It’s in this realm, where human beings must depend on reliable institutions to keep track of their social interactions and provide proof that their claims are valid, that blockchain technology comes into its own. With this system we would no longer have to trust institutions to maintain transaction records and vouch for us, since blockchain-based programs comprise an intricate set of features that result in something that’s never existed before: a transaction record that is visible to all and can be verified at any moment, but that is not controlled by any one central authority. This means two things: nobody can alter the data to suit their own ends, and everybody has greater control over their own data.
The broad idea is that by deferring the management of trust to a decentralized network guided by a common protocol instead of relying upon a trusted intermediary, and by introducing new, digital forms of money, tokens, and assets, we can change the very nature of social organization. We can encourage new approaches to collaboration and cooperation that weren’t possible before, transforming a wide array of industries and organizational settings. Indeed, the breadth of blockchain’s potential is captured in the breadth of the ideas under consideration. Here is sampling of possible use cases, and it is by no means an exhaustive list:
Inviolable property registries, which people can use to prove that they own their houses, cars, or other assets;
Real-time, direct, bank-to-bank settlement of securities exchanges, which could unlock trillions of dollars in an interbank market that currently passes such transactions through dozens of specialized institutions in a process that takes two to seven days;
Self-sovereign identities, which don’t depend on a government or a company to assert a person’s ID;
Decentralized computing, which supplants the corporate business of cloud computing and Web hosting with the hard drives and processing power of ordinary users’ computers;
Decentralized Internet of Things transactions, where devices can securely talk and transact with each other without the friction of an intermediary, making possible big advances in transportation and decentralized energy grids;
Blockchain-based supply chains, in which suppliers use a common data platform to share information about their business processes to greatly improve accountability, efficiency, and financing with the common purpose of producing a particular good;
Decentralized media and content, which would empower musicians and artists—and, in theory, anyone who posts information of value to the Net—to take charge of their digital content, knowing they can track and manage the use of this “digital asset.”
In essence, the blockchain is a digital ledger that’s shared across a decentralized network of independent computers, which update and maintain it in a way that allows anyone to prove the record is complete and uncorrupted. The blockchain achieves this with a special algorithm embedded into a common piece of software run by all the computers in the network. The algorithm consistently steers the computers toward a shared consensus on what new data to add to the ledger, incorporating all manner of economic exchanges, claims of ownership, and other forms of valuable information. Each computer updates its own version of the ledger independently but does so by following the all-important consensus algorithm. Once new ledger entries are introduced, special cryptographic protections make it virtually impossible to go back and change them. The computers’ owners are either paid in a digital currency, which incentivizes them to work on protecting the system’s integrity, or they do their work as part of a commitment to a consortium agreement. The result is something unique: a group of otherwise independent actors, each acting in pure self-interest, coming together to produce something for the good of all—an immutable record that everyone can trust and that’s not managed by a single, centralized intermediary.
Resolving trust barriers could allow all of us to do more with what we have: to deploy our assets, our ideas, our creativity into whatever productive endeavor takes our fancy. If I can trust another person’s claims—about their educational credentials, for example, or their assets, or their professional reputation—because they’ve been objectively verified by a decentralized system, then I can go into direct business with them. I can give them a job. I can collaborate on a joint venture. I can share sensitive business information with them. All without having to rely on middlemen like lawyers, escrow agents, and others who add costs and inefficiencies to our exchanges. These kinds of agreements are the stuff of economic growth. They fuel innovation and prosperity. Any technology that reduces friction and makes such collaborations happen should benefit everybody, in other words.
