To understand the transformation that’s being brought about by blockchain technology, it’s useful to start with its largest implementation to date: bitcoin.

In the fall of 2014 my colleague Catherine Tucker and I conducted a large-scale experiment at MIT, in which 4,494 undergraduate students were offered access to bitcoin. The vast majority of students ended up hoarding the cryptocurrency, in the expectation that it would increase in value. Initially distributed to the students at $350 per bitcoin, the digital currency is now worth more than $1,100 per bitcoin, suggesting that many of the students realized that one of bitcoin’s first use cases would be speculation.

As the cryptocurrency has matured, it’s often been criticized for its inability to match the performance of existing payment networks and meet the requirements of financial systems and governments. But bitcoin has been extremely successful at solving the problem it was designed for: allowing a global network to securely transact and exchange value without the need for a costly intermediary. Through a clever mix of game theory and cryptography, bitcoin replicates financial systems’ ability to transfer value, but without any of the labor typically involved in running and securing transactions. Furthermore, it does so while minimizing the degree of trust parties have to place in each other when transacting; it essentially digitally mimics many of the features of cash — including privacy.

As cryptocurrencies like bitcoin and distributed ledgers continue to mature, where might they be applied next?

How Blockchain Works Here are five basic principles underlying the technology. 1. Distributed Database Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary. 2. Peer-to-Peer Transmission Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes. 3. Transparency with Pseudonymity Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses. 4. Irreversibility of Records Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term “chain”). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network. 5. Computational Logic The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.

It’s not surprising that some of the closer-to-market applications of the technology are in the financial sector. While trading and speculation were early use cases of bitcoin, new technologies, such as Ethereum and Zcash, have emerged, with Zcash providing a higher degree of privacy than bitcoin, and Ethereum offering a powerful development platform for smart contracts and decentralized applications, with the power to transform everything from predictive applications to job and energy markets to hedge funds and decentralized cloud services. As the entire cryptocurrency ecosystem matures, digital wallet providers and exchanges are becoming more professional and secure.

On the consumer side, companies such as Circle and Abra are taking advantage of the lower costs offered by blockchain technology for cross-border payments, encroaching in the territory of players like Venmo (now part of PayPal), TransferWise, and traditional remittances providers. Visa and MasterCard are both exploring uses for similar technology to improve the way they process payments, while Ripple is lowering the cost of transactions between banks and other financial institutions through its global settlement network. In all of these cases, blockchain technology is adopted “under the hood,” and consumers and businesses can reap the benefits without ever knowing that a distributed ledger was ever involved.

Central banks are also actively exploring the opportunities and challenges a fiat-backed, digital currency would entail for monetary policy, taxation, and lending.

But the practical applications for blockchain technology go way beyond financial assets. Essentially, any type of digital asset can be tracked and traded through a blockchain. Information about the provenance of goods, identity, credentials, and digital rights can be securely stored with a distributed ledger. Experiments in this space tend to be in early stages, but they range from medical records (MedRec, Pokitdok) to digital rights and micropayments (the Brave browser, Ascribe, Open Music Initiative), identity (Uport), and supply chain (Everledger, Hyperledger).

A challenge for many of these applications is to securely and reliably record the properties of physical assets, individuals (credentials), resource use (energy and bandwidth through an internet-of-things device), and other relevant events taking place through a supply chain on a blockchain. The immutability offered by a blockchain is only useful if the original information entered on it is accurate.

Whereas a blockchain can allow for the costless verification of the attributes it carries, recording those attributes in the first place may require labor-intensive tasks and intermediaries (including the government) to prevent fraud. In this area, internet-of-things devices and sensors can drastically expand what can be built on top of a blockchain.

In the long run, cryptocurrencies have the potential to change how internet services are delivered (Blockstack, IPFS); how open-source communities fund their development; how we crowdsource microtasks and expertise (21.co); how we pay for content and media (Brave); and how we harness talent to improve predictions (Numerai).

In their seminal work on the theory of the firm, Michael Jensen and William Meckling defined the firm as a “nexus of contracts” — the idea that firms are nothing more than a collection of contracts between various parties, such as employees, customers, and shareholders. Cryptocurrencies may one day enable a completely new type of organization by allowing us to securely transfer value and allocate resources through smart contracts. Whereas this new type of organization may achieve the speed and efficiency of a spot market, it may be able to replicate the complex forms of governance required to execute the complex tasks that take place today within the boundaries of a firm. Combined with advances in machine learning, this breakthrough technology will shape the flow of capital, labor, and ideas for decades to come.