete strangers. You both trust that the value of paper money is what the government and society say it is. But that trust is founded on those third-party intermediaries.”

For Jiang, the fun part of the bitcoin platform is the condensation of all the system’s digital trust mechanisms into a single element—the bitcoin token. “The value represented in a bitcoin has proven to be an effective incentive for people to behave well and comply with the immutable requirements of the platform,” she says. “The threshold for entry into the system is achievable for a wide swath of the world’s population. That’s what makes cryptocurrencies inclusive and empowering for people who have not been invited to participate in the existing global financial structure. The long-term effect could be to restructure business transactions to look much more like human transactions.”

Defining boundaries for experimentation
Looking to the near future for cryptocurrencies, Jiang is concerned about the lack of clarity from the U.S. Securities and Exchange Commission and U.S. Commodity Futures Trading Commission as well as the lack of coordination with other global regulatory bodies. “I have no doubt that the emerging group of tokens and cryptocurrencies (including recent offerings from JPM Coin and Facebook’s Libra) will inexorably lead to a new theater of virtual marketplaces,” notes Jiang. “We’re struggling, however, to overlay existing regulatory frameworks onto new technology that is useful precisely because of its fluidity. Innovators are reluctant to experiment here because they don’t want to take the risk of getting out ahead of regulations, only to have their efforts nullified by new—and potentially punitive—laws.”

The current state of affairs is driving blockchain developers and entrepreneurs to seek more invention-friendly environments outside the U.S., according to Jiang. “Singapore, for example, has established a national strategy for creating a sandbox environment that attempts to strike a balance of freedom, transparency, privacy protection, and fraud prevention. The National Bank of Canada and the Bank of England also are spearheading initiatives. The global race is on, and the first country that implements a workable cryptocurrency best-practice framework will have a distinct advantage in the global financial system.”

The Real Winners in the Cryptocurrency Battle

Alin Dragos, SF ’17, Head of Strategic Partnerships at the MIT Digital Currency Initiative (DCI), doesn’t read the current narrative of cryptocurrency innovations as a battle among competing token systems to dominate the digital currency landscape. Quite the contrary, he sees the success of multiple platforms as a victory for all of us.

Alin Dragos, SF ’17

“In cryptocurrency and blockchain technologies, we’ve invented a fast, efficient, secure, and transparent way to move value around the world that reduces the current level of friction and intermediation,” says Dragos. “The win here isn’t for any single platform, it’s for everyone in the world who buys, sells, or exchanges anything of value with another person or company.”

Upgrading a very old infrastructure
Dragos and his DCI colleagues—along with many like-minded leaders in technology, business, finance, and public policy—consider the world’s current banking systems to be inefficient and exclusionary. “Many unnecessary costs and hurdles have been introduced over time by intermediaries who no longer add enough value to the system to justify the fees they extract,” he says.

Cryptocurrency platforms are opening up the banking sector to a whole range of new participants. “Many more players can compete to offer accounts and other digital financial services to consumers who currently don’t have access to traditional saving, borrowing, and credit mechanisms,” Dragos notes.“I’m excited that so much innovation is now being driven from outside the established banking sector.”

Transparency, censorship-resistance, and the question of cash
Countries that are struggling with corruption can benefit from the transparency inherent in cryptocurrencies. “The technology has acquired an aura of being untraceable, but that simply is not true,” says Dragos. “Bitcoin, in particular, has gotten a bad rap as being an effective vehicle for money launders. But money laundering is more prevalent in our existing global banking system than it is on any cryptocurrency platform. The difference is that if you do bad things with bitcoin, sophisticated regulatory and law enforcement units will very likely catch you.”

Dragos also likes the fact that any economic activity employing bitcoin is resistant to censorship. “You cannot stop transactions from happening among willing parties, even if you wanted to,” he says. “In that sense, bitcoin preserves a fundamental societal benefit of cash.”

On the topic of cash, Dragos poses an interesting question inspired by the rise of cryptocurrency. “If cash didn’t already exist, would we invent it today? Some countries say yes, but others say definitely no. The next key question is whether we should have the digital equivalent to cash. In its current incarnation, cash comes with certain rights. Should we preserve those rights as we move to digital replacements? We must involve as many people as possible in open discussions of these questions. And we must make sure we carry forward the societal benefits that cash provides.”

