Michael Casey, senior advisor at MIT’s Media Lab and author of The Age of Cryptocurrency, spent 18 years at the Wall Street Journal — a good portion of that covering currency markets. But he says it wasn’t until he learned about Bitcoin that he really understood what money was. In this episode of Unchained, he explains why, plus discusses why he thinks China will play a key role in moving the world to a cryptocurrency- or blockchain-based trade settlement system, what that could mean for the U.S. dollar as a reserve currency and what he thinks is the most cutting-edge work being done in blockchain.
Welcome to Forbes podcasts.
Hi, everyone. Welcome to Unchained, a Forbes podcast produced by Fractal Recording. I’m your host, Laura Shin, a Forbes contributor covering blockchain, cryptocurrencies and Fintech. Thanks for tuning in.
For today’s episode I’m speaking with Michael Casey, a senior advisor of the Digital Currency Initiative at MIT Media Lab, a position he began in July, 2015, after spending 18 years at the Wall Street Journal where he covered global financial and economic affairs. He’s also written three books including The Age of Cryptocurrency which he co-authored with Wall Street Journal colleague, Paul Vigna. Hi, Michael. Welcome to the show.
Hi, Laura. Thanks for having me.
Your focus at MIT is to incubate projects that use blockchain technology and social impact projects in the developing world. Tell us what exactly that means and what you’re working on.
Okay, great. So it stems from the idea that there really is, we think, great potential for this technology to resolve some of the needs, the failings if you like, for the governance of the financial system and the governance of our economy in places like the developing world and it speaks specifically to the problem of financial inclusion, but it could also deal with other aspects in which people are excluded from participating in a broader way in the global economy and a global society and whether or not by deploying technologies that allow them to prove who they are, prove their assets, gain access to services that wouldn’t otherwise be there, whether or not we can sort of expand that sort of playing field, if you like, bring more people into the global economy. So it deals with that.
And we are focused on a number of different regions of the world and a whole range of different use cases. We’re working with, in a very early way with the government of Mexico to try to figure out ways in which we could expand financial inclusion with this technology. We’re focusing on things like solar energy and the deployment of decentralized microgrids in developing world, and figuring out ways in which we might be able to use the blockchain to bring high level financing to that kind of roll-out and what are otherwise, you know, other remote and off-grid places.
And just generally we’re looking quite extensively at the issue of identity and the construction of personal data stores that can be used in a way to affirm credit scores or affirm people’s reputations, and how they may or may not reside in a blockchain environment and be able to establish concepts like digital identities, or at least open the door to services that are being denied them.
So, it’s a fairly broad range and we’re still in the process of figuring out pilots in special places, but we’ve got potential locations to get going in Africa and as I mentioned, Mexico. So, yeah, we’re kind of moving into the deployment phase now and it’s all very exciting.
And when you talk about using blockchain technology to solve or foster financial inclusion, what does that look like in a world where you have more financial inclusion that’s powered by blockchain technology? For someone kind of on the ground what does their day-to-day look like?
Right. So I think we can define this in a kind of a generic, broad sense, right? I mean I think what it comes down to is the fact that under the current environment with what we might call the centralized trust model, it’s really difficult for people to prove their assets, and I use assets in a very broad sense here. It might mean their property, it might mean some other like mobile asset, but it can also mean the personal asset, the data, your reputation, who you are, and so without that people have not been able to gain access to all the kind of broad array of financial services that we take for granted in places where there is a more reliable registry and recordkeeping and reputation system for proving these things.
So we’re talking not just about whether or not I do or don’t have a bank account, but also whether or not I can take my property, my home, and find a way to get a mortgage on that. Or we might be talking about warehouse receipts in places where farmers can deliver their corn to a warehouse, gain a receipt, but the banks don’t trust whether or not that receipt has been duplicated, so they can’t get a letter of credit and the classic piece of, you know, kind of working capital finance that small and medium enterprises would get in this environment.
But it also is this notion of being excluded because, you know, I’ve got no way to prove that I’m actually a really good credit, that I actually pay my bills on time, that I have a job, that I go…you know, because without a formal recordkeeping system for the payments that people make or their employment history and so forth, there’s just no way to create that kind of bundle of records. You can get attestations from somebody, but can we trust them.
So the idea that we might be able to take the data that gets accumulated on mobile phones to do with people’s day-to-day activities, as well as their payment histories and so forth, and develop a profile around that and then potentially place that into a provable environment that doesn’t require some form of formal registry could also help to open personal access to credit. It’s considered another question beyond the idea of a mortgage. This is actually about whether I, myself, can gain credit. So I think it covers a broad array of concepts, but it just generally speaks to this idea that, you know not just in the developing world, by the way, there’s lots of folks who are under-banked or have no capacity to participate fully in a financial system in the developed world as well.
