Tech
Unlocking the potential of blockchain technology | MIT News
The Republic of the Marshall Islands is a country of about 50,000 people spread across more than 1,000 islands in a remote part of the Pacific Ocean. The country relies heavily on cross-border finance and trade, and the complexities of that system can make it difficult for citizens to obtain certain goods and financial services efficiently.
Now the federal government is looking to become the first to issue a national digital currency using blockchain technology. Officials hope the move will help citizens avoid high transaction fees, simplify compliance with international partners, and protect against inflation (the currency will have a fixed supply rate).
The new currency will be based on blockchain technology developed by Silvio Micali, Ford Professor of Engineering at MIT’s Computer Science and Artificial Intelligence Laboratory (CSAIL), and commercialized by Micali’s startup, Algorand.
There has been considerable hype surrounding the potential of blockchain technology and associated cryptocurrencies to disrupt the way money and other assets move around the world. Skeptics of this view argue that blockchain technologies are not sustainable or efficient enough for mass adoption.
Algorand believes it has solved these problems with a unique, scalable architecture that does not sacrifice traditional blockchain technology benefits, such as decentralization and security.
More and more people are using Algorand for a wide range of applications, from creating carbon credit markets to accelerating real estate transactions and, in the case of the Marshall Islands, creating new fiat money.
“The advent of blockchain technology has opened up a world of opportunities for small nations like ours,” said the minister assisting Marshall Islands President David Paul when the country announced its plans. “By issuing a currency that is not physically embedded in cash, that can travel the world instantly, that is tamper-proof and completely secure, the Marshall Islands will finally be connected to the global financial system on its own terms.”
Starting from scratch
Micali has long been recognized for his work in cryptography and security. He has been a member of the MIT faculty since 1983 and was awarded the Turing Award in 2012 with his collaborator and fellow MIT professor, Shafi Goldwasser.
Working with others, Micali’s results include a new way for distributed parties to agree on a value or strategy even if some parties are corrupt (achieving so-called Byzantine agreement), and a method for parties to securely send information to each other so that it can later be verified by the public (so-called verifiable random functions).
Much of Micali’s work occurred long before the rise of modern cryptocurrencies and the hype around blockchain. In the case of verifiable random functions, Micali says he knew they would be useful in some way, but couldn’t figure out how to apply them.
However, Micali put off learning about blockchain for years after the creation of the first blockchain-based cryptocurrency, Bitcoin, in 2008. One day, he finally walked into his lab and asked some of his graduate students to explain it to him.
“I had two main reactions,” Micali recalls. “One was that it was a great idea. The other was that it was a very inelegant solution.”
Of particular interest to Micali was a problem raised by the founder of another blockchain, Ethereum. The founder argued that blockchains can provide at most two of the following: decentralization, security, and scalability.
“The idea that something was impossible really caught my attention, because in cryptography, and at MIT more generally, our job is to prove that the impossible is possible,” Micali says.
Micali also credits the MIT ecosystem for helping him get Algorand off the ground. Of his first 10 hires, eight came from MIT.
“It’s not just the technology, it’s also the entrepreneurial spirit of MIT and the fact that we don’t shy away from challenges,” Micali says. “But the most important resource for me and Algorand is also the most important resource of MIT: people.”
In 2017, Micali started from scratch to build a better blockchain.
Blockchain refers to records of information, stored in blocks, that users can add to, forming chains. Each block contains a shortened version of the previous block and timestamped information such as transaction data. As more blocks are added, previous blocks become harder to change, providing a secure record of transactions and other information. Many public blockchains have associated cryptocurrencies, or digital assets, and information about cryptocurrency transactions is stored in the blockchain ledger.
“The challenge is who should be able to add the next block of transactions to the blockchain,” Micali says. “Because if I have the ability to declare something that is common knowledge, I have a lot of power. Who should have that power?”
Some blockchains select users to add and validate the next block, having them devote computing power to solving cryptographic puzzles. This approach has been criticized for being inefficient and energy-intensive. Other blockchains empower users who hold the power of the associated cryptocurrency to validate new blocks on behalf of everyone else. This approach has been criticized for being too centralized, as relatively few people hold the majority of many cryptocurrencies.
Algorand also relies on an associated cryptocurrency to validate new blocks. The company calls the currency Algo coins. Instead of giving the power to validate new blocks to people with the most coins, however, Algorand has the owners of 1,000 tokens out of the 10 billion in circulation randomly select themselves to validate the next block.
Tokens are selected in a microsecond-long process that requires relatively little computing power. Random selection also makes the blockchain more secure by not providing a clear target for hackers, helping Algorand solve the “trilemma” proposed by the founder of Ethereum with a scalable, secure, and decentralized blockchain.
In addition to this architecture, the Algorand community has developed additional features tailored to specific functions, such as smart contracts, which can self-execute based on predefined conditions in their code, in some cases eliminating the need for central authorities and intermediaries such as lawyers.
To enable smart contracts to execute on its blockchain more efficiently, Algorand created a programming language called Transaction Execution Approval Language (TEAL). TEAL returns a value of true or false depending on whether certain conditions are met, simplifying the process of creating and executing contracts on the blockchain.
Since then, contracts have been used to enable financial transactions, create a market for small gold purchases, and raise small-scale investment in startups.
Unlocking the potential of blockchain
The Italian Society for Authors and Publishers was founded in 1882 after artists organized to avoid exploitation. Much has changed since its founding, with conglomerate streaming services beginning to hold enormous amounts of power over content like movies and music. The result is a complex copyright ecosystem in which royalties for artists are squeezed by publishers, lawyers, reviewers, and other intermediaries.
But today, more than 100,000 artists in the organization have their copyrights digitally represented and can trade or sell those rights at publicly quoted market prices on the Algorand blockchain. Artists can give permission to use their songs in certain cases while retaining their copyright.
“We appreciate artists, but we often don’t give them what they deserve,” says Micali.
The use case fulfills a central promise of blockchain, allowing people to exchange goods without centralized authorities taking up money and time. It also exemplifies what has been a huge source of business for Algorand thus far: the tokenization of digital assets, also known as non-fungible tokensor NFT.
The application also touched the heart of Micali, who was happy to see that even in his home country, Italy, people were benefiting from his solution.
“It shows how you can take back your information,” Micali says. “It’s a big trend, because very often in order to make information available you have to give up the rights to your information to someone else, who then owns the information. It’s easy to say you shouldn’t do that, but we need the technology to get around that. The only way forward now is decentralization.”