Helping to lead the charge is the Massachusetts Institute of Technology in Cambridge, Massachusetts, known for an environment that incubates innovative intellectual ideas with pragmatic applications. (Disclosure: my son is currently an undergraduate student at MIT.)
At the forefront of this revolutionary change is the concept of the virtual currency, such as bitcoin.
As the pioneers at MIT describe it, this “currency” is much more than a currency: it represents a platform and protocol for ownership and transfer of virtually any good or service in return for any another – whether it is a carrot, a car, condominium, a contract, or a convertible bond.
The principle reason for this highly perfected barter arrangement is the infinitely divisible property of digital assets. In this model, a portion of your kitchen table can be sold and used to purchase a two-year internet connectivity contract. The title of ownership will be more secure and less susceptible to manipulation by individuals, corporations or governments, since the information is decentralized and available for the world to see. Moreover, this system removes many financial intermediary layers, thereby affording quicker and cheaper transactions.
Michael Casey, the senior advisor to the Digital Currency Initiative at the MIT Media Lab explains the real beauty of this system is that no one needs to trust anyone else in the transaction – neither the counterparty nor a neutral third-party – since the information is available to an extraordinary number of people globally. He believes this methodology will enable irrefutable, self-sovereign identity markers of property ownership, irrespective of their socioeconomic or financial status, and enable asset collateralization for exchanging of goods and services He also makes the case that these digital assets can be used to collateralize currency creation, which would be helpful to a country like Greece, so it could pledge state-owned assets to reorganize and service its debt obligations.
Brian Ford, the Director of Digital Currency at the MIT Media Lab, has spent decades at the nexus of technology, public policy and entrepreneurship. He has been leading efforts to mainstream digital currencies through research and incubation of high-impact applications of this emerging technology. In collaboration with global experts from government, nonprofits and the private sector, he is exploring how cryptography, economics, privacy, and digital systems can be used to support the commercial and social viability of this technology. . He recently served as the Senior Advisor for Mobile and Data Innovation at the White House where he led efforts to leverage emerging technologies to address the President’s most critical national priorities.
One of the goals of this initiative is to seriously engage the MIT community to test digital currency concepts that address issues surrounding security, stability, scalability, individual rights, and the economy – with an eye on high social impact. The world-at-large has been taking important note, including government and regulatory entities, central banks, the financial community, and business organizations.
Yanis Varoufakis, a former Greek finance minister, suggested a digital currency could replace the euro if it were backed by future tax revenue; the Bank of England claims the technology will have extraordinary implications; Deloitte issued a report on the potential for state-sponsored cryptocurrencies as an alternative to conventional money; the chief information officer at UBS believes it would simplify banking substantially; Nasdaq is testing bitcoin technology for use on its stock exchange; and many large corporations accept bitcoin for purchases of their products and services, including DISH TV, Dell, the Sacramento Kings, and Kmart.
In my view, the most important application of digital currencies is its use in partially backing the creation of money and credit.
Monetary creation becomes much more responsible, effective and efficient when it is partially backed by the production of goods and services, such as digital assets. This model permits more consistent monetary growth that is linked to the supply and demand of goods and services. The cost of currency production is then reflected more proportionately in the real economy with greater stability and predictability across geographic boundaries and through time. This minimizes extreme and volatile business cycles, enables a more fluid employment environment, and increases income and purchasing power for the many.
We should warmly welcome this new technological disruption.
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Barry Elias is an economic policy analyst.
Elias Economics 