So this way of kind of establishing credit through your personal data, and I understand that details of how these systems work may not have been figured out, but is the idea that as you transact and pay people for services or pay bills on time or deliver goods that you say you’re going to deliver, that all of this is somehow collected via your phone and then that establishes your so-called credit or reputation or whatever?
I really don’t think we need to be so kind of limiting in the way we define this. Yes, clearly the mobile phone and potentially even richer data that’s going to come from affordable smart phones in the future, you know, is a very, very important tool in this process, and there’s a lot of work being done on how phones can be important vehicles for this process of data accumulation.
And just as an aside much of the important work that’s being done, that space is all about how do we gather that information and protect it, so that on the one hand we deal with this privacy issue that is obviously such a great concern and specifically in the developed world about all the data that companies are accumulating on us, but on the other recognize that there’s also this data deficiency that these people have, and so they want the data to be accumulated about them, but how do we do that in a way that restores power, that gives them control? And there’s a lot of work to be done, but there’s a view that the blockchain could be quite useful in this construct, and so that’s just one thing to think about.
But I don’t think it’s just about phones. There’s really interesting ideas being developed around webs of trust and again, that might be something that exists in a digital environment, but it might mean that you also bring in attestations about a person from the kind of people that you deal with. It might be an NGO that you visit on a regular basis or a clinic, and somehow if we can incorporate the data from all of that activity and recognize that some of that data is going to require an external human input, but at least it’s coming from an entity that we trust in some way and incorporate that into this sort of, if you like, bundle of information about the person.
All of that’s pretty valuable as well, and I think the thing is how do we actually with the, you know, impressive big data and data management systems that are being developed create these bundles in meaningful ways that allow people to kind of really take advantage of the opportunities that exist and give some trusted relevance to who they are.
And what are the advantages of blockchain technology in this application over existing systems? You know obviously, like in the US we have a fully functioning credit system, but what is it about using this in these developing countries that makes it a better option?
Right. So I mean it comes back to this question about whether we trust the entity that’s managing the data. It doesn’t necessarily mean that there’s anything untoward about it, but it’s really the idea that without the kind of infrastructure…and much of that really sometimes comes down to the rule of law, right? If there’s a…at the end of the day we need to be able to prove to some judge that whatever has been said about us is accurate and you know, if there’s some break in it there’s this hole…there are these layers of fiduciary duty that are just taken for granted as we enter…you know, we get a credit score from Experian or somebody, that Experian is doing this in a legitimate way and it is following some set of procedures and the like, and if it weren’t then it could be sued and so forth, right?
So it comes down to this notion of rule of law. If there’s no rule of law then you really have a lot of trouble in building all of those systems, so that’s one aspect of it. But it’s not even to say that even in the developed world these systems necessarily, as you put it, are fully functioning. We have all sorts of inconsistencies and obviously data theft and everything else that calls into question all the time the reliability of the information that is accumulated about us or that we accumulate.
So it’s about being able to create some sort of infrastructure and I’m sorry to be vague, because there’s so much work that still needs to be done on how this infrastructure works, but at the end of the day the notion that we could create with the aid of encryption tools data repositories about ourselves that can reside in an environment that no one can tamper with, be it myself or another party, is a powerful concept because it means that I can now port that somewhere else. It becomes…you know, it’s something that I can point to externally from a particular server, and everybody can recognize that that pool of data has integrity because it hasn’t been changed.
Now we need to again assume that the input of that data, whether it’s from a smartphone or from an individual, is something we can trust, but those are issues that are separate from this. It’s about the idea that the data retains its integrity if it resides in this blockchain, and I think that allows this sense of portability, this idea that I can carry this thing somewhere else and one could imagine that the same reputation token, if we want to call it that, that a person in a developing country could build around themselves in this blockchain could work with those developing countries financial institutions, but it might also…if it happened to go and move to some other place work just as well there because it’s based on an infrastructure that’s not dependent upon the location and the particular issues that you’re dealing with.
So there’s this portability, intraoperability, and permanence and trust that I think is really just intensified when you have a decentralized distributed and robust system that the blockchain potentially provides.
So at this early stage in the technology when there aren’t established processes or standards for implementing or using blockchain, how do you decide which projects make the best bets?