The uphill battle to preserve privacy
When it comes to privacy protection, Dragos sees a challenge that reaches far beyond cryptocurrencies. “You can be as privacy-minded as you want, but the world is leaking data in every direction,” he says. “The more you stay online, the harder it is to remain anonymous. Anonymity will be lost without someone caring to protect it. Some people in the blockchain space are being proactive, but this shouldn’t be any one player’s responsibility. If we all advocate for it, we may have a chance of doing better than we are now.”

Dragos notes that blockchain technology has heightened the world’s interest in cryptography. “We see more interest in the field today than anyone has experienced in the last 20 years. It’s really cool now to be a cryptographer, and people who’ve been at it for a long time have a new impetus for their work. Current cryptography techniques were not designed for large-scale deployment, so we have plenty of room for innovation.”

The essential optimism of the MIT Digital Currency Initiative
Dragos and his colleagues at the DCI have made it their mission to create a future in which moving value across the internet is as intuitive and efficient as moving information. “We envision a tipping point where a critical mass of people demand the autonomy, openness, and value-generating capacity inherent in cryptocurrencies,” he says.

Although the technology still has a long way to go, Dragos contends that we’re already better for having it. “We need a great deal of fundamental research and development,  but the genie is certainly out of the bottle. Many smart, well-funded people are determined to make cryptocurrencies work for society at large, and I’m confident it will happen sooner rather than later. Adoption is already nearing tens of millions. In ten years, it will be hundreds of millions. By 2040, I expect it will be billions. Which is all the more reason to be sure we get it right from the start.”


Transferring Power to People Through Tokenization

When she was an MIT Sloan Fellow, World Bank Technology and Innovation Officer, earned a memorable nickname from MIT Senior Scientist Andrew Lippman. “We were discussing Facebook. My point was that if Facebook can make tons of money selling my data, why can’t I make money off myself? I just want Facebook to pay me a basket full tokens for my info. In response, he dubbed me a homo-economist, which I gladly accepted as a compliment.”

Prema Shrikrishna, SF ’17

In her work at the World Bank’s Technology and Innovation Lab, Shrikrishna is a sustainable business champion and blockchain technology enthusiast. “When you look at the endemic inefficiencies in our current global economic structure, many of the problems can be traced back to imbalances of power,” she says. “People with money have power, and they use their power to get more money. If we fail to act, the imbalances will worsen.”

Notional currencies to the rescue
Shrikrishna readily acknowledges that many technical and regulatory challenges lie ahead, but she believes that we’re much closer to a societal comfort level with cryptocurrencies than people think. “Yes, crypto tokens are an abstract notion, but corporate accounting is based on notional numbers,” says Shrikrishna. “Valuations of global giants such as Apple are certainly notional. It’s a simple matter of transferring that same mindset to currency.”

Crypto tokens, in Shrikrishna’s view, are a notional means of exchange that can be designed for many different types of transactions. “By supplementing existing international currencies with tokenized systems, we might create more localized, digital notions of currencies that are built from the ground up to better serve local and regional economic needs,” she says. “With that approach, we can deploy crypto token systems as counterweights to some of the imbalances of power in our current systems.”

Paving the road to adoption
In addition to their work on the technical requirements of various blockchain-based token systems, Shrikrishna and her colleagues at the World Bank are carefully examining technology-adoption models. “We know that we have to work from both the top down and the bottom up. At the country level, we know that providing guidance on government regulations, supporting the development of digital infrastructure, and performing readiness assessments will speed the creation of genuine benefits for inhabitants.”

At the individual level, Shrikrishna’s team is looking at strategies for motivating people to engage with the new technology. “We understand that widespread adoption by individuals will require significant educational investments,” she says. “We want to make the most of those investments, and we’re learning a lot from game theory about what motivates people to engage. If we get this right, we can give greater agency to people who have historically been on the downside of the global economic power imbalance.”



Bridging the Gap Between Farming and Finance

When conceiving their new AI-powered agriculture financing venture Traive, cofounders Aline Oliveira Pezente SFMBA ’18 and Fabricio Pezente SFMBA ’18 were motivated by a startling fact. Global food demand will increase 70% in the next 30 years, with annual investments of at least $80 billion needed to keep up with the demand (according to a World Bank study). Much of the burden—and many of the opportunities for investment—lies with mid-range farming operations.

