The way we use money is rapidly evolving.

Over the past decade, we've seen the rise and fall and rise again of cryptocurrencies like Bitcoin.

So how do we figure out this digital money of the future?

How Hari Sreenivasan got answers from Nathan Narula, the director of the Digital Currency Initiative at the MIT Media Lab.

Just so we have a baseline understanding.

People have kind of different ideas of what cryptocurrencies are.

What is it?

Well, the idea is that about ten years ago we figured out how to use cryptography, which is a field of mathematics.

It's about keeping information hidden or proving the integrity of information.

And we figured out how to apply that to money.

So you can actually use the clever application of cryptography.

You can actually secure the transfer of money and payments without needing a trusted third party.

That's the basic idea behind cryptocurrency.

So what could you do with a cryptocurrency that you can't do with the money we have today?

I mean, you've described the money that we're familiar with as a collective story.

Explain that.

Yeah.

So money isn't really necessarily something objective.

The idea behind money is that we've all sort of landed on the same form of it.

We've decided that certain pieces of paper are worth something.

We've decided that bars that are colored a certain way and have a certain chemical composition are worth something.

And these choices are in some ways slightly arbitrary, but in other ways, not at all.

They represent an entire network of human beings who have come together and agreed upon a story, like you said.

So, you know, when you start to think about money, that way, you start to think about value.

That way you start to realize that, hey, I can start to imagine money that isn't necessarily based on a government or, you know, a mineral or a piece of paper, but instead a money that is just digital and just really exists because people think it's valuable in this new crypto world.

There's this idea called blockchain.

Explain that.

Yeah.

So it's really interesting that the word blockchain has taken off on it.

So it's sort of, you know, it's hard to decipher what's behind it.

Exactly.

So the blockchain is the data structure behind cryptocurrencies.

So it's basically a ledger.

It's it's a list The idea behind it is that there are a lot of computers, sometimes thousands all around the world running the same software.

And that software is sending transactions around and is maintaining this ledger, which we call the blockchain.

So if you gave me $4 of some sort of cryptocurrency that the computer network is deciding and making sure that you have four less dollars, and then I have four more dollars, and those dollars didn't go anywhere else.

Exactly.

If you think about account balances, right.

If I pay you, you debit my account and you credit your account.

That's the basic idea.

These transactions are just transfers of value.

And the blockchain is just a giant list of all of these transactions.

And so as long as everybody agrees on what the transactions are, then we all agree on who has what money.

So give me some examples of how blockchain technologies or cryptocurrencies could impact different industries of our lives.

So I think it goes back to that idea of this open permissionless network We haven't really had that for digital money before.

Before cryptocurrencies came around.

The only way to make a digital payment was to involve a bank in some way.

Now, with the advent of cryptocurrencies, we're actually seeing ways of making digital payments that where you don't need to go through the banking system.

The real sort of interesting idea behind cryptocurrency is this idea that you can just start playing around with value moving, value taking payments, creating new forms of financial assets without asking for permission.

A lot of people like to make an analogy to the Internet.

The Internet gave us a way of discourtesy in data so we could take data and we could send it around the world in an instant.

We didn't have to really think about it too much because we had the set of protocols that anybody could use.

You don't have to ask someone's permission to go visit a website or to make a Google search or something like that.

You can just do it.

And that's the idea that we want to apply to value And if you did that for value, what are the kinds of efficiencies that you gain?

So right now, if I wanted to give you, let's say it's not cash and I wanted to give you a credit card payment of $25, I have to probably give you a credit card number or maybe I can swipe it through my phone.

And somewhere along the line, someone's making a couple of bucks off of that transaction.

Right So if I did this through a cryptocurrency, how is that different?

How is that more efficient if a bank is not involved?

Actually, cryptocurrencies are less efficient.

So cryptocurrencies are pretty slow and clunky right now, but I think it's the idea of them that's really exciting.

So right now, everybody takes credit cards.

My credit card works pretty much everywhere.

It's not a problem.

But we live in the United States.

We're in New York right now.

That's not definitely not the case everywhere in the world.

There are several billion unbanked people in the world who don't have access to digital financial services.

And part of the reason for that is not because it's technically impossible to bank them or to give them access to payments and financial services.

It's just hasn't been in the economic interest of the existing financial intermediaries to do so.