Well, actually on that question particular, you know the infrastructure, I think we need to be pretty agnostic around which blockchains to use, which structures. I think we need to be dealing in testnet environments, we need to build modular and flexible systems that could exist either in a private blockchain, which I think is most of our preferences, into a fully decentralized public blockchain. Is that going to be ethereum? Is it going to be bitcoin? All those questions I think ought to be resolved, and so the testing around that part of it I think needs to be done in a way that is at a layer slightly above the protocol.
That’s not to say that there’s an enormous amount of research that institutions like ours and others have to be doing, in fact it’s probably the most important work that needs to be done right now on developing that base layer protocol and making sure that their robots in the smart contracts work and so forth.
But the other question I think, other aspect of what you’re saying I think is where do we do these pilots and what are the places. And I think it’s an interesting question because we need to on the one hand deploy…any pilot needs to be done in a sort of contained environment, and so it’s useful to think about places that have something of a functioning infrastructure already, since it means there are fewer variables that can go wrong to distort the data that you’re developing from your testing, and therefore you can locate and isolate the study that you’re doing to a certain sort of smaller set, so that sometimes means self-contained, relatively well-governed places, with minimal bureaucratic interference.
But there’s this other aspect of it like, you know, well, if you’re going to a well-functioning middle-level country to do your research and you’re really proving this in the right setting, I think generally the thesis is that that’s the way to go, that you test something in a stable setting and then you take it to a more difficult place in the field.
But the thing that’s interesting about a lot of the questions we’re pursuing is I’m not so sure that there is a universality to the experience that comes from the blockchain, because what it’s trying to solve is a unique set of social problems. It’s not really just fixing some technical issue. It’s all about how do we imbue trust into the system, and since you have great cultural variety and you have great kind of experiential variety across the world, what works in one place just might not be relevant somewhere else.
So, it may be that we’re going to be doing pilots and tests constantly because we’re literally having to define and deploy applications of the technology in different constructs and different places to suit them. So I do think there’s great value in trying to find ways to access some of the most problematic places in some way, whether or not it’s like finding a little village that sits within that area and seeing if we can test it there, or whether or not it’s literally going out on a bigger scale because only then will we truly know if we’re really changing the way that people act and behave as a result of this technology.
So it’s a bit of a mixed answer I know that there’s different ways to approach it, but I think at the end of the day clearly there has to be a process of testing small and moving out to something big, but where and how we do it is going to be based on, I think, on a case-by-case basis to be honest.
Yeah. I think a great example of what you’re talking about there is there was a project that a company called Factom brokered with the Honduran government to pilot a land titling system on blockchain that initially generated a lot of fanfare, but I think it since stalled. And then a few months ago the Bitfury Group announced that they were going to pilot a blockchain land titling system in Georgia, where a country that already has actually quite a good land titling system, and I wrote about what their plans…and they said exactly what you’re saying. That choosing an environment that doesn’t have other problems allows you to then just focus on the technology, but of course as you mention then it does raise the question of well, then will it truly show what the impact is.
But it does sound like MIT I guess has come up with its own…
Well, we’re very much at the early phase of working these things out. We have a lot of interest from a lot of people to do all sorts of pilots in all sorts of places, and we’re fairly cautious in where we do or don’t move forward. You know it’s also a function of what students are most interested in because this is the difference between what we do and say somebody that’s like a team of employees. Ours is really uniquely research-based with a lot of student input, and so we need to find students who are passionate about things, and my job is partly to kind of put out there what’s possible to work out arrangements that work.
But I don’t have the liberty of just having a bunch of staff members that I can order around. I kind of need the students’ passion, and sometimes the passion lies in a place that’s kind of difficult. That might be the way to go. It’s one of those interesting aspects of what we do.
What is really great about MIT is that it’s very rich in resources, and it has a very well established presence around the world already. We do have institutions right across India for example and in other parts of Asia and Africa that are beachheads already and have relationships with different parts of MIT. There’s a whole host of different labs and different institutions that are focusing on developing projects all around the world, and so that allows us I think to go into some of these more difficult places because we’ve got that history and those relationships and a fuller understanding of what we’re up against, and so that’s the kind of counterpoint, if you like, to the problematic aspect of having such a variety of potential interests and opportunities is that, you know, there is kind of a well-established platform to come in on, albeit that we’re dealing with some very big unsolved questions.
So let’s switch _____ 21:01 a little bit. You spent much of your early career reporting from places like Argentina and Indonesia. I actually also lived in Indonesia around the same time as you did, and so I’m very familiar with how difficult it was to use anything but cash back then.
Were you there at the heart of the crisis in ’97?
