Unlocking the potential of blockchain technology | MIT news
The Republic of the Marshall Islands is a country of approximately 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 financial and commercial transactions, and the complexity of this system can make it difficult for citizens to efficiently obtain certain goods and financial services.
Now the federal government wants to be the first to issue a national digital currency with the help of 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 offer rate).
The new currency will be based on blockchain technology developed by Silvio Micali, the Ford professor of engineering at MIT’s Computer Science and Artificial Intelligence Laboratory (CSAIL) and commercialized by Micalis startup Algorand.
There has been considerable hype surrounding the potential of blockchain technology and its related cryptocurrencies to disrupt the way money and other assets move around the world. Skeptics of this vision say 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 the traditional advantages of blockchain technology such as decentralization and security.
More and more people are using Algorand for a variety of applications, from creating marketplaces for carbon credits to accelerating real estate transactions to creating new legal tender in the case of the Marshall Islands.
“The advent of blockchain technology has opened up a world of opportunity for small nations like ours,” said Marshall Islands President’s Minister-in-Assistance David Paul when the country announced its plans. “By issuing a currency that is not physically embodied in cash, that can instantly travel the world, that is tamper-proof and totally secure, the Marshall Islands will finally be hooked up to the global financial system on their own terms.”
Start from the beginning
Micali has long been known for its work in cryptography and security. He has been a member of the MIT faculty since 1983 and was awarded the Turing Award in 2012 together with his colleague and MIT professor Shafi Goldwasser.
Working with others, Micali’s achievements include a new way for dispersed parties to agree on a value or strategy even when some of the parties are corrupt (reaching what is known as a Byzantine agreement) and a method for the parties to keep information safe to send to each other a method that can later be verified by the public (so-called verifiable random functions).
Much of Micali’s work took place long before the advent of modern cryptocurrencies and the blockchain hype. In the case of testable random functions, Micali says he knew they would be useful in some way, but couldn’t figure out what to use.
Still, Micali put off learning about blockchains for years after creating the first blockchain-linked cryptocurrency, Bitcoin, in 2008. One day he finally went to his lab and asked some of his PhD students to explain it to him.
“I had two main reactions,” recalls Micali. “One of them was that it was a nice idea. Second, it was a very inelegant solution. “
Of particular interest to Micali was a problem posed by the founder of another blockchain, Ethereum. The founder said that blockchains can guarantee at most two of the following: decentralization, security and scalability.
“The idea that something is impossible caught my attention because in cryptography, and at MIT in general, our business is to prove the impossible is possible,” says Micali.
Micali also credits MIT’s ecosystem for helping it found Algorand. Of his first 10 hires, eight were from MIT.
“It’s not just the technology, but also the entrepreneurship at MIT and the fact that we are not shy about challenges,” says Micali. “But the most important source for me and Algorand is also the most important resource at MIT: the people.”
In 2017, Micali started from scratch to build a better blockchain.
The term blockchain refers to records of information stored in blocks that users can add to chains. Each block contains an abbreviated version of the previous block and time-stamped information such as transaction data. The more blocks that are added, the harder it is to change the previous blocks, which provides a safe general ledger for 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 can attach the next block of transactions to the blockchain,” says Micali. “Because if I have the ability to declare some general knowledge, then I have a lot of power. Who should have that power? “
Some blockchains select users to add and validate the next block by using processing power to solve cryptographic puzzles. This approach has been criticized as inefficient and energy intensive. Other blockchains give users who have the associated cryptocurrency power to validate new blocks on behalf of everyone else. This approach has been criticized for being too centralized, as relatively few people own the majority of many cryptocurrencies.
Algorand also relies on an associated cryptocurrency to validate new blocks. The company calls the currency Algo-Coins. However, instead of giving the people with the most coins the power to validate new blocks, Algorand has holders of 1,000 tokens out of the 10 billion tokens in circulation that are randomly selected to validate the next block.
The tokens are selected in a microsecond long process that requires relatively little computing power. The random selection also makes the blockchain more secure by not giving hackers a clear target, which helps Algorand to solve the “trilemma” set up by the Ethereum founder 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 that can self-execute based on pre-defined conditions in their code, which in some cases eliminates the need for central authorities and intermediaries such as lawyers.
To enable more efficient execution of smart contracts on its blockchain, Algorand has developed a programming language called Transaction Execution Approval Language (TEAL). TEAL returns a true or false value depending on whether certain conditions are met, which simplifies the process of creating and executing contracts on the blockchain.
The contracts have since been used to facilitate financial transactions, build a marketplace for small gold purchases, and raise small investments in startups.
Unlock the potential of the blockchain
The Italian Society of Authors and Editors was founded in 1882 after artists organized themselves to avoid exploitation. Much has changed since its inception as conglomerate streaming services have great power over content such as movies and music. The result is a complex copyright ecosystem in which royalties for artists are reduced by publishers, lawyers, accountants and other intermediaries.
But today more than 100,000 artists in the organization have digitally represented their copyrights and can trade or sell these rights at publicly quoted market prices on Algorand’s blockchain. The artists can, in certain cases, grant permission to use their songs while maintaining the copyrights.
“We have fun with artists, but often we don’t give them what they deserve,” says Micali.
The use case fulfills a central promise of the blockchain that enables people to exchange goods without centralized authorities taking up time and money. It also illustrates what has been a great source of business for Algorand so far: the tokenization of digital assets, also known as non-fungible tokens or NFTs.
The application also hits Micali, who is pleased that the people in his home country Italy are benefiting from his solution.
“It shows how you can regain your own information,” says Micali. “This is a big trend because, in order to make information available, you often have to transfer the rights to your information to someone else, who then owns your information. It’s easy to say you shouldn’t, but we need technology to work around this. The only way to move forward now is through decentralization. “