How Blockchain Applications Will Move Beyond Finance

To understand the transformation that’s being brought about by blockchain technology, it’s useful to start with its largest implementation to date: bitcoin.

In the fall of 2014, my colleague Catherine Tucker and I conducted a large-scale experiment at MIT, in which 4,494 undergraduate students were offered access to bitcoin. The vast majority of students ended up hoarding the cryptocurrency, in the expectation that it would increase in value. Initially distributed to the students at $350 per bitcoin, the digital currency is now worth more than $1,100 per bitcoin, suggesting that many of the students realized that one of bitcoin’s first use cases would be speculation.

As the cryptocurrency has matured, it’s often been criticized for its inability to match the performance of existing payment networks and meet the requirements of financial systems and governments. But bitcoin has been extremely successful at solving the problem it was designed for: allowing a global network to securely transact and exchange value without the need for a costly intermediary. Through a clever mix of game theory and cryptography, bitcoin replicates financial systems’ ability to transfer value, but without any of the labor typically involved in running and securing transactions. Furthermore, it does so while minimizing the degree of trust parties have to place in each other when transacting; it essentially digitally mimics many of the features of cash — including privacy.

As cryptocurrencies like bitcoin and distributed ledgers continue to mature, where might they be applied next?

It’s not surprising that some of the closer-to-market applications of the technology are in the financial sector. While trading and speculation were early use cases of bitcoin, new technologies, such as Ethereum and Zcash, have emerged, with Zcash providing a higher degree of privacy than bitcoin, and Ethereum offering a powerful development platform for smart contracts and decentralized applications, with the power to transform everything from predictive applications to job and energy markets to hedge funds and decentralized cloud services. As the entire cryptocurrency ecosystem matures, digital wallet providers and exchanges are becoming more professional and secure.

On the consumer side, companies such as Circle and Abra are taking advantage of the lower costs offered by blockchain technology for cross-border payments, encroaching in the territory of players like Venmo (now part of PayPal), TransferWise, and traditional remittances providers. Visa and MasterCard are both exploring uses for similar technology to improve the way they process payments, while Ripple is lowering the cost of transactions between banks and other financial institutions through its global settlement network. In all of these cases, blockchain technology is adopted “under the hood,” and consumers and businesses can reap the benefits without ever knowing that a distributed ledger was ever involved.

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