So you remember going into banks and seeing those huge piles of cash on…that people would just wheel them around on chairs in massive bags filled with cash because the currency had collapsed. Yes, it was…
It was quite an experience. Yeah.
Yeah. And I was actually being paid in US dollars, so all of a sudden I just remember that for me it was like, whoa, like I can buy five times as many things as I could when I got here, but it was also a scary time. And so, like I having lived through that saw kind of the impact on Indonesians, you know, how the fact that their currency was constantly fluctuating affected them. But I want to hear a little bit more about how your experiences living and working in countries with less than stable currency led you to where you are today.
Yeah, that’s one of my pet topics, and I think it’s useful for everybody to have some narrative about how they arrived at where they are and why they do what they do, and I think all of us have some story. And for me, the kind of things that you just described in Indonesia, which I did experience to some extent from a different perspective, but certainly I saw a lot of suffering, but in addition to that Argentina, which is a unique experience in itself, absolutely shaped my interest in this technology, the kind of reporting I was doing, and now my belief in where it can be most effectively applied.
In fact, in our book we lift a lot of material from my experiences in Argentina to try to grapple with this core problem of trust, and so I look at Argentina and think, you know, it’s a country that, and I have a love/hate relationship with it. This is something I make clear in the book because in that love/hate relationship it’s actually quite telling to the point, because in places that have a failed kind of civic trust model where there’s not good institutions by which society can build systems of trust in each other, with strangers what you get instead is a real concentration of trust amongst those who are closest to you, so you end up with very close friends and very close family.
And as I say to people, some of the people I love most in the world are my Argentine friends because they rely on each other, and I think it’s a function of what happens when you have a breakdown of these systems. So I have a love/hate…I love the people, but I hated the challenges of getting money in and out of the country, of the kind of random way in which these crises just come and go, and sort of the sheer inability to rely on some sort of consistent sense of law. Because what happens when your currency keeps rising and falling and fluctuating and the government is trying to shut one hole and open up another one is that the law keeps changing, and changing laws is extremely difficult to deal with and it just breeds corruption and crime in everyone else because everyone’s desperately trying to get around it.
So I had that experience specifically in trying to get money out, a large amount of money, and I tell the story of that in the book because it’s harrowing. And you know, this is the defining feature for a lot of Argentines, and it’s absolutely no surprise whatsoever to me that one of the places that bitcoin has found significantly more attraction than anywhere else is Argentina because it speaks precisely to this problem, so I’ve often that about that.
And my wife is an anthropologist and she worked with the Bolivian community in Buenos Aires, and she was very interested in how they came to form their sense of identity, and then she found that it was interesting how the sense of kind of Bolivian ethnic pride in Buenos Aires was tied directly to a place, a single street within the kind of slums of that area in which some woman 25 years earlier had fought tooth and nail to get property rights recognized across that street, and so this street became the center of cultural life for Bolivia.
It became the place where the schools are, it became the place where the businesses are, everything, because all of a sudden you could establish who you are and what you do because you could actually claim your title registries status there and not in the rest of the surrounding region in which most of the community lived.
So, I was very interested in this issue of property title for some time and it led me to Hernando de Soto, who I got to know and worked with on a number of books and things and he’s…I know you know Hernando as well, Laura, and he’s like he’s become a key player in a lot of these ideas. I personally reached out to him and got him to take an interest in the blockchain, and now it’s been a defining aspect of what I wanted to do.
So, that series of experiences was absolutely fundamental. So when I was first writing about bitcoin and writing about the book, the light bulb went off in my head, you know, two years ago or so that, wow, this actually could tackle the property registry problem that I was so obsessed with when I was living in Latin America and since that, yeah, there’s the Bitfury project in Georgia, which Hernando is involved in, and there’s some people talk about it all the time, so it’s become an integral part of my own journey, and I’m really happy that I now get a chance to actually work on potentially delivering on some of these solutions and not just writing about it, as much as I always loved and will continue to enjoy the process of writing and reporting.
I loved hearing about the light bulb moment. I want to hear more about how you first learned about cryptocurrency and blockchain, and then what other light bulbs it set off for you.
Yeah, right. So I probably do what lots of journalists did sort of when they discovered bitcoin. I just went what? What are you talking about? This is crazy. I was a currency reporter, you know, and spent a lot of time writing about currencies, the Argentine Peso being one of them. So I came at bitcoin from a currency perspective and a market perspective. I looked at this price of this thing that was soaring and just thought, wow, that’s a tulip bubble. These are crazy people, they’ve got no sense, there’s no value to this thing. Why on earth would you want it? How could you possibly have a currency that’s backed by a bunch of computers doing this strange mining thing? What’s all that about?
