Trust is defined as firm belief in the reliability, truth, ability, or strength of someone or something. In talks with the Soviets about nuclear disarmament, Ronald Reagan famously stated, “Trust, but verify”; but, I’m not sure that’s real trust. 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.”[1] Like Reagan and the Soviets, Liu notes a lot of commercial trust is restricted. “Companies,” she writes, “need to do background checks on the parties they do business with, verify transaction details and put in place fail-safe mechanisms to ensure that data on business deals is not compromised. If these verifications are not done with detail, companies can risk working with fraudulent buyers or merchants.” One of the benefits of blockchain technology is that it is touted as a system of trust. Vishnu Rajamanickam (@vishnucr92) explains, “Blockchain, by definition, is an immutable distributed ledger. Put in layman terms, blockchain can store and relay information in a secure manner, with its content being distributed and controlled by all the stakeholders in a network.”[2]

Blockchain and trust

Liu notes, “What blockchain essentially does is to transfer the need for trust on individuals and entities to the technology itself.” Much of the enthusiasm for blockchain relies on this built-in trust. Liu goes on to explain:

“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. Then when businesses collaborate, 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. Thanks to blockchain’s decentralized holding of data, it will be difficult to falsify, hence reducing fraud as well. The transparency that blockchain technology encourages also infuses integrity among suppliers. The onus will then be on suppliers to make their past performances publicly verifiable by future buyers without disclosing their commercial secrets. When sourcing for suppliers, buyers will be able to check their records on the blockchain. Suppliers that deliver goods on time can be counted on in the future to do so again, solidifying their reputation and reliability with each trade exchange.”

Atul Mahamuni, a vice president with Oracle, asks, “Can blockchain really deliver on its promise, or is it just a glorified database?”[3] His cautious answer is, “Clearly, blockchain is over-hyped today. However, there are several very real and legitimate blockchain use cases around tracking products, resolving issues in big, complex, multi-tier supply chains and reducing the cost of resolving disputes by 30-50% — all of which can significantly save business costs.”[3] He adds, “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. “

Is there real trust with blockchain?

Since trust is one of blockchain’s most touted benefits, asking if blockchain can be trusted is an important question to answer. Bruce Schneier (@schneierblog), an internationally renowned security technologist, 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 stipulates blockchain’s immutability. “By blockchain,” he writes, “I mean something very specific: the data structures and protocols that make up a public blockchain. These have three essential elements. The first is a distributed (as in multiple copies) but centralized (as in there’s only one) ledger, which is a way of recording what happened and in what order. This ledger is public, meaning that anyone can read it, and immutable, meaning that no one can change what happened in the past. … The second element is the consensus algorithm, which is a way to ensure all the copies of the ledger are the same.”

So what’s not to trust? He admits, “You don’t have to trust any particular node in the consensus network.” That’s because everyone has access to an identical ledger. The element that concerns him is the third element, currency.” He explains, “This is some sort of digital token that has value and is publicly traded.” He continues, “The question is: Is [blockchain technology] actually good for anything? It’s all a matter of trust.” When it comes to trust, Schneier is a Reaganite. He writes, “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.” The question for businesses is this: Does it matter whether blockchain provides verification rather than trust? Probably not.

Schneier brings up another point that should make businesses feel better. He writes, “Private blockchains are completely uninteresting.” They are uninteresting to him because they are not public. The very fact they involve limited participants make them more trustworthy. He adds, “These are not anything new; they’re distributed append-only data structures with a list of individuals authorized to add to it. Consensus protocols have been studied in distributed systems for more than 60 years. Append-only data structures have been similarly well covered. They’re blockchains in name only, and — as far as I can tell — the only reason to operate one is to ride on the blockchain hype.” Supply chain blockchain solutions seem to be somewhere between a full-blown public ledger and an extremely limited private ledger. Most of them are proprietary solutions any company can join for a price.

Concluding thoughts

Schneier observes, “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.” He agrees with Liu that blockchain transfers some trust from individuals to technology. He writes, “What blockchain does is shift some of the trust in people and institutions to trust in technology. You need to trust the cryptography, the protocols, the software, the computers and the network. And you need to trust them absolutely, because they’re often single points of failure.” He cautions, however, “When that trust turns out to be misplaced, there is no recourse.” For things like bitcoin, having no recourse is a big problem. For most business transactions, blockchain solutions don’t necessarily represent a single point of failure — there are generally other legal courses of action. For businesses that can benefit from a blockchain solution, it represents a way to deal with complexity, speed transactions, and save money. Varun Ebenezer, a senior IT audit manager at BMO Financial Group, notes, “When properly deployed, blockchain can provide substantial benefits. However, blockchain is not practical for every organization, and management must ensure that its use supports business objectives accordingly.”[5]

Footnotes
[1] Hope Liu, “Blockchain and Supply Chains: Unleashing the Potential,” SupplyChainBrain, 7 February 2019.
[2] Vishnu Rajamanickam, “In the blockchain race, supply chains stand to gain the most,” Freightwaves, 8 February 2019.
[3] Atul Mahamuni, “How to Unleash Blockchain into Your Supply Chain,” Material Handling & Logistics, 3 February 2019.
[4] Bruce Schneier, “There’s No Good Reason to Trust Blockchain Technology,” Wired, 6 February 2019.
[5] Varun Ebenezer, “How to approach blockchain deployment while mitigating risk,” Information Management, 12 February 2019.