THE GOD PROTOCOL
Why have ledgers been so important throughout history? Exchanges of goods and services have defined the expansion of societies, but this was possible only if people could keep track of the exchanges. It wasn’t so difficult for everyone in a small village to remember that someone had killed a pig and to trust—a word we’ll encounter throughout this book—that all who ate of it would find some way to later repay the hunter, perhaps with a new arrowhead or some other thing of value. It was another to manage these cross-societal obligations across a larger group of strangers—especially when moving outside of kinship boundaries made it harder to trust each other. Ledgers are record-keeping devices that help deal with those problems of complexity and trust. They help us keep track of all the multiple exchanges upon which society is built. Without them, the giant, teeming cities of twenty-first-century society would not exist. That said, ledgers are not truth itself—not in an absolute sense—for when it comes to matters of value, an element of judgment and estimation is always present in the recording process. Rather, they are tools for getting closer to the truth, to an approximation of it that’s acceptable to all.
The key architectural feature of Bitcoin and other cryptocurrency systems that lets these peer-to-peer transactions happen is the distributed nature of the blockchain ledger. That decentralized structure is made possible because of a unique software program that uses strong cryptography and a groundbreaking incentive system to guide the ledger-keepers’ computers to reach consensus. It does so in a way that makes it virtually impossible for anyone to change the historical record once it has been accepted. The result is something remarkable: a record-keeping method that brings us to a commonly accepted version of the truth that’s more reliable than any truth we’ve ever seen. We’re calling the blockchain a Truth Machine, and its applications go far beyond just money.
If communities are to engage in exchange and forge functioning societies, they must find a way to arrive at a commonly accepted foundation of truth. And in the digital age of the twenty-first century, when many communities are formed online, where they transcend borders and legal jurisdictions, the old institutions we’ve used to establish those norms of truth won’t function nearly as well. Advocates of blockchain solutions say this truth-discovery process is best left to a distributed approach, one over which no single entity has control. That way the approach is not vulnerable to corruption, attack, error, or disaster.
The history of human civilization is not founded on absolute truths per se—after all, even scientific understandings are subject to revision—but on an even more powerful notion of the truth: a consensus, a common understanding on what we take to be the truth, a society-wide agreement that allows us to overcome suspicions, forge trust, and enter into cooperative endeavors. The best way to think about blockchain technology, then, is not as a replacement of trust—as a “trustless” solution, as some cryptocurrency fanatics damagingly describe it—but as a tool upon which society can create the common stories it needs to sow even greater trust, to build social capital, and to forge a better world.
“GOVERNING” THE DIGITAL ECONOMY
The question of who controls our data should stem first from a more fundamental question about who or what institutions we must trust in order to engage in commerce, obtain services, or participate in modern society. We see compelling arguments for a complete restructuring of the world’s data security paradigm. And it starts with thinking about how Internet users can start to directly trust each other, so as to avoid having to pour so much information into the centralized hubs that currently sit in the middle of their online relationships. Solving data security may first require a deliberate move from what we call the centralized trust model to one of decentralized trust.
Control of data needs to be put back into the hands of those to whom it belongs, the customers and end users of the Internet’s services. If hackers want our data they’ll have to come after each and every one of us, a far more expensive exercise than simply finding a weak entry point into a giant silo database that holds all of our data in one convenient place. To achieve this goal, we need to embrace the decentralized trust model.
One reason why Bitcoin has survived is because it leaves hackers nothing to hack. The public ledger contains no identifying information about the system’s users. Even more important, no one owns or controls that ledger. There is no single master version; with every batch of confirmed transactions, the so-called blocks of the blockchain, a new, updated version of the entire ledger is created and relayed to every node. As such, there is no central vector of attack.
The weak link—there is always one, it is a truism of cybersecurity—would now be the device itself. The onus in a blockchain system is on the customer to protect that device. Admittedly, that opens up new challenges in terms of education around the management of private keys and encryption strategies. Optimizing the cryptocurrency future will require people to take charge of their own security. But even with this new challenge in terms of device protection, we should see a dramatic reduction in the number of attacks. The crucial point here is that the potential payoff for the hacker is so much smaller for each attack. Rather than accessing millions of accounts at once, he or she has to pick off each device one by one for comparatively tiny amounts. It’s an incentives-weighted concept of security. It is security by design, not by patch.
