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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.”

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.”

 

Blockchain Beyond Cryptocurrency—Promises and Pitfalls

At the 2019 World Economic Forum in Davos, the Global Blockchain Business Council announced that 40% of investors believe that blockchain could be the most important innovation since the invention of the internet. Shortly thereafter, the editors of Sloan Management Review (SMR) asked its panel of experts to answer a related question: In the next five years, will blockchain have a transformative effect on finance in emerging markets?

Simon Johnson

Of the 25 experts surveyed by SMR, nearly 60% disagreed or strongly disagreed with this premise when their responses were weighted for the level of confidence in their opinions. A mere 27% of the panel agreed or strongly agreed. Panelist and MIT Sloan Professor Erik Brynjolfsson said, “So far, at least, the use cases have been driven more by hype and outright scams than practical benefit.” Fellow panelist MIT Sloan Professor Scott Stern noted that “while there are important potential use cases … in the absence of a separate fundamental innovation, this will be an incremental rather than transformative advance.”

At MIT Sloan and across the Institute, skepticism is more often the beginning—rather than the end—of conversations and explorations. In fact, blockchain is inspiring a surge of research and invention in the MIT community these days, including by faculty members and MIT Sloan Fellows alumni. In the articles that follow, we hope to set aside the mystique surrounding blockchain and discuss some of the principles and pathways that could lead to productive uses of the technology beyond cryptocurrency. In future articles, we will circle back to focus on blockchain developments in the realm of monetary exchange.