MIT Digital Tradecoin

Tradecoin: a new Reserve Currency project by Prof Sandy Pentland at MIT

  • Breaking the Bank, A. Lipton and A. Pentland, Scientific American (PDF) (January 2018)
  • Digital Trade Coin (DTC): Towards a more stable digital currency, A. Lipton,  T. Hardjono and A. Pentland - Journal of the Royal Society Open Science -- Special Issue on Blockchain Technology, July 2018 (PDF)
  • MarketWatch (Feb 2018)
  • Narrow Banks and Fiat Backed Digital Coins, A. Lipton, A. Pentland and T. Hardjono, Capco Institute Journal 47, April 2018. (PDF)
  • Towards an Interoperability Architecture for Blockchain Autonomous Systems, T. Hardjono, A. Lipton and A. Pentland. IEEE Transactions on Engineering Management, Special Issue on Blockchain Ecosystem 2019 (to appear) (PDF).

The Brave New World of Blockchains and Distributed Ledgers

The modern financial system has become dangerously complex. Increasing transparency would reduce risk, but that requires modeling the monetary circuit at a level of detail beyond the capacity of current technology.

New technologies such as digital currencies are now making it possible to simulate every trade and transaction. These tools could build more efficient financial networks and decentralize the control of money. People could exchange directly with one another instead of relying on banks.

The potential for sweeping change is real, but there are many uncertainties. These digital networks will only promote equity and accountability if they are properly built and responsibly used. They could just as easily lead to extreme levels of centralized control.

Towards a More Stable Financial System.

It is that the invention of blockchain and distributed ledgers won’t eradicate problems like financial crashes and unhealthy inflation—at least not in the short term. But it does enable the creation of legitimate alternatives to the big, powerful players. Technology now makes it possible to form specialized global currency systems that previously would not have had sufficient scale, trust or political stability to compete. That is why a natural next step is for the little guys—such as emerging economies or large numbers of individual citizens—to band together to form alternatives to central banks.

With that possibility in mind, our lab at the Massachusetts Institute of Technology is working on creating a digital currency suitable for large-scale transactional purposes. Called Tradecoin, it will be indelibly logged on a blockchain and anchored at all times to a basket of real-world assets such as crops, energy or minerals. Doing so will help stabilize its value and make it easier for the public to trust it. The core idea is that a broadly useful currency needs both human trust and efficient trade systems.

A digital Tradecoin built on a distributed ledger can allow alliances of small nations, businesses, commercial traders, credit unions or even farmers to put together enough assets to back a large, liquid currency that would potentially be as trustworthy and at least as efficient as the national currencies used by the World Bank and the International Monetary Fund.

By design, the principles behind currencies such as Tradecoin are fundamentally different from cryptocurrencies like Bitcoin, which are not backed by real-world assets and do not involve alliances. Tradecoin can also avoid the energy-intensive process of mining.