15.S12 | Fall 2018 | Graduate

Blockchain and Money

Study Questions

Session # Topic Study Questions
1 Introduction

  • What is blockchain technology and why might it be a catalyst for change for the financial sector?
  • What do you as a student wish to learn from this course, ‘Blockchain and Money’?
2 Money, Ledgers, & Bitcoin
  • What do the roles (medium of exchange, store of value, & unit of account) and characteristics (durable, portable, divisible, uniform, acceptable & stable) of money mean historically and in today’s digital economy?
  • What is fiat currency, what are its ledgers, and how does it fit within the history of money?
  • How does Bitcoin fit within the history of money, the emergence of the Internet and failed attempts of cryptographic payment systems?
  •  3 Blockchain Basics & Cryptography
  • What are the design features—cryptography, append-only timestamped blocks, distributed consensus algorithms, and networking—of Bitcoin, the first use case for blockchain technology?
  • What are cryptographic hash functions, asymmetric cryptography and digital signatures? How are they utilized to help make blockchain technology verifiable and immutable?
  • What is the double-spending problem and how it is addressed by blockchain technology?
  •  4 Blockchain Basics & Consensus
  • What is the Byzantine Generals problem? How does proof-of-work and mining in Bitcoin address it? More generally by blockchain technology?
  • What other consensus protocols are there? What are some of the tradeoffs of alternative consensus algorithms, proof-of-work, proof-of-stake, etc.?
  • How does Bitcoin record transactions? What is unspent transaction output (UTXO)?  What is script code embedded in each Bitcoin transaction and how flexible aprogramming language is it?
  • 5 Blockchain Basics and Transactions, UTXO, and Script Code
  • As many design features—public key cryptography, hash functions, append-only timestamped logs, digital cash, and proof-of-work—pre-date Bitcoin, what was the novel innovation of Santoshi Nakamoto?
  • How do economic incentives work within blockchain technology to maintain decentralized ledgers and avoid double spending? What are the incentives of consensus protocols and mining?
  • Who is Satoshi Nakamoto? (Only kidding a bit.)
  • 6 Smart Contracts & DApps
  • What are smart contracts? How do they compare to traditional contracts? What are tokens?
  • What are smart contract platforms such as Ethereum? What generally distinguishes them from Bitcoin?
  • What are decentralized applications (DApps)? What has been the usage and why haven’t anyDApps yet received wide consumer adoption?
  • 7 Technical Challenges
  • How critical are the technical and commercial challenges—scalability, efficiency, privacy, security, interoperability—of current blockchain technology?
  • What are the possible tradeoffs of decentralization, scalability and security? What are tradeoffs of consensus software updates, governance and so-called “hard forks”?
  • What might current work—Layer 2 applications, zero-knowledge proofs, alternative consensus algorithms—do to address current commercial challenges?
  • 8 Public Policy
  • How do key public policy frameworks—guarding against illicit activities, ensuring financial stability, and protecting investors—relate to blockchain technology and crypto finance?
  • Under tax, bank secrecy, securities and commodities laws, what is the relevance if crypto tokens are deemed property? Currencies? Something of value? An investment contract? A commodity? What is the essence of the U.S. Supreme Court ‘Howey Test’?
  • How might the ‘Duck Test’ guide thinking of blockchain technology and crypto finance?
  •  9 Permissioned Systems
  • What is permissioned or private distributed ledger technology? How does it differ from permissionless or open blockchain applications?
  • What are the key blockchain inspired features of Corda and Hyperledger Fabric? What is Digital Asset Holdings?
  • What are the business tradeoffs of utilizing a permissioned vs. a permissionless application? What are the tradeoffs for consumers?
  • 10 Financial System Challenges & Opportunities
  • What are the tradeoffs of centralized institutions and markets in the financial sector?
  • Which challenges of the financial sector—periodic crises, concentrated risks, economic rents, legacy systems, processing risks, financial inclusion—might present opportunities for blockchain applications?
  • How does blockchain technology fit within other trends—particularly with regard to technology—facing the financial sector in 2018?
  • 11 Blockchain Economics
  • How do decentralized blockchain applications affect the cost of verification and the cost of networking? How do blockchain applications affect market power?
  • What might the economics and organization of the Internet—with its protocol layers and applications—tell us about the future of blockchain technology?
  • What lessons should be drawn from crypto skeptics—Krugman, Stiglitz, Roubini, Gates,  Buffett, Dimon, & others about the economic potential for blockchain technology? What is an answer to the oft stated query:‘what problem do cryptocurrencies solve?’
  • 12 Assessing Use Cases
  • What potential benefits—in terms of reducing costs of trust—are there when adopting blockchain technology applications? How might potential use cases be assessed for the trade-offs of decentralized vs. centralized applications?