So I wrote a column about it and I dug a little bit more, and I think my column wasn’t as bad as it could’ve been. You know I realized that there was some proof of work process that was relevant, but it still made very little sense to me.
And what year was that?
That was actually fairly late in the process. This was in 2013, so my discovery process is relatively quick by bitcoin standards, and once I wrote it I was invited out for dinner by some folks, specifically Jeremy Allaire from Circle and a bunch of other…Barry Silbert was there and some others, along with some other journalists, to just like try to talk through what really was going on, and that was absolutely illuminating and enlightening.
I started to see that this was certainly much bigger than a digital currency, but a digital currency represented something far more profound than the digitization of money, that it had everything to do with how we could construct a process of trust in a decentralized manner and why that was important. So I actually think I came to a realization about what money actually is at that point, you know, that I hadn’t fully understood, and from there I just didn’t look back, right? I wanted to write about it all the time. I went off to different conferences and everything else. So I actually thank Jeremy Allaire quite a lot for that. It was a very formative experience for me.
I’m also curious about this statement that you realized what money is for the first time because as a business journalist you covered foreign exchange, fixed income, global financial and economic issues. What was it that you suddenly realized, and why do you think that you haven’t realized it given all your years of experience covering financial affairs?
I think Milton Friedman once said something like if we all thought too much about what money is actually is, it wouldn’t work, and I think that’s one of the reasons why anybody, whether it’s journalists, bankers, I mean everybody doesn’t fully get it, and I’m not saying I get it now, but I think I have a much more profound understanding. It’s an incredibly deep idea. Money is not…the point is this, and this is the thing that I realized. I think that we tend to somehow think of the money as a thing, which is completely irrational but we do.
We think money is this piece of paper now in our wallet, and then we somehow abstract from that and say, oh, and it’s sitting in a bank somewhere, and of course we hear about fractional reserve banking, but we think whatever, it’s still…it’s something to do with this piece of paper and that’s the problem. In fact, the bank has a store of it and they share it with me, and it all comes down to who’s backing this piece of paper.
And then you’ll get a lot of…and then you obviously hear a lot from the gold bugs about how, oh, this is actually all wrong because we need to have a thing. We need to have gold behind it because that’s the only way it could be anything. It was actually backed by something that’s gold. There’s some truth to this. There’s some truth to this idea that we obviously need scarcity in our currency.
But it wasn’t until I started to think hard about the ledger and the notion about how actually money itself as a system, it’s a social system for how we keep track of our debts to each other. So, if you go right back to the early days of currencies as they emerged it was gift exchanges and how the various debts that would just accumulate by virtue of the guy that killed the beast that shared it with somebody else who was able to share something else, and there’s a series of some social debts and obligations that emerged, and the more complex society became we had to find a way to actually clear all of those debts. That’s really the way to think about it.
I think we think of bartering as part of that process, but there’s some sort of flaw in that logic. It’s actually more to do with this kind of big broad ledger that exists in our minds and it’s everywhere else, and it goes to the heart of what human exchange is, human value. All these things get caught up in this, and there’s culture and community and everything else.
And so you know, the more complex societies became we needed to figure out more and more complex ways to manage and clear those debts, and we settled on banks acting as our intermediaries and building fractional reserve systems and everything that goes right back to the Medici and that’s the system we have until today, so to think about bitcoin as a solution to that became really interesting. It was like, wow, this is…so we actually can deal with this social ledger, this broad-based notion of how we exchange our collective debts to each other and understand all those transfers in a decentralized way. So, it’s kind of important to come to terms with that before you can confront something as foreign and strange as bitcoin.
But I do think that, whether by design or not, the kind of collective ignorance about what it actually is has been somewhat useful. It’s obviously been pretty powerful to people to be able to duke others and build these models that I think have been pretty destructive over the centuries. But at the same time, living the myth, the kind of collective myth that this piece of paper somehow has value is a critical part of its function, right? I mean there is no inherent value in a piece of paper, but there is great value in the collective understanding that once we transfer that piece of paper to each other we’ve all kind of collectively acknowledged that debt has passed from me to you. That’s what powerful about it, and if you think too much about it, as Milton Friedman said, maybe it won’t work.
So anyway, that doesn’t answer your question specifically, but it’s certainly a fun one to contemplate and one that we did go to some lengths to discuss in our book.
