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Blockchains and Trust

August 31, 2022


One of the gravest disservices politicians, conspiracy theorists, and political commentators have perpetrated on society is the erosion the public’s trust. The late Stephen Covey once stated, “Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.” This is as true for business relationships as it is for personal relationships. Analysts from the Boston Consulting Group (BCG) explain, “Francis Fukuyama once described trust as ‘the single most important commodity that will determine the fate of a society.’ Certainly, trust is a critical commodity for business. This is even truer as new technologies change the nature of commerce and usher in the next digital era.”[1]


They go on to note that the digital era has significantly reduced the transaction costs of business. They explain, “Google, e-commerce, globally integrated supply chains, social networks — all are manifestations of what is possible when the traditional barriers to search, contracting, auditing, restitution, comparison, and connection are removed.” They add, “One stubborn ‘transaction cost’ remains: trust. If anything, it is becoming even more of a barrier to digitization, exacerbated by the many reasons to distrust technology itself. In theory, digitization should facilitate small transactions among previously unrelated counterparties, but the lack of mutual trust limits that immense expansion of commerce.”


Trust is an unwavering assurance that something is as it seems to be. Hope Liu (@hopeEximchain), CEO of Eximchain, observes, “As far as one can remember, commerce has been conducted based on trust. It is a valuable commodity that is not easily earned.”[2] Bruce Schneier (@schneierblog), an internationally renowned security technologist, adds, “Trust is essential to society. As a species, humans are wired to trust one another. Society can’t function without trust, and the fact that we mostly don’t even think about it is a measure of how well trust works.”[3] Since trust is not easily earned and today’s businesses operate at computer speed, business leaders have been looking for a technological way to verify and trust transactions. One proposed solution is blockchain. As Liu notes, “What blockchain essentially does is to transfer the need for trust on individuals and entities to the technology itself.”


Can Blockchain Technology Be Trusted?


One of blockchain’s most touted characteristics is the immutability of the digital ledger it creates. Liu explains, “While previously, buyers and suppliers needed to keep separate processes and data records, to protect themselves, the immutability of the data that blockchain technology facilitates removes the need for various parties to keep records and reconcile those records.”  Liu believes this fosters better business collaboration since “integrity of data becomes an assured commodity, as well as the assurance of being updated real time when there is a change in ownership/state, on delivery details, on payment.” Atul Mahamuni, a vice president with Oracle, agrees with Liu. He writes, “The most fundamental value that blockchain provides is that it creates a new underlying layer of trust between trading parties. It helps establish a single source of truth and implements a system of checks and balances for all parties within the supply chain.”[4]


Sounds great. Unfortunately, not everyone is convinced that blockchain technology can be completely trusted. For example, Schneier isn’t as convinced about blockchain technology’s trustful character as many other pundits. He writes, “Much has been written about blockchains and how they displace, reshape, or eliminate trust. But when you analyze both blockchain and trust, you quickly realize that there is much more hype than value.”[4] He explains, “Most blockchain enthusiasts have a unnaturally narrow definition of trust. They’re fond of catchphrases like ‘in code we trust,’ ‘in math we trust,’ and ‘in crypto we trust.’ This is trust as verification. But verification isn’t the same as trust.” His position was recently bolstered by a study released by the Defense Advanced Research Projects Agency (DARPA).


DARPA believes blockchain technology is vulnerable to tampering. Journalist Helen Atkinson (@NYCHels) reports, “Blockchain is meant to be free from interference by banks, companies and governments. But a new report from the Defense Advanced Research Projects Agency finds that the decentralized system might not be working as well as many crypto enthusiasts assume. … The report, commissioned by DARPA, was conducted by the software security research company Trail of Bits. ‘It’s been taken for granted that the blockchain is immutable and decentralized, because the community says so,’ said Trail of Bits CEO Dan Guido. But, Guido says, blockchain — the public ledgers that keep track of cryptocurrencies, which are replicated on computers around the world — isn’t the egalitarian tech its advocates claim.”[5] Additionally, security experts are concerned that China is trying to dominate the public blockchain space.[6]


BCG analysts believe businesses need to go beyond blockchain solutions in order to garner digital trust. They explain, “Blockchains, touted as the tech solution, address only part of the problem: the need for a trusted intermediary database. But it is end-to-end trustworthiness that matters to transactors. And that requires systemic engineering of trust across the entire value or supply chain, what we call a digital trust network (DTN).” They continue, “Trust is quite complex, and we count seven practical mechanisms by which the various forms of trust are nurtured — or its deficiency managed. When embedded in technology, these mechanisms organize themselves into what software engineers would recognize as a ‘stack’: a modular and interoperable architecture in which some functions serve as enabling platforms for others.”