Aline Oliveira Pezente SFMBA ’18

Aline Pezente, who has spent her career in Latin America’s agriculture and commodities sectors, notes that small to medium-sized farms account for 70% of all commercial agriculture in Brazil and in the world. “Farmers in this category are particularly vulnerable to liquidity crises,” she says. “They are typically too big to qualify for significant government support, but too small for capital markets. Most traditional lenders view them as risky investments. Our goal is to bridge the gap between the borrowing needs of medium-sized farmers and the difficulties lenders face in collecting all the relevant data points necessary to risk assessments.”

Not one to one, but many to many

Fabricio Pezente SFMBA ’18

Lenders face two problems when considering these mid-range farmers, according to Traive CEO Fabricio Pezente. “This is a very complex sector,” he explains. “If you are not literate in how agriculture works, you will have no idea how to collect the data you need to assess credit worthiness. Then there’s the problem of connecting with these farmers. They’re widely scattered across Brazil, and it is very costly for banks to go out and find them.” Fabricio understands the lenders’ perspective well, having spent 15 years with Credit Suisse in Brazil before entering the MIT Sloan Fellows MBA program.

“Rather than tackling these challenges with one-to-one matching of farmer to lender, we’re utilizing artificial intelligence and machine learning algorithms to connect many to many,” says Fabricio. “Our platform uses AI tools to aggregate real-time agricultural data and to process the information for potential lenders. Because no lender wants to finance a single medium-sized farmer, we bundle investments across diverse sectors and scales— soybeans in Argentina, wheat in the U.S., coffee in Colombia, and corn in Brazil, for example.”

Technology that facilitates financing facilitates more technology
The main source of technology is the AI to process the credit risk assessment and generate the bundled portfolio of loans. The company is in the process of combining AI and a confluence of application programming interfaces (APIs) and microservices to create an autonomous platform that is equally accessible to financiers and farmers. “Because the execution of agreements and the transfer of funds are handled by blockchain solutions, our model reduces the friction and costs associated with traditional intermediaries,” says Fabricio. “And with continual updating of agricultural data and loan terms, the transactions are transparent for everyone involved.”

The other revolutionary aspect of Traive’s model, according to Aline, is how they approach the credit risk assessment to provide pre-planting financing. “Traditional agricultural bank lending in Brazil is based on what a farmer has performed in the past and not necessarily on their full potential. Under that model, the incentive for farmers is to cut costs before planting—cheaper seeds, less soil-friendly pesticides, and so on. None of which contribute to greater or more sustainable yields. With increased credit availability ahead of planting, farmers are more willing to invest in seeds, fertilizers, and other technologies that promote higher yields and more sustainable practices. It’s a fundamental catalyzer for the levels of production we need to achieve in the coming decades.”

Global Blockchain Hackathons

The spinoff effect of MIT research into blockchain technology is already influencing the development of new ventures. The Blockchain Challenge (TBC), cofounded by CTO Natalie Gil SF ’17 and CEO Silvana Lopez SF ’16, was inspired by both Gil’s independent research project under MIT Sloan Professor Simon Johnson during her year in the MIT Sloan Fellows MBA program and Lopez’ desire to go beyond the hype. Launched in 2018, TBC unites global interdisciplinary teams—entrepreneurs, programmers, psychologists, economists, and others—to build the “next cool thing” in blockchain.

Natalie Gil SF ’17

“My work with Simon led me to MIT’s D-Lab and the Digital Currency Initiative,” says Gil. “As I learned about technology development ecosystems in Latin American countries, I realized that the environment was well suited to the creation of innovative blockchain applications. The combination of new digital infrastructure, good local programming talent, and rising governmental interest in tech development make Latin American countries ripe for blockchain uses cases.”

 Forty-eight hours with programmers and potato farmers
TBC has set its sights on expanding access to shared resources and creating incentives that promote more inclusive financial systems. “So far, all our use cases tie back to some form of distributed ledger,” Gil explains. “The underlying technology is fairly consistent. It’s the integration of diverse data collectors and relevant network participants that defines the distinct challenges of each case.”

