💰

Blockchain and Money - Lecture 1 Notes

Jul 10, 2024

Blockchain and Money - Lecture Notes

Introduction

  • Course Title: Blockchain and Money (15.S12)
  • Instructor: Gary Gensler, Senior Lecturer at MIT Sloan and advisor at MIT Media Lab
  • Background in finance, money, public policy
  • Course objective: Understanding blockchain, its potential impact on finance and money
  • Interactive class involving cold calling

Survey of Students

  • About 45% have owned cryptocurrency
  • About a third have worked on blockchain projects

Study Questions for Week

  1. What is blockchain?
  2. Why might blockchain be a catalyst for change in finance?

Initial Assignment

  • Write on index card what you aim to achieve in the course
  • Achievements collected and discussed in next class

Internet and Protocols

  • Historical context of internet: Ethernet (1974), TCP/IP, HTTP (1990)
  • Problems with early internet commerce (e.g., Pizza Hut's PizzaNet)

Cryptography

  • Definition: Communications in presence of adversaries
  • Historical examples: Ancient ciphers, Enigma Machine, Public key/private key cryptography (MIT, 1970s)
  • Importance in internet security: SSL, TLS

Development of Digital Currency

  • PayPal (1998), failed digital currencies, successful mobile money (M-Pesa in Kenya)
  • Main blockchain advantage: Moving value peer-to-peer without centralized intermediary

Bitcoin and Blockchain Technology

  • Satoshi Nakamoto's email (2008): Peer-to-peer electronic cash system
  • Key components: Time-stamped append-only logs, cryptography for security, consensus protocol
  • Historical context and innovations leading to Bitcoin
  • Pizza for 10,000 BTC story (2010)
  • Blockchain's potential as a new internet layer

Financial Systems Context

  • Role of Finance: Moving, allocating, pricing money and risk
  • Finance and economic rents: Collecting wealth by intermediating transactions

Blockchain's Potential in Finance

  • Addressing financial crises, instabilities, and inefficiencies
  • Potential roles: Reducing centralization, increasing resilience and inclusion
  • Key challenges: Scalability, Privacy, Interoperability, Governance, and Commercial adoption

Types of Blockchain

  • Permissioned: Controlled by pre-approved nodes (e.g., Australian Stock Exchange)
  • Permissionless: Open to public participation (e.g., Bitcoin)
  • Current market size: $200 billion vs. global capital markets and gold

Public Policy and Regulation Considerations

  • Illicit activities, Financial stability, Investor protection
  • Dynamic and evolving regulatory environment

Class Structure and Evaluations

  • Participation: 30%
  • Individual Write-ups: 2 (one per half of the course)
  • Group project: Incumbent or startup use case proposal

Upcoming Topics

  • Roles and characteristics of money
  • History of money and accounting ledgers
  • Foundations of Bitcoin and its integration in financial history

Instructor Background and Experience

  • Career in Goldman Sachs, US Treasury, Public Service, Commodity Futures Trading Commission
  • Extensive involvement in policy-making, financial management, and public affairs

Full transcript