For many of the new technologies that innovators are rolling out today, designers are thinking about how blockchain concepts will be part of the general enabling framework:
Internet of Things solutions will require a decentralized system for machine-to-machine transactions;
Virtual reality content creation, by which future imaginary worlds will be collaboratively produced by writers and coders, could use a blockchain system for divvying up royalties via smart contracts;
Artificial intelligence and Big Data systems will need a way to assure that the data they are receiving from multiple, unknown sources has not been corrupted;
“Industry 4.0” systems for smart manufacturing, 3D printing, and flexible, collaborative supply chains need a decentralized system for tracking each supplier’s work processes and inputs.
In short, the blockchains may provide the architecture framework that makes possible the so-called Fourth Industrial Revolution that brings “bits and atoms” together and thrives off massive amounts of processed, global information. It makes the aspirational goal of an Internet of “open data” possible. With this, we might free up the world’s data so that smart people everywhere can work with it. Open access to data should better enable humankind to collectively figure out solutions to our many problems and make better products more efficiently. It is an extremely empowering concept.
Blockchain technology doesn’t remove the need for trust. In fact, if anything it’s an enabler of more trustful relations. What it does do is widen the perimeter of trust.
It’s incumbent upon us to ensure that the control over the blockchains of the future is sufficiently representative of broad-based interests and needs so that they don’t just become vehicles for collusion and oligopolistic power by the old guard of finance.
THE PLUMBING AND THE POLITICS
A generic definition of a blockchain: a distributed, append-only ledger of provably signed, sequentially linked, and cryptographically secured transactions that’s replicated across a network of computer nodes, with ongoing updates determined by a software-driven consensus.
The currency, bitcoin (lowercase “b”), is first and foremost a store of value that rewards people for securing Bitcoin (uppercase “B”), the system. That, and not the hope that it will become an everyday medium of exchange, is its primary purpose. Without its existence as an incentive for computer owners to honestly validate exchanges of valuable information, Satoshi’s censorship-resistant distributed ledger simply wouldn’t work.
Contrary to popular opinion, a currency need not be backed by anything, be it the commitment of a government or a fixed amount of commodity such as gold, only that it be sufficiently recognized as a useful means of measuring and clearing exchanges of value. This might seem counterintuitive because we tend to think of money as a physical thing that somehow contains value within the particular item—the paper note, or the gold coin. But in reality currencies only convey a symbolic tokenized value, one that’s derived solely from the collective will of society to commonly accept the token as a marker of that value. This same malleability of thinking can be applied to any token, so long as enough people accept it. That’s what happened to bitcoin.
These cobbled-together concepts comprise Satoshi Nakamoto’s breakthrough: a decentralized, censorship-resistant record of the past. If we acknowledge that all accounting systems are merely estimates—that it’s impossible to arrive at a perfect representation of reality—then this one, a system that collectively captures the shared opinions of a community with no central authority, results in the most objective representation of the truth yet devised.
In solving the double-spend problem, Bitcoin did something else important: it magically created the concept of a “digital asset.” Previously, anything digital was too easily replicated to be regarded as a distinct piece of property, which is why digital products such as music and movies are typically sold with licensing and access rights rather than ownership. By making it impossible to replicate something of value—in this case bitcoins—Bitcoin broke this conventional wisdom. It created digital scarcity.
THE TOKEN ECONOMY
How do tokens work? Just as Bitcoin’s protocol steers users and participants into certain actions that serve the community’s interest—in its case, creating a secure, reliable ledger that all can trust—the programs that run tokens incorporate incentives and constraints that encourage certain pro-social behavior. A new concept—token economics—is emerging. It encapsulates the idea that we can embed into these “programmable” forms of money a way to steer communities toward desired common outcomes. Tokens might help us solve the Tragedy of the Commons. In other words, they could be a big deal.
Under these models, money is no longer merely a morally neutral enabler of transactions; it can now capture the common values and interests of all parties who’ve agreed to use it.
