{"id":19352,"date":"2020-10-24T08:47:12","date_gmt":"2020-10-24T03:02:12","guid":{"rendered":"https:\/\/www.revoscience.com\/en\/?p=19352"},"modified":"2020-10-24T08:47:15","modified_gmt":"2020-10-24T03:02:15","slug":"beyond-bitcoin-a-new-case-for-novel-payment-systems","status":"publish","type":"post","link":"https:\/\/www.revoscience.com\/en\/beyond-bitcoin-a-new-case-for-novel-payment-systems\/","title":{"rendered":"Beyond Bitcoin: A new case for novel payment systems"},"content":{"rendered":"\n

In his latest book, economist Robert Townsend surveys how \u201cdistributed ledger\u201d technologies can help emerging economies and many industries.<\/strong><\/p>\n\n\n\n

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CAMBRIDGE, Mass.(MIT news office) —\u00a0The cryptocurrency Bitcoin has become a center of excitement, mystery, and controversy. Boosters have viewed it as an investment opportunity, a financial innovation, and a rival to state-controlled currencies; skeptics think it is an energy-wasting market bubble.<\/p>\n\n\n\n

MIT economist Robert Townsend sees things differently. To Townsend, Bitcoin, for all its novelty, is part of a larger family of financial innovations, known as \u201cdistributed ledgers,\u201d which allow people to perform financial activities without requiring a central authority to keep a master copy of those transactions and while minimizing the need for individuals to trust each other.<\/p>\n\n\n\n

Functionally, distributed ledgers can be applied to payments, financial accounts, escrow mechanisms, and contracts. These tools have evolved globally while receiving comparatively little attention \u2014 even though some of the tools are part of Bitcoin.<\/p>\n\n\n\n

\u201cAlmost everyone has heard of Bitcoin, and likewise, they have opinions about it,\u201d Townsend observes. \u201cIt\u2019s quite a politicized issue. But a lot of its technologies were pre-existing. They got put together in a rather interesting and complicated way in Bitcoin. But the idea of having a common ledger implemented by consensus on transactions, that was not unique to Bitcoin; that predated it.\u201d<\/p>\n\n\n\n

Now Townsend has written a book, \u201cDistributed Ledgers: Design and Regulation of Financial Infrastructure and Payment Systems<\/a>,\u201d published this month by the MIT Press, in which he surveys these tools and analyzes their usefulness. Overall, Townsend writes, distributed ledgers \u201chave the potential to transform economic organization and financial structure,\u201d especially in areas of the world lacking financial institutions \u2014 although not only in those places.<\/p>\n\n\n\n

For instance, shipping giant Maersk has combined with IBM to build a distributed ledger system for its business. The Reserve Bank of India\u2019s TReDS platform lets merchants directly receive trade receivables (money owed to them) through distributed ledger principles. And numerous platforms now facilitate money transfers across national borders.<\/p>\n\n\n\n

\u201cThese things are increasingly being used quite a lot,\u201d Townsend says. \u201cOn the other hand, there is [also] a lot of exaggeration and hype and outright failure.\u201d<\/p>\n\n\n\n

Up close in Thailand<\/strong><\/p>\n\n\n\n

The book\u2019s origins start with the Townsend Thai Project, a 20-year research effort Townsend oversaw, starting in the 1990s, which collected monthly financial data from hundreds of households in several provinces. This helped Townsend see the potential of distributed ledgers, since many Thai people and communities lack easy access to financial institutions.<\/p>\n\n\n\n

\u201cPeople tend to react relative to what they have in their own country,\u201d Townsend says. \u201cIn Europe or the U.S., there are very sophisticated financial infrastructures, so the issue is, \u2018Why do we need Bitcoin or financial ledgers at all?\u2019 But if you make your way into one of the Thai villages that I study, armed with the data that I collected over 20 years, the gaps become quite apparent.\u201d<\/p>\n\n\n\n

One apparent gap: The Thai baht, the currency, is heavily paper-intensive. And as Townsend explains, \u201cThailand is now an upper-middle income country relative to Myanmar and Cambodia, and it has immigrants coming in to work with the objective of sending money home to their families.\u201d<\/p>\n\n\n\n

Now companies using distributed ledger approaches, such as the open-source money-transfer platform Stellar, can make remittances happen cheaper and faster. Stellar allows transactions between decentralized servers that synchronize every few seconds; another firm, Ripple, operates in similar fashion.<\/p>\n\n\n\n

\u201cA money transfer organization in Thailand can connect to a money transfer organization in Myanmar, and fiat money [government currency] never really changes hands,\u201d Townsend observes. \u201cThey can affect this transfer in literally seconds, at the cost of pennies. It\u2019s almost revolutionary, relative to what they have now.\u201d<\/p>\n\n\n\n

