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Blockchain: Virtues and Vices in the Cryptocurrency Realm

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

According to Deloitte’s 2019 Global Blockchain Survey: Blockchain Gets Down to Business, the world’s most inscrutable technology is rapidly gaining traction in the enterprise sphere. Authors Linda Pawczuk, Jonathan Holdowsky, and Rob Massey note that business leaders are no longer asking whether blockchain will work—they’re asking how it can work for them. Their survey revealed that 86 percent of senior executives believe that blockchain will eventually achieve mainstream adoption, and a stunning 83 percent say their enterprises see a compelling business case for blockchain. On the cryptocurrency front, Facebook’s launch of Libra signals a belief in its ability to compete with established global currencies.

In researching this issue of the MIT Sloan Fellows MBA Program Newsletter, we found similar optimism around the future of blockchain. We pick up where we left off in our last issue, which was dedicated to non-currency models for blockchain, and delve deep into cryptocurrencies themselves. We have reached across the MIT Sloan Fellows network to get firsthand accounts from alumni and faculty who are researching or inventing with blockchain.

MIT Sloan Senior Lecturer Michael Casey explores how bitcoin fits into the history of currency—and what it means for the world’s five billion unbanked people. Silvana Lopez, SF ’16, cofounder and CEO of The Blockchain Challenge, takes up that theme and talks about how cryptocurrencies are pivotal to sustainable development. Jennifer Hongbo Jiang, SF ’17, explores trust issues regarding bitcoin, while Alin Dragos, SF ’17, head of strategic partnerships at the MIT Digital Currency Initiative, looks past bitcoin to a world with multiple cryptocurrency platforms. Prema Shrikrishna, SF ’17, illustrates how societies might correct imbalances of economic power through cryptocurrencies.

We’re already at work on the next issue, so enjoy your summer and know that a new set of intellectual adventures awaits you in the fall. If you’re not on the mailing list, you can right that wrong right now.

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.

The dynamic between AI and HI is at a tipping point

Robots. They might be super efficient, and they’ll never be late to work, but are they management material? Scientists working in artificial intelligence say no. “Bet-the-company decisions cannot be left to algorithms,” says renowned MIT Sloan economist Simon Johnson. “Despite the enormous benefits of artificial intelligence, we need human intelligence to provide judgment, expertise, and insight before we can realize the promise of large-scale information gathering and massive data sets.”

MIT Sloan Professor Simon Johnson

Johnson and Jonathan Ruane, SF ’16, a lecturer at MIT in the Global Economics and Management group, believe that the relationship between artificial intelligence (AI) and human intelligence (HI) is at a tipping point. “We’ve experienced numerous AI hype cycles during the last several years,” says Ruane. “Computer scientists and engineers are advancing the construction of AI technologies at breakneck speed while HI—managers, entrepreneurs, policymakers, and other leaders—have hardly left the starting gate. These are the folks who need to work out how to maximize the advantages and navigate the tradeoffs of AI’s promise.”

Toward that end, the two have created Global Business of Artificial Intelligence and Robotics (GBAIR), a new course that investigates the near-term opportunities and challenges associated with commercializing artificial intelligence (AI) and robotics.

Artificial intelligence vs. human intelligence

MIT Senior Lecturer Jonathan Ruane

“People hear that a robot can vastly outperform a human doing mathematical calculations, and they automatically assume a robot can run a factory,” Ruane notes. “Bottom line? It can’t. Everyone working seriously in AI will tell you that we have mountains in front of us that we aren’t sure how to scale. And if we scale those peaks, we don’t know how many more mountains lay beyond. The idea that robots pose an existential threat to our species is deliberate fear-mongering, and it will prevent us from realizing AI’s full potential.”

Ruane and Johnson believe that educating leaders in business and government is key to moving beyond the fear factors. “Throughout history, the benefits of new technologies depended on how humans reacted to and capitalized on the potential of those tools to advance society,” Ruane says. “AI is just another technology in that story, albeit a very powerful one. But you can’t train your network on limited data—whether the limitation is in quantity or quality. A network can’t imagine how to do something it has never done. You can only accomplish that leap into the unknown with good data.”

Johnson agrees. “The AI revolution is happening now,” he says, “and it’s essential to get educated. The secret to success in the digital age is in clean, quality data. Companies that recruit and develop individuals who understand how to assess, clean, and deploy data will gain a tremendous business advantage in terms of revenues and profitability. Being the human intelligence side of the AI+HI equation can be intimidating to many people outside the field. That’s why we created this uniquely MIT experience to break down the barriers between disciplines and ensure that MIT graduates have a head start.”

For an in-depth exploration into jobs in the age of artificial intelligence, read the Project Syndicate article by Johnson and Ruane.