While the flood of money into ICOs gets the attention, it’s the potential for a new economic paradigm, for new ways to value the preservation of public goods, that’s most compelling about the emerging token economy. Union Square Ventures partner Fred Wilson compellingly explained one facet of this in a blog post in which he argued that tokens would usher in a “golden age of open protocols.” Whereas developers couldn’t make money building the open protocols on which the Internet was first constructed—the core protocol pair of TCP/IP, the Web’s HTTP, and e-mail’s SMTP, for example—those building the protocols of these new decentralized applications can now get rich doing so, even though their products are similarly open for anyone to use. That could incentivize a wave of powerful innovation within the foundational infrastructure of the digital economy, Wilson argued. Builders of open platforms, Wilson wrote, need no longer be limited to universities, government institutes, or other non-profit entities that don’t need to keep shareholders happy. So, whereas those entities always struggled to compete for engineering talent with for-profit creators of the Internet’s commercial applications, platforms like Ethereum can now attract the best of the best. They can quickly tap into a “hive mind” of creative power across a global network of open-source coder communities.
ENABLING THE FOURTH INDUSTRIAL REVOLUTION
Linking billions of data-gathering and processing nodes to a global, ubiquitous networked computer architecture will have a profound impact on how we interact with our world. It means that our material existence, both within the worlds of natural resources and of human-made manufactured objects, will be far more comprehensively measured, analyzed, and explained, creating an omnipresent, dematerialized understanding of that existence.
The blockchain offers the only way to build the Internet of Things to scale while ensuring that no one entity has control over it. A blockchain-based system becomes the Internet of Things’ immutable seal. In an environment where so many machine-to-machine exchanges become transactions of value, we will need a blockchain in order for each device’s owner to trust the others. Once this decentralized trust structure is in place, it opens up a world of new possibilities.
The envisioned scenarios in which IoT gadgets would pay for short-term access to services controlled by other devices—to use a nearby person’s iPhone Wifi hotspot to send one vital e-mail, for example—assumes an economy of multi-party, rapid-fire micropayments. And this environment simply couldn’t be managed by the convoluted payments system of the existing centralized financial model, with its three-day settlement periods and high transaction costs. If IoT devices are to trade value with each other they need a more decentralized system of record-keeping and transacting—like a blockchain.
We see the potential for a worldwide system of supply chains that uses resources way more efficiently and that could radically change the trading terms of the global economy. By unlocking information and attaching unique, digital asset–like tokens to each part of a production process, the technology could unlock value for exchange at intermediate stages of multi-party manufacturing and shipping processes. This could give businesses far greater flexibility to find markets and price risk at any point along the chain and to respond quickly to orders from consumers, who will demand to know where the things they buy came from. What we end up with are dynamic demand chains in place of rigid supply chains, resulting in more efficient resource use for all.
Blockchain-proven digital tokens point to what blockchain consultant and entrepreneur Pindar Wong calls the “packetization of risk.” This radical idea introduces a negotiable structure to different phases of the chain. Intermediate goods that would otherwise be encumbered by a pre-established chain of unsettled commitments can instead be put out to bid to see if other buyers want to take on the rights and obligations associated with them. This would attract alternative sources of impromptu demand, which could have a market-clearing effect on resource management. Enhanced visibility on business processes, when coupled with the ability to find liquid markets for goods-linked digital assets, means that industrial actors could be incentivized, like never before, to be both environmentally responsible and profitable. It’s similar to the principle, explored above, of using price signals to optimize a solar microgrid. If tokens allow us to set prices for goods and services for which there was previously no alternative source of demand, producers might be able to make much better resource decisions. This is why many people believe that the concept of a “circular economy”—where there is as much recycling as possible of the energy sources and materials in production—will hinge on the transparency and information flows that blockchain systems allow.
THE OLD GUARD’S NEW MAKEOVER
We argue that individuals, businesses, and governments really need to support the various hard-core technical solutions that developers are pursuing to help permissionless ledgers like Bitcoin and Ethereum overcome their scaling, security, and political challenges.