I will also throw one recommendation out. It’s Felix Martin’s book on money. I think it’s called An Unauthorized Biography. It’s brilliant for this. It really, really lays it all out fabulously, and it was a pretty useful volume to use when we were writing our book.
Well, speaking of books, I actually also wanted to ask you about your thesis and The Unfair Trade. I did not get a chance to read it, but I did some searching online to see what it was about and it talked about, and correct me if I’m wrong, about how unbalanced government policies around the world have created perverse incentives that undermine the proper functioning of the global market. If you…
Pretty good. Yeah.
So, I’m so curious if this is the view that you take when you look at blockchain or cryptocurrencies, do you believe that they could offer a solution to those types of problems and if so, how?
Yes, I do. You know it takes it to a much higher level than we’re in any position right now to contemplate seeing implemented. But yeah, if we imagined a world that had if not a single unique decentralized digital currency as the reserve base, or it had a whole host of much more flexibly traded and non-manipulatable domestic currencies or currencies that represented different corporate interests or human currencies. We could either go to a world where bitcoin is the world reserve currency and therefore _____ 36:19, or we could go to a complete opposite where there’s just so many different digital currencies that it ceases to be anyone that donates anymore. All of that would make for a very different world.
I basically…and it’s a key thesis in The Unfair Trade, I basically believe that the rest of the world is basically given a pretty bad run by the dominance of the dollar, and I think in the long run it doesn’t help the United States either. Basically, there is no such thing as independent monetary policy outside of almost anywhere to be honest. I think that, you know, obviously the European Central Bank and the Bank of England and certainly up until now at least, the People’s Bank of China are able to manage their monetary affairs with some level of independence.
But at the end of the day if 70 percent of the world’s reserves are held in dollars, and if 90 percent of any significant trade has to be triangulated through dollars, whatever happens, whatever the Fed does or doesn’t do is going to be such an overwhelming determinant of what happens to your own monetary circumstances that it becomes sort of certainly a less than complete set of tools, and once you move into emerging markets it’s kind of pointless sometimes, right?
I mean what hope does a tiny, you know, a little country in Latin America or Africa have or even that a middle sized country, most countries have, at a time like now when the Fed is just, and the ECB at the same time, flooding enormous amounts of cheap money, the Bank of Japan as well, into the world. You don’t really have a monetary policy, and if the Fed were to actually raise rates by something like it used to in the past of 50 basis points or full percentage points, the damage in emerging markets would be absolutely and utterly profound. I mean it would just be just destructive beyond belief so they can’t in a way, although they do.
The fact is the Fed thinks about the world from US macro policy imperatives because that’s what its imperative is. It doesn’t have any responsibility for the rest of the world, and yet it will do things and can do things that can be incredibly damaging to elsewhere and that’s not to say there’s anything malicious about that, it’s just the structure of the world we have.
So I often wonder whether or not we should be talking to developing countries and saying, hey, just forget about monetary policy, right? Use bitcoin or peg your currency in some sophisticated way to something else, and just forget about your capacity, control it, and instead manage all of your economic risks with fiscal policy. Focus on countercyclical measures, about where taxes should and shouldn’t be, and there’s some really interesting things being done, by the way, by Laurent Lamothe who you and I met recently, Laura, when we were in Necker Island and how you could actually use micro taxes on monetary payments and the like, and to develop pools of revenue for these people.
What if that just became your tool for managing policy, and you said so I’m just going to take bitcoin or else I’m going to take something else as our base here. I’m just not going to worry about owning my own currency. It’s a kind of an artifact of these independence notions that you have to have your own national currency to mean anything. Well, I actually think that’s an incredibly dangerous thing to have in this world.
So you know, if I start to think about a broad future in which the volatility and the imbalances that I highlighted in The Unfair Trade could be mitigated significantly, I think it very much would involve some sort of infrastructure along the lines of this digital currency world that bitcoin has introduced to us.
Wow. This is just such an interesting vision that you’re painting here. If we were to kind of follow your line of thinking, what do you think will eventually happen or could eventually happen in terms of cryptocurrencies being used to solve some of these issues?
Well, one thing I’ve learned from being at MIT Media Lab is that the way to view the world is to recognize the complexity and uncertainties and unpredictability to a degree of how this incredibly diverse interconnected concept of what our global economy actually is, functions, and so on that basis it’s hard to predict and I think it’s a little dangerous to be predictive, and so I like to kind of talk a little bit about what ifs and scenarios that might play out rather than predictions and I think there’s some value in that.