And so they haven't had access.

They haven't been able to they haven't had been served in terms of payments.

So if they're served, I mean, that's that's a you're onboarding, so to speak, a couple of billion new people.

That could be customers that could be engaged in that system.

What are things that so is there is there a possibility then that there are parts of the world that completely leapfrog our banking system as we know it and go directly on to a blockchain based or cryptocurrency model?

Because all they care about is making sure that that vendor that they're dealing with, whether they're buying groceries or whatever, gets that value.

And that person says, yeah, well, you're good for it, right?

Yeah.

I think that's the that's the dream.

What we're seeing is we're seeing almost like a little mini parallel financial system sprung up where everything is done via blockchain technology.

Things are tokenized, digitized.

You're trading assets on exchanges, things like that.

So far, it hasn't really taken off, and it's very, very small compared to the rest of the financial industry.

But it's a really interesting experiment and a lot of people because again, of that open permissionless nature, a lot of people are building new things on top of it and they're going to figure something out.

Give me an example of something that they're going to figure out.

So in 2018 we saw a lot of people using blockchain technology to raise money.

Now, unfortunately, a lot of these things were scammy and it was sort of the wild Wild West.

A lot of people were circumventing financial regulation, but people were able to experiment with really interesting funding models.

People could list a token on an exchange and start collecting money on the stock.

Yeah, almost immediately.

And they didn't have to register.

They didn't have to hire a lawyer.

Well, a lot of them did hire lawyers because that's a smart thing to do, but.

And they were able to think about sort of different types of properties that could come along with that.

So it's not just that you're a traditional stock investor.

People are experimenting with all sorts of things like, hey, maybe I will pay a few cents in order to upvote this post that I really like.

Yeah.

So these initial coin offerings that you're talking about, kind of like a public offering of a stock saying to the world, Here I am, you can buy a coin.

That means you sort of have some faith in what I'm about to do.

Yeah.

Initial coin offerings were it's a play on the word on initial public offering, IPOs, ICOs and IPOs.

And the idea behind them is that instead of hiring a giant investment bank to issue shares and to sell shares in yourself to the public, you'll just do it yourself.

You'll just do it through a website, through blockchain technology.

And a lot of people did that And the way that it works is you sort of set up a an offering of these tokens.

These tokens kind of like stock shares.

You issue them and offer them to the public and people can buy them if they believe in your project.

So with this came an enormous speculative bubble.

There were a lot of people who had no understanding of what the technology was.

They watched the news and they saw, oh, wow, Bitcoin is worth more today.

Oh, my gosh, I got to get in on this.

Who do I know?

A friend of a friend.

And all of a sudden they're you know, does that do more damage?

Or now that that bubble has sort of started to collapse a bit that's shaking off those speculators who don't understand it and the people who are kind of in it here, they're either for the long haul or they understand a little bit more of what they're investing in.

We saw the price of cryptocurrencies go pretty high, pretty remarkably high.

And a lot of people were very intrigued about what's going on.

How how is this happening?

Can I make money with this?

That's financial speculation.

It's not the part of what's happening that excites me the most.

What excites me is really the underlying technology.

And so I think when the price crashes and sort of weeds out a lot of the people who are just in it for the financial speculation.

Yeah.

There are there countries like India who have looked at this and said, listen, there are people getting fleeced.

We're there thinking about writing laws that just say, we don't want anything to do with this stuff.

Is that even possible to regulate?

That's a great question.

I am not sure that it is possible to regulate.

I think that the entire way this technology is designed is it is it's trying to be designed in a way that can circumvent these types of regulations.

It's a bit like the Internet was designed exactly to withstand war and oppression and everything else.

If you can get anywhere on the network, you can transact information.

Right.

Exactly.

The design is to be as resilient as possible.

I think that we have to find a way to coexist with these networks, with cryptocurrencies, the way that we coexist with the Internet.

One of the concerns has been that as this resiliency increases over time, it also makes it that much harder to weed out some of the sort of bad actors in this space.

If, for example, there was at Sites Silk Road that had, you know, transacting and horrible stuff, not just drugs but weapons and possibly even human trafficking.

And people were trying to say, how do we how do we shut this down?

There's no paper trail.

It's not like somebody used a credit card where I can say, okay, this is where the transaction happened.

This is the bank that it happened through.