Regulators should avoid the temptation to curb these developers’ experiments so they can freely work on these exciting solutions, and investors should help fund them. We can’t, and shouldn’t, stop banks from pursuing clever solutions to their very real back-office inefficiencies. But with the scars from the financial crisis still present, we all have an interest in designing blockchain systems, permissioned or otherwise, in which the capacity of large incumbent institutions to garner excessive market power is curtailed. It’s in society’s interests to encourage open-access platforms in which permissionless innovation can transform a broken financial system and expand the universe of participants with access to it.
BLOCKCHAINS FOR GOOD
The wider benefits of a cryptographically secure asset registry are pretty enticing. Peruvian economist and anti-poverty campaigner Hernando de Soto estimates that the amount of “dead capital,” the pool of untitled property around the world, is worth about $20 trillion. If poor people could use that capital as collateral, he says, the multiplier effect from all that credit flowing through the global economy could create growth rates in excess of 10 percent in developing countries, which account for more than half of world GDP. And it’s not just land. This technology has kindled interest in how to help the poor prove ownership of a much wider array of assets, such as small business equipment and vehicles, as well as reliably show their personal good standing on questions such as creditworthiness and make sure their votes are counted. There’s hope that the blockchain could give people the power to prove claims about themselves so they can become active citizens in a global economy from which they have, until now, been excluded.
Human society has devised a system of proofs or tests that people must pass before they can participate in many aspects of commercial exchange and social interaction. Until they can prove that they are who they say they are, and until that identity is tied to a record of on-time payments, property ownership, and other forms of trustworthy behavior, they are often excluded—from getting bank accounts, from accessing credit, from being able to vote, from anything other than prepaid telephone or electricity. It’s why one of the biggest opportunities for this technology to address the problem of global financial inclusion is that it might help people come up with these proofs. In a nutshell, the goal can be defined as proving who I am, what I do, and what I own. Companies and institutions habitually ask questions—about identity, about reputation, and about assets—before engaging with someone as an employee or business partner.
Anything that adds transparency to the multi-faceted picture of people’s lives should help institutions lower the cost of financing and insuring them.
What blockchains bring to the table can be boiled down to the value of a time-stamped record. In the West, when you buy a piece of property, a house, or a car, when you register a business, when you have a child, there is an official notice that comes with each of those developments: a document from the hospital, a “pink slip” from the auto dealer or the previous owner, a title deed. Each is stamped by a notary, an official recognition of ownership. That stamp is symbolic but powerful. Essentially, it’s a stand-in for “the truth.” It would probably never occur to you that you might be challenged on the ownership of your home or car, or that foundation of your business, or your child’s birth, but if you were, you would produce this signed, notarized document. With your notarized document, you are codified, you are legalized, you are bona fide. The time stamp makes this all possible, because it inserts a declaration that a milestone event has occurred—a birth, a graduation, a property transfer, a marriage—into a commonly accepted record of history to which all can refer. This public, recognizable open ledger, which can be checked at any time by anybody, acts in much the same way as the notary stamp: it codifies that a certain action took place at a certain time, with certain particulars attached to it, and it does this in a way that the record of that transaction cannot be altered by private parties, whether they be individuals or governments.
It’s a lofty goal: turning tiny little pieces of developing world assets into pools of wealth that Wall Street investment banks might wish to buy and sell. It’s like a more down-market but arguably more reliable and safer version of the mortgage-backed securities market through which Wall Street’s financial engineers created investment-grade bonds out of large pools of home loans. Might we one day unlock the same kind of financing revolution to fund the rollout of this vital, decentralized energy infrastructure around the world? Energy is the most important resource that any community has. If we can get fair-priced financing for marginalized people to build access to that resource in renewable form, might this be a way to both save the planet and give poor communities an economic development platform from which to build dynamic local businesses?