Gil points to the recent TBC Peruvian Potato Challenge—an event hosted by the World Potato Congress—as an example of how blockchain technology can effectively integrate community knowledge with pioneering digital tools. The 48-hour hackathon in the Andean Mountains at Cusco, Peru brought together  agricultural engineers, agronomists, economist, biologists, and other technical experts. “Many participants have a foot in both worlds—technically trained daughters and sons who inherited ancestral knowledge from their parents,” Gil says.

The Peruvian government backed the initiative, and IBM partnered with TBC to provide technical expertise in coding and blockchain. “Because potato farming represents 13% of Peru’s GDP—and the livelihood of more than 700,000 families—the capacity of blockchain to promote inclusion could be game changing,” says Gil. Participants ultimately zeroed in on a common issue to address: how to manage plant disease outbreaks and grow crops more efficiently. Potential solutions incorporated geo-localization, image-recognition technology, machine learning, and data analytics—all supported by a blockchain platform.”

Broader lessons about blockchain
Gil emphasizes that the challenge, along with TBC’s other use cases in transportation and finance, are still in the proof-of-concept phase. “As with all responsible deployments of new technologies, we believe it is essential for strategists and developers to be thoughtful about setting expectations and managing deployment. As we learn more from our fieldwork about the promise and pitfalls of blockchain, we need to establish guidelines and regulations that protect participants and ensure the widest possible benefit from the technology.”



Seeking Evidence For and Against Blockchain Applications

Simon Johnson

“One of my favorite things about MIT is the enthusiasm people have here for talking through new ideas in an informal, friendly, and direct manner,” says MIT Sloan Professor Simon Johnson, faculty chair of the MIT Sloan Fellows MBA program. “We have many such discussions and research projects underway at the Institute related to blockchain. It’s all very exciting and confusing at the moment, but we’ll gain clarity over time about which aspects of the technology deliver distinct value and utility and which fall into the category of wishful thinking. If you can show us something real that you or someone else is doing with blockchain technology, we want you to join the conversation.”

In Johnson’s view, the overarching potential of blockchain is to shift the balance of power in financial, commercial, and social ecosystems away from established intermediaries toward something new and, as yet, only partially defined. “The vision of widespread decentralization is at one end of the spectrum,” he says. “The emergence of a new set of intermediaries with nontraditional business models is also in the mix. And we already see many dominant intermediaries in the marketplace morphing their policies and practices to incorporate this new technology. I expect that some companies will adapt successfully and others will fall behind.”

Predictions of blockchain’s dominance may be premature
As to the nature of prognostication outside the MIT community, Johnson notes that the Financial Times recently poked a bit of fun at business gurus who predicted that blockchain technology was well on its way to becoming an established norm. The January 10, 2019 piece “Occum’s blockchain shaver” tracked a significant rethink by a globally renowned consulting firm between 2015 and 2019. Following three and a half years of decidedly optimistic predictions, the January 2019 assessment struck a more cautionary tone:

“There is a clear sense that blockchain is a potential game-changer. However, there are also emerging doubts. A particular concern, given the amount of money and time spent, is that little of substance has been achieved. Of the many use cases, a large number are still at the idea stage, while others are in development but with no output. The bottom line is that despite billions of dollars of investment, and nearly as many headlines, evidence for a practical scalable use for blockchain is thin on the ground.”

A need to get into the weeds
“I think it’s helpful to remember that blockchain applications are still very much in an exploratory phase,” says Johnson. “We’re applying a lot of technical firepower to those efforts.” He notes, for example, that MIT’s Digital Currency Initiative (DCI) has dozens of MIT students and researchers working with a variety of companies and development agencies on projects designed to harness blockchain’s potential. DCI’s overriding mission is to empower individuals by making it as easy and fast to move value across the world as it is to move information.

Although it’s difficult to say at this point which aspects of blockchain will turn out to be interesting and consequential, Johnson is upbeat about the technology’s future. “We have robust investigations underway, and I’m confident that we will create value with blockchain applications across a variety of sectors.” Johnson’s latest book Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream, with coauthor and MIT Economics Professor Jonathan Gruber, examines the lessons of the post World-War II American success story and lays out a plan that will create the industries of the future—and the jobs that go with them.