This is the person who did it and is the person who received it.

I can go get both sides and stop this.

Right.

Governments need to be able to police and enforce.

Absolutely.

The question is, where does it happen?

I think that a lot of the times we rely on the financial system to do enforcement, and I'm just not sure that's going to work in the future so much the way as soon as you post something on the Internet, it's out there and you can't take it back.

I think we're going to have to sort of accept the fact that there are going to be ways of transferring value that can't necessarily be stopped.

Now, that doesn't mean that we can't have law enforcement and that criminals are going to run rampant.

It just means that we have to think about how to enforce these goals in a different layer.

In the system.

What's a good mix of regulations?

Has there.

Is there a country out there that's doing it right yet?

A lot of countries are doing really different things.

So you have some countries which are thinking of banning cryptocurrencies or have already banned them.

You have some countries which are definitely taking a wait and see approach.

Let's see what happens.

I think what Singapore is doing is really interested.

Interesting.

Singapore's regulator is very engaged.

They're doing experiments.

They are thinking about how to evaluate different companies and businesses are thinking about sandboxes.

And so, you know, they're being really open to the technology.

So what are the things that you can do with cryptocurrency?

Sources that you know, in the world of contracts and everything else, how is this money capable of being smarter than what I have in my pockets?

So I think one example that that really helps is to think about micropayments.

It would be very cool if I could pay for things in a more granular level, if I could pay for exactly what I consume.

If I could tip people tiny amounts of money.

People are also thinking about things like more methods of funding, kind of like crowdfund ing, letting people come together and decide to pool their assets and invest together.

I think that basically every financial instrument you see on Wall Street today, even the most complex, will eventually be rewritten as software, as a program that runs on a blockchain and can do whatever it is the investment bank was doing, but with crypto assets.

I've heard that, for example, that this public ledger can be used for lots of things, even, for example, tracking a piece of food all the way through the chain from the from farm all the way into your burrito.

Yeah.

So what's really interesting is that cryptocurrencies have kind of inspired people to take a look at cryptography and some of the technologies behind blockchains and use them in all sorts of ways.

And so one thing that's become really interesting is sort of making our data and making our systems more transparent and more verifiable.

Right now, our data is pretty opaque.

It lives inside of companies, and we don't necessarily have access to it all the time.

And we can't necessarily decide how it's used or even track how it's used.

The really cool thing about blockchains is that that blockchains kind of turn all of that upside down.

The data becomes something that is very specifically tracked and can be cryptographically verified.

And so we're seeing people apply this to the supply chain world.

It seems like a really natural fit.

A lot of people are very concerned about where the food they're eating is coming from.

So people are really interested in trying to figure out, Hey, how do I get finer grained tracking?

How can I go up to someone and convince them cryptographically that this tuna that they're about to buy has been sustainably harvested, for example.

And so people are applying these technologies at different points in supply chains.

So it's almost you're describing something, I guess, almost like when you look up your your FedEx or UPS.

No, there's a little dot that says, okay, it's gotten to this point.

And then at this point, the facility left this.

So you could do that with tuna or you could do that with lettuce.

And at that point, say if there's something bad that happens at the end, you can trace it right back to where the source was.

Exactly.

And it's kind of cool to know exactly where your food comes from.

It's it's a really neat property to be able to provide or even electronic health records if there was a way to keep them safe and know exactly who touched what part of my health data.

Right.

So saying, okay, this doctor can have access to everything and but they don't necessarily need access to this other stuff.

Exactly.

People are really interested in applying this technology to medical health care records.

I think that, you know, you talk to doctors and you talk to patients and they're just frustrated.

They have to take these printed files with them from doctor to doctor.

And it's really annoying and frustrating.

And I think applying these ideas to the medical healthcare profession could be really nice, can be really helpful.

Where are we in terms of the evolution of all of this?

I mean, put it in terms of like, you know, a car versus a horse and buggy maybe.

Yeah.

So I think we're just about the point when maybe you can drive your car down the street before it explodes.

So we are still we are still very much at the beginning of stages of this technology.

It's moving really fast, faster than I ever thought it would, which is really exciting to see.

But it's still the case that probably the cars are slower than the horses right now.

That's where we are.

Even though it's been ten years, the stuff takes a long time to figure out.

Thanks so much for joining us.

Thank you.