Last summer, a special US Senate subcommittee met remotely to weigh the benefits of launching a central bank digital currency, or CBDC, which, if optimally designed, would transform the US financial system, making it more accessible to a larger number of citizens. For senators staring at their laptops, this was the first day of class on digital currency. And to introduce you to this very technical world, the first person invited by Senator Elizabeth Warren was the director of the Digital Currency Initiative (DCI) at MIT, Neha Narula.
Narula had just five minutes to explain what could be gained by reinventing the US currency, and what could go wrong. He had never before testified before the Senate. “I went in a bit blind,” confesses this expert.
But there was a reason why Narula had been chosen to start first. In the years since her 2016 TED talk on the future of money, which reached 2.5 million viewers, this woman has earned a worldwide reputation for her remarkably clear communication about some incredibly complex and politically charged ideas. with digital currencies. Narula has become a neutral and trusted source of knowledge about financial technologies that very few people understand.
Narula managed to help senators quickly learn not only how digital currency works today, but also how it could be redesigned to better address concerns about ethics, privacy, security, fairness, and innovation. The expert knows that, in the end, it will be the politicians who decide whether and how to create a CBDC, and her goal is to make sure they know the trade-offs that will come with each decision.
For example, he explained to senators that “two-tier” CBDCs, which require a business bank account and work in the same way as today’s electronic payments, could be less inclusive (financially) and more difficult. to continually improve than another much-discussed design that the DCI likens to the creation of digital money. Although such an approach would require new technology, users are not required to have a business bank account, perhaps making it more accessible to the estimated 7 million people across the country who do not have a bank account.
“Never before have we been able to make digital payments without an intermediary.”
Neha Narula
Narula entered the world of digital currencies after completing her doctoral studies on databases and distributed systems at MIT in 2015. She had taken a few months off to think about where she wanted to go with his research, acknowledging his desire to be involved in building some technology to address problems that affect people’s everyday lives. During this hiatus period, he spent a lot of time with his friends who had become interested in Bitcoin, something that attracted a lot of attention on campus: In 2014, then-MIT student Jeremy Rubin helped raise half a million dollars to AirDrop 100 dollars (95 euros) in Bitcoin to more than 3,000 university students.
Narula notes that Rubin hoped her experiment would get more people interested in investigating Bitcoin, but she didn’t pay much attention to it. Later, her friends told her that Bitcoin was having trouble scaling: the system was struggling to process the growing number of transactions. Narula had spent a lot of time working out how to scale systems. Suddenly, she began to obsessively read not only about Bitcoin but also about the technology of money in general and how the world of central banks, fractional reserve banking, payment systems, and credit cards worked. She saw an opportunity to solve a real problem by helping to reinvent how money changed hands.
“Never before have we been able to make digital payments without an intermediary. This was the first time that had happened, and with really interesting technology,” says Narula.
Narula got into Bitcoin right at the start of the blocksize war (the battle over the size of the blockchain), from the period from 2015 to 2017 when people started fighting for control of the Bitcoin protocols as the base of Bitcoin grew. cryptocurrency users and limitations were imposed on the size of transactions.
“These worlds are very different, that of cryptocurrencies and that of central banking.”
Neha Narula
Partly in response to that battle, Rubin co-founded DCI with former White House science and technology policy adviser Brian Forde. Forde was the first director of DCI and started building a team focused on Bitcoin security. Narula joined as director of research in 2016 and although she had initially been ambivalent about Bitcoin, she quickly became one of the world’s most respected authorities on Bitcoin. Within a year, Forde stepped back and Narula took control. She has been the director of DCI ever since.
Lately, once or twice a week, Narula visits DCI’s offices on the third floor of the MIT Media Lab, where there is a giant illuminated Bitcoin sign marking the research DCI was founded to do. The security of Bitcoin, and the information it can provide about other cryptocurrencies, remains a top priority for DCI. But Narula has broadened the scope of the initiative, piloting a variety of new types of digital currencies. One of DCI’s largest undertakings to date is the Hamilton Project, a multi-year research collaboration between DCI and the Boston Federal Reserve that explores the technical challenges of designing a CBDC.
This new line of research has introduced some conflicts in DCI; After all, many researchers are interested in cryptocurrencies because they eliminate the need for banks or government monetary agencies. But Narula has found a way to bring crypto enthusiasts to the negotiating table with central bank representatives to discuss the lessons Bitcoin could offer for designing a bank-backed digital currency.
Narula sees DCI as a neutral territory: ” These worlds are very different, that of cryptocurrencies and that of central banking. We are, in part, like a bridge,” he says. This job is not always easy. “There is real tension,” adds DCI strategic adviser Shira Frank for her part.
When Frank first started researching digital currency in 2018, he felt that cryptocurrency had become too toxic and worried that the technology could not be saved. “He’s been going in the wrong direction for too long,” he remembers thinking.
But Narula assured Frank that the cryptocurrency still had untapped potential and that much of its toxicity stemmed from a widespread failure to predict the most negative effects amid its rapid evolution. Narula believes that we are now dealing with what we have wrought through this inadequate planning, but that we can use what we have learned from cryptocurrency’s mistakes to design new digital currencies that can better serve the people.
Narula notes that Bitcoin research helps her team answer fundamental questions about other types of cryptocurrencies, and about CBDCs as well. It should be possible to design a CBDC that works for “those who are often the most disadvantaged” by the current monetary system, says the director. If implemented correctly, it could help cut red tape around social support programs or eliminate the fees that people without bank accounts often have to pay to access their money.
Earlier this year, Project Hamilton unveiled its design for a fast payment processor that can handle 1.7 million transactions per second, apparently paving the way for the US to launch its CBDC. Later in March, US President Joseph Biden issued an executive order to ramp up CBDC research, an attempt to keep the US ahead of other countries in the fintech race.
Biden expects a technical assessment of what it will take to design a CBDC in September, and the Hamilton Project will report on that regulation. The US is not the only country using DCI; Narula says the group has also recently started advising other countries on CBDCs. There are still unanswered questions regarding her adoption, adds the specialist.
Narula’s main concern about any new digital currency, be it a CBDC or a cryptocurrency, is to ensure that it protects user privacy. The DCI director is following what is happening with China’s CBDC, which has already been used to transact billions of euros. Experts have pointed out that China could later link it to the country’s social credit system (which uses citizens’ financial data to rate its trustworthiness), warning that this could vastly increase social monitoring in that country and allow the government new levels of control. It could even deny citizens access to their own money in response to their social media posts.
No one knows how this will all play out. But Narula plans to be there, by the bright Bitcoin sign in the DCI office, to help navigate this new future. ” We want to understand the consequences of different technological designs “, concludes the expert, because, whether we are prepared or not, “money is really changing”.