Moreover, the same distributed-ledger principle applies to \u201csmart\u201d contracts and escrow services, which are often lacking in Thailand.<\/p>\n\n\n\n

Escrow addresses \u201cthe ability to make and honor a promise,\u201d as Townsend puts it. In places like the U.S., large transactions such as a house sale can have delicate timing issues. Sellers need assurances that payments will be forthcoming, and buyers need assurances that goods are available. Usually, money is held by a third party until the terms of a deal are fulfilled.<\/p>\n\n\n\n

But since distributed ledger technologies offer a platform where two parties can make synchronized exchanges, they can substitute for the escrow process.<\/p>\n\n\n\n

\u201cIn rural areas of Thailand, they don\u2019t have that,\u201d Townsend says. \u201cThe banks don\u2019t think traditionally of farmers having any interest in these [escrow-type] instruments. But of course, it\u2019s really quite important.\u201d With distributed ledgers, farmers could deliver goods without getting burned by bogus payments.<\/p>\n\n\n\n

M-PESA\u2019s moment<\/strong><\/p>\n\n\n\n

Moving beyond Asia, Townsend notes, Kenya boasts a notable alternate currency: M-PESA, a phone-based money-transfer system created by mobile provider Safaricom in 2007. With M-PESA, used by 90 percent of Kenyans who lack bank accounts, people deposit funds and transfer them to others as payments, at parity with the Kenyan shilling, and with low transaction costs. Studies by MIT economist Tavneet Suri show M-PESA helps spread risk effectively.<\/p>\n\n\n\n

However, Safaricom offers no collateral for user deposits, so there are customer risks. And the M-PESA network runs through agents, 60 percent of whom lack liquidity at least once per month.<\/p>\n\n\n\n

\u201cThat\u2019s entirely a private initiative, it\u2019s not government-sponsored, and you do have to trust the cell-phone company,\u201d Townsend says. \u201cYou\u2019re giving your money to an agent, who\u2019s crediting your account. Granted, you can check on your phone and see if it\u2019s there \u2026 but there\u2019s nothing securing it.\u201d<\/p>\n\n\n\n

M-PESA is also a step removed from some types of distributed ledgers, since Safaricom is a third party overseeing transactions; it more closely resembles some types that do use third-party validation. But Townsend writes that M-PESA, as a flexible currency substitute, has \u201cgreat social value\u201d for Kenyans, and believes it should be part of the discussion about how financial innovation can meet the needs of society.<\/p>\n\n\n\n

For his part, Townsend hopes many people \u2014 policymakers, technologists, finance industry experts, and any other readers \u2014 will seriously consider the cases beyond Bitcoin that show the value of new finance tools.<\/p>\n\n\n\n

\u201cI\u2019m very eclectic about it,\u201d Townsend says. \u201cI always think of these things as options. You don\u2019t have to go the full route to consensus algorithms [like Bitcoin] on distributed ledgers to achieve a lot.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

In his latest book, economist Robert Townsend surveys how \u201cdistributed ledger\u201d technologies can help emerging economies and many industries.<\/p>\n","protected":false},"author":2,"featured_media":19353,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34,3],"tags":[],"class_list":["post-19352","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-news"],"featured_image_urls":{"full":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",900,600,false],"thumbnail":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-200x200.jpg",200,200,true],"medium":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-600x400.jpg",600,400,true],"medium_large":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-768x512.jpg",750,500,true],"large":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-675x450.jpg",675,450,true],"1536x1536":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",900,600,false],"2048x2048":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",900,600,false],"ultp_layout_landscape_large":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",900,600,false],"ultp_layout_landscape":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",855,570,false],"ultp_layout_portrait":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",600,400,false],"ultp_layout_square":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",600,400,false],"newspaper-x-single-post":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-760x490.jpg",760,490,true],"newspaper-x-recent-post-big":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-550x360.jpg",550,360,true],"newspaper-x-recent-post-list-image":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press-95x65.jpg",95,65,true],"web-stories-poster-portrait":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",640,427,false],"web-stories-publisher-logo":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",96,64,false],"web-stories-thumbnail":["https:\/\/www.revoscience.com\/en\/wp-content\/uploads\/2020\/10\/Bitcoin-Book-Press.jpg",150,100,false]},"author_info":{"info":["RevoScience"]},"category_info":"Economics<\/a> News<\/a>","tag_info":"News","comment_count":"0","_links":{"self":[{"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/posts\/19352","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/comments?post=19352"}],"version-history":[{"count":0,"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/posts\/19352\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/media\/19353"}],"wp:attachment":[{"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/media?parent=19352"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/categories?post=19352"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.revoscience.com\/en\/wp-json\/wp\/v2\/tags?post=19352"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}