So, I think my focus is on the countries that have the most important status and the most to lose or gain in changing policies and changing their kind of structure of the global economic system and what they might do. So inevitably you’ve got to look at China and you have to think about what China’s interest is geopolitically, economically, and where it might think differently about a world that would have a different base for its financial system. So, China’s not very open about what it does or doesn’t want to do with policy going forward, and so there’s a lot of Tealeaf reading that needs to go on, but I do think that they do want a world in which the dollar is not the world’s reserve currency, and they’d love it if their exporters could clear directly with whoever they are, whoever their importers are, whoever their customers are in other parts of the world without having to triangulate their trade through New York or through JP Morgan or some US bank.
And so, I think that the development for example of something like real-time trade settlement between the Chinese renminbi and the Russian ruble or something like that that’s done across a decentralized blockchain-like structure where money is transferred immediately and there’s an automatic clearance because of, you know, whether it’s a supply chain management system or trade finance model that’s built around this very robust, trusted system with all the transparency that comes with a blockchain environment. Then you end up with trade, dollars removed from the trade equation, and then that starts to beg the question about whether the dollar should be part of the reserve currency equation.
Why would you…you know, it’s capital markets that matter most in terms of absolute volume for currencies, and so that’s why…we can say that’s why the dollar is the dollar because people use it to move capital back and forth, but at the end of the day that is a function of the reality that the dollar is central to world trade. So, if you remove that smaller piece of the puzzle why do we need to start thinking about the dollar as the base currency for all capital movements, and therefore why would governments need to hold reserves in dollars to protect their capital markets, right?
So I think that the idea that China might lead the way in creating a kind of a cryptocurrency or blockchain-based, real-time trade settlement system is one of the ways to think about how the whole dollar global economy might unravel, and that sounds pretty scary I think to a lot of people who’ve built their own careers and their systems, whether it’s as politicians or as businessmen around the center of the dollar.
But at the end of the day it will be a much better world because the forces of creativity and innovation and the sheer complexity of opportunities that will be coming to the global economy with a world that’s not beholding to this restrictive centralized system, is going to bring so many more benefits than the losses in an aggregate way to everybody else. So, it’s a kind of a very scary but very exciting proposition all at the same time.
Yeah, I agree. This is definitely kind of more visionary thinking than I have heard even in the course of my reporting. But speaking of reporting, there’s something that I’ve been very curious about which is as a journalist covering an area, you know, there’s a fine line that you need to walk where obviously you want to be involved enough that you understand the beat thoroughly and develop connections, but then you also need to stand back and be impartial, but what made you decide to cross that line and actually go work in the space?
Join the dark side…well, because I don’t think in this case it is the dark side. But you know it was a tough decision. I was a journalist for many, many, many years, you know, 18 years at the Dow Jones and the Wall Street Journal in total of about, I don’t know, 21 something more than that and I’m showing my age here, so it was tough. But you know I could never have gone off and worked as a _____ 45:35 for a bank, I don’t begrudge those who do, but it just was never going to be satisfying for me, so I had to do something that I felt had a purpose, and so to me it wasn’t that hard because I really, really, really do believe that whether it’s bitcoin, the blockchain, or some other decentralized trust solution is the next wave for the global economy and the internet.
But this kind of idea, I’m being very broad in the way I describe it here, but this kind of idea is the framework in which our future will be built, so to me, to get involved in that on the ground floor it’s just going to be exciting no matter what, right? So that’s the first thing.
Second was I’m moving to an institution like MIT, so you know you can’t get a better place to be involved in cutting-edge research and be surrounded by very smart and very, very well intended people. It’s an absolutely inspiring environment to be in.
And then the third is that, you know, at the end of the day I kind of feel like I’m still doing what I did, you know, I was a columnist for quite some time to some _____ 46:42…so I was always trying to push an idea, or push is probably too strong a word, but like I had an angle to much of what I was writing about in any case. So I’m still writing. I’m still doing a lot of public speaking, and I do these sorts of things, you know, podcasts, interviews, and the like, and I think it’s part of what I saw as my role anyway, which is to build public awareness and really hopefully inspire debate.
I don’t want to be a pitchman. I’m not out there saying that bitcoin is everything. I’m not a maximalist of any idea, right? But I do think that I want to illuminate the possibilities and describe the potentialities, and in the context therefore spur debate and spur discussion and help to really build out this technology in a constructive way. So it’s kind of a form of journalism, or at least a form of journalism I’m doing, so it wasn’t that big a leap at the end of the day, albeit a very different experience and one that I have had to take some getting used to.
So I’m also very curious, as you mentioned at MIT you are privy to some of the more cutting-edge thinking around blockchain and cryptocurrency. What has you most excited now?