  • What are the potential strategic benefits from blockchain applications? What are the attributes of potential use cases and sectors that might best capture value from such applications? How important are the benefits of censorship resistance to this analysis?
  • How can you separate rigorous analysis from mere assertion and hype in the blockchain ecosystem?
  • 13  Payments, Part 1
  • What are the major trends—mobile apps, digital wallets, open banking, and enhanced methods of bank transfers & authentication—in payment systems today?
  • What lessons can be drawn from non-blockchain payment innovations, such as Alipay, WeChat Pay, M-Pesa, India’s IMPS, and U.S. mobile payment apps?
  • What are the challenges and opportunities in the current cross-border payment system architecture?
  • 14 Payments, Part 2
  • What lessons can be drawn from the challenges for blockchain related payment applications? Might Layer 2 solutions, such as Lightening, resolve these challenges?
  • What are the opportunities in cross-border payments? In domestic P2P or P2B payments?
  • What are tradeoffs of utilizing permissioned vs. permissionless payment applications?
  • 15 Central Banks & Commercial Banking, Part 1
  • What strategic considerations should go into Central Banks thinking of expanding access to digital reserves through central bank digital currency (CBDC)?
  • How might design considerations—retail vs wholesale access; token or account based; interest bearing and level of service—weigh in such decisions?
  • What are the challenges CBDCs might pose to commercial banking models, monetary policy implementation, payment systems resilience and financial stability?
  • 16 Central Banks & Commercial Banking, Part 2
  • What lessons, if any, can be drawn from related experimentation— Ecuador, Senegal, Philippines— to date?
  • Might stable value coins spur central banks into adopting CBDCs? What might Mastercard be considering with their patent for ‘blockchain currency’ fractional reserves?
  • What recommendations would you have for Sweden’s Riksbank (dating from 1668, the world’s first central bank) for possible adoption of e-krona?
  • 17  Secondary Markets & Crypto-Exchanges
  • How have crypto-exchanges become a critical gateway for the vast majority of crypto secondary market trading?
  • How does the business model of crypto-exchanges compare to traditional securities and derivatives exchanges? How do centralized crypto-exchanges compare to decentralized crypto-exchanges?
  • What do all of the hacks, reports of manipulation and failures tell us about the current state of security and investor protection of crypto-exchanges?
  • 18 A New Approach to Crypto-Exchange & Payments
  • What are the opportunities that the Intercontinental Exchange is trying to tap with its recent announcement of Bakkt? Is it more about payment solutions or exchange trading?
  • What do Microsoft and Starbucks hope to gain for their business models?
  • Who is Jeff Sprecher? How did this once power plant entrepreneur, successfully found a leading trading company that now owns the New York Stock Exchange and is challenging conventions with bitcoin and blockchain technology?
  • 19 Primary Markets, ICOs, & Venture Capital, Part 1
  • What ist he new crowdfunding mechanism of blockchain technology-initial coin offerings (ICOs)?
  • What attributes help distinguish successful ICOs? Why have so many ICOs failed? 
  • What has the wave of ICOs meant for the venture capital field?
  • 20  Primary Markets, ICOs, & Venture Capital, Part 2
  • How ICOs mix economic attributes of both consumption and investment. How ICO tokens’ design features—their risks, expectation of profits, manner of marketing, exchange trading, limited supply and capital formation—are similar to investments schemes?
  • Why is the ICO market rife with scams and fraud?
  • What is the U.S. Securities and Exchange Commission’s current approach to ICOs? What are the options for completing a compliant ICO?
  • 21 Post Trade Clearing, Settlement, & Processing
  • What are the opportunities of blockchain technology to lower costs and counterparty risks in the clearing, settlement and processing of financial transactions?
  • Why have the applications proposed to date almost exclusively been focused on permissioned or private distributed ledger technology?
  • What lessons might be drawn from the ongoing projects—ASX for equities, ISDA for swaps, others?
  • 22 Trade Finance & Supply Chain
  • What attributes of trade finance and supply chain management might make this a ripe set of use cases for blockchain applications?
  • What lessons might be drawn from the ongoing projects?
  • 23  Digital ID
  • What are the trade-offs of using blockchain technology for identity and access management (IAM)?
  • What is self-sovereign identity? How might blockchain self-sovereign or digital identity applications be applicable within the financial sector?
  • Will you ask for your MIT diploma digitally or on paper?
  • 24  Conclusion
  • What is blockchain technology? What is money?
  • How might blockchain technology fit within the world of money and finance?
  • How can you best assess a potential blockchain project as a catalyst for change, a break-out app or but another likely failed endeavor?
  • Course Info

    As Taught In
    Fall 2018
    Learning Resource Types
    Lecture Videos
    Written Assignments