Building Trust


As the BCG analysts noted, they have identified seven practical mechanisms (two fundamental principles and five bases of trust) that need to be embedded in any digital trust network. They assert, “Trust generation can be grounded in either of two fundamental principles, which might be called ‘reciprocity’ and ‘perceived trustworthiness’.”[7] According to the analysts, “Reciprocity is the willingness of the trustor (the one doing the trusting) to make themselves vulnerable to the trustee (the one being — or not being — trusted) in the belief that the trustee sees it in their own rational self-interest to take the trustor’s specific interests into account.” On the other hand, “Perceived trustworthiness is the trustor’s observation that the trustee is motivated by morals or social norms to behave in a principled manner, warranting trust.” Unfortunately, we live in a zero-trust world and both of those principles rely on trust being earned. The BCG analysts conclude, “Reciprocity can be described as the ‘shadow of the future’ because trust today is predicated on the return of favors tomorrow. Trustworthiness, on the other hand, is the ‘shadow of the past’ because it is inferred from history. These two principles are embedded in the bases on which a party may decide to trust.”


The BCG analysts go on to observe, “There are five bases of trust: Perceived Reputation-at-Risk, Attributed Norms, Empathy, Shared Identity, and Relationship. These bases are all cognitive; that is, they are perceptions, attributions, or sympathies in the mind of the trustor.” They note, “Historically, in the ‘analog’ world, humans have developed a variety of mechanisms to address the trust problem: mechanisms such as honor codes and face-to-face meetings (to generate trust) and civil law and double-entry bookkeeping (to manage distrust).” This begs the question of how to create trust mechanisms in the ‘digital’ world. The BCG analysts believe the digital trust network is the answer. They explain, “A digital trust network is a stacked system architecture that enables the five trust-generation bases discussed earlier along with the complementary management of distrust. It is embedded in the more complex architecture that defines an entire market, enterprise, or ecosystem. Abstracted from that larger system, it has seven modular mechanisms: Media, Authentication, Data Control, Social Networks, Aggregation, Constraint, and Authority.”


Concluding Thoughts


Trust is one of the most (if not THE most) important aspects of conducting business. Many experts have hoped that blockchain technology would help foster trust, especially in supply chain transactions. As Atkinson notes, “The concern [over blockchain trustworthiness] is relevant to the supply chain industry because blockchain technology has been touted as a potentially transformative tool in supply chain management. It could make tracking sources of food poisoning much faster and more accurate, for example, or help retailers and OEMs ascertain the true source of parts or components from countries with poor human rights records. Harvard Business Review published a paper by Vishal Gaur and Abhinav Gaiha in May 2020 that argued, ‘one of the most promising applications of emerging blockchain technology is supply chain management.’ Supply chain practitioners may now want to reconsider.”


I think it’s probably too soon to discard blockchain technology as a valuable supply chain tool. On the other hand, I agree with the BCG analysts that efforts should be made to foster trust in the digital world beyond blockchain. They conclude, “Trust is a major transaction cost. Indeed, as other costs recede in a frictionless economy, the dominant transaction cost. When the stakes are sufficiently high, the transaction value justifies whatever technology is available to enable the transaction. Distrust is managed by minimizing ambiguity and ultimately, if necessary, exercising legal Authority (through negotiations, lawyers, contracts, litigation, whatever, ultimately reducing the trustor’s risk). If digitization has any role, it is subordinate, as an operational improvement.”


[1] Philip Evans, Marcos Aguiar, Matthew Williams, and Santino Lacanna, “Beyond Blockchain: The Promise of Digital Trust Networks,” Boston Consulting Group, 14 December 2021.
[2] Hope Liu, “Blockchain and Supply Chains: Unleashing the Potential,” SupplyChainBrain, 7 February 2019.
[3] Bruce Schneier, “There’s No Good Reason to Trust Blockchain Technology,” Wired, 6 February 2019.
[4] Atul Mahamuni, “How to Unleash Blockchain into Your Supply Chain,” Material Handling & Logistics, 3 February 2019.
[5] Helen Atkinson, “Blockchain Tech is Vulnerable to Tampering, a DARPA Analysis Finds,” SupplyChainBrain, 22 June 2022.
[6] Stephen DeAngelis, “Has the West Ceded Blockchain Dominance to China?” Enterra Insights, 4 June 2021.
[7] Philip Evans, Marcos Aguiar, Matt Williams, and Santino Lacanna, “Beyond Blockchain,” Boston Consulting Group, December 2021.

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