Oh. We’re really approaching it from certainly different angles that I, to be honest, it’s hard to pick, and it’s interesting. I think the one thing that’s becoming clear is that there’s some different layers of research that’s going on, right? So I think within the computer science community there’s a lot of work being done around core questions of identity and anonymity, how we protect privacy, some of these big questions for cryptocurrencies going forward.
And so, the Enigma project that came out of Media Lab is I think going to be very important. People at MIT have also had some role in the Zcash project, and all of that’s, you know, the cryptographers and the coders who I don’t have as much connection to, but I know and can grasp that being tired of that process is going to be very, very important as we move forward.
And Michael, for our listeners who don’t know what the Enigma project is or Zcash, can you explain those?
Okay. So, and I’m not again an expert, but I can just speak to the problem that certainly Enigma is trying to tackle and that is how might you allow for proof of some fact and feel absolutely confident in that without knowing the pieces of it, and that matters for identity. So it uses something called homomorphic encryption which is basically to say, you know, I can get the totality of all this date, but I don’t…if I don’t know all the elements of it then there’s a certain privacy that is afforded to each of those elements, and yet I can still gain proof by doing the computation on that total amount that such and such a state has changed or such and such an assertion of a fact is true, right?
So that then becomes valuable for identity, and layering that into a blockchain environment becomes important because this idea is that, you know, the blockchains are actually certainly the big time blockchain not necessarily as anonymous as people think it is, there’s all sorts of ways to develop understandings of identity around a lot of the _____ 50:24 that gets developed there. So maybe there are way…and this is important for financial institution, right? This is not just a…we’re not talking about aiding illicit drug traders and the like, it’s really about how might we go about the business of conducting commerce without showing our hands to everybody all the time. The economy needs a certain degree of anonymity and privacy to be able to function.
So these are systems that might allow us then to have a set of participants on a ledger, share information to that ledger about their activity without actually exposing themselves, and yet the constant validation and verification of the information is able to continue as it goes on.
And then things like Zcash using these things like zero-knowledge proofs, which I don’t know the details of Zcash that well, but I do know that it’s an alternative cryptocurrency to bitcoin that really does mean that there’s not as much information on the blockchain as currently exists in the bitcoin environment, and there’s a lot of reasons why that’s a valuable thing. It raises interesting social questions as well, but these are all I think going to be very, very important as we move to the idea that we truly could replicate the notion of cash which is an anonymous bearer instrument into a digital environment, and these are really important questions going forward, I think also especially for things like financial inclusion. So that’s that.
On the other side, I’m much more involved in business applications and the like. And I’m really interested in securitization and specifically how it might deal with solar energy. I think there’s some very, very exciting things happening around the use of the blockchain in decentralized distributed electricity grids and how the blockchain comes in as a kind of administrator in a localized grid setting, but then on top of that how we might build abstracted claims on the generation capacity and the kind of relationships that emerge so that you could actually securitize them and build them into financing vehicles.
And I think with smart contracts and lots of really powerful transparency and visibility that comes in that environment, we could actually create some real interesting securities that function just as well or perhaps even better as much more high level securities that function in the capital markets, that we could literally have the ability to enforce my claim even on a small, little investment somewhere and that that starts to open up really interesting possibilities for how we would finance something as seemingly difficult to bring financing to from a foreign setting as a distributed grid in a remote part of Cameroon, right?
So, those are the kind of really interesting questions to me in terms of the application side of it. How do I…you know, how might we build securitization structures on top of this and we’re certainly exploring some of those ideas.
Well, this has been a fascinating discussion. Where can our listeners find more of your work or contact you in the future?
Great. So I have a website of my own. So it’s michaeljcasey.com, so that’s one place you can find my stuff, and the moment haven’t been doing a lot of publishing as much as I’d like. There will be some things coming up pretty soon. I’ve got a piece coming up on O’Reilly Radar very soon about the Internet of Things and decentralized trust systems for that. That’ll also find its way under my blog which is connected to my website.
And then MIT Media Lab, we will very, very soon be launching the long-awaited Digital Currency Initiative website and then people will finally get to see a long list of all the proposals we’re doing, so that’s also one for people to check out, so keep your eye out for that.
But media.mit.edu is where you’ll find the Media Lab and from there you’ll be able to actually to Digital Currency Initiative’s website.
Great. Well, thanks so much for coming on the show.
Thanks, Laura. It’s been a pleasure.
Thanks for joining us today. If you’re interested in learning more about Michael, check out the show notes which are available on my Forbes page, forbes.com/sites/laurashin
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