A SELF-SOVEREIGN IDENTITY
Just as public key cryptography lets Bitcoin users “sign” a bitcoin address (essentially, their public key) with their private key to prove that they control it, an institution certifying a person’s attributes can give authority to that certification with this same digital signatures model. This pairing can create an irrefutable record that, say, your university has confirmed you have a degree, your utility company has attested that you’ve paid your power bills, or a birth registrar has authenticated your birth certificate.
We tend to conflate identity with official records. Because the state has played a key role in proving our identity, it has encroached into our definitions of who we say we are. However, as identity policy expert David Birch points out, there really are three types of identity: our legal identity, which relates to the identifiability of the individual; our social identity, which is forged from our outward-facing engagement with the rest of society, the relationships we build, and the signals we send about who we are; and our personal identity, which is how we self-identify. Those latter two categories have become more fluid, especially in the age of social media and as our cultures become more open to new ways of defining what it means to be human, whether that breaks down along sexual orientation, gender, or religious, racial, or ethnic grounds. What’s powerful, though, is that the technologies driving those changes now also make it possible to turn these more dynamic aspects of who we are into a means of proof—primarily in the realm of our social identity. Our circle of friends and interactions constitutes a web of trust that has its own powerful, informational value.
We need to move beyond a model where access to certain services requires us to prove some all-encompassing notion of our identity, and move to one in which we simply prove that we have specifically required attributes: that our credit score surpasses a certain threshold, that we graduated from the university we claim to have graduated from, that we were born before today’s date twenty-one years ago. Provable digital data that’s connected to the things we’ve done, to the connections we keep, and to the certifications and qualifications we’ve accumulated could, in theory, give us the power to do that.
There are two big challenges. The first is: how can I package this personal data so that it reveals a treasure trove of information about my life but doesn’t compromise my privacy and independence? It’s a problem that applies both to the ongoing accumulation of digital footprints in the physical or online worlds and to the assertions and certifications that third parties such as banks and universities provide about our attributes. Over the years, cryptographers have come up with a host of neat tricks that allow someone to use a mathematical proof to show that some statement is true even when the details underlying that proof aren’t revealed. These strategies fall under the category of “zero-knowledge proofs,” in which Party A can use probabilities and other mathematical tools to show Party B that Party A knows some access-opening secret without revealing what that secret actually is. Another zero-knowledge approach with great potential is that of homomorphic encryption, which allows computers to figure out some useful information by running computation on a combined pool of data without knowing the details of its components.
The second big challenge is: how can I maintain sole control over my personal data and yet still assure service providers that it is accurate? This is the task that blockchain innovators are setting their minds to. A key idea is that if validation of the data is conferred to a decentralized, consensus-driven network, then neither the individual nor some particular institution, be it a government or a company, is capable of altering it once it is confirmed and recorded in the required format. The other key idea is that the relevant person, company, or machine is the only entity empowered to parcel out pieces of the relevant, hopefully encrypted, data to third parties who need it.
EVERYONE’S A CREATOR
There’s a common thread in the philosophical case for finding some kind of societal base of support for those in the firing line of disruption. It hinges on the dignity of the human being, a sense that people deserve the right to be able to make something of their lives. As we increasingly find machines to do both blue- and white-collar jobs, that will spark discussion over the “purpose” of life. One potentially constructive way to think about it is that we must design a post-industrial existence that puts at its center the encouragement of human creativity, regardless of whether that creativity is monetarily rewarded.
It is potentially idealistic to think that our collective, self-motivated production of content and ideas can gestate ideas in service of the wider good without any difficulties. One problem is that the ownership of those ideas is very ambiguously defined and hard to establish. And that means that the ability to extract value is not always fairly distributed. This is particularly so in the realm of digital artistic or written content, where blogs, aggregator sites, and social media platforms absorb most of the ad revenues generated around that content. But it’s also true for professional artists whose earnings from revenue-sharing arrangements on YouTube and other services are distributed under opaque, poorly defined terms. This too presents an opportunity for blockchain technology, where innovators are toying with new models of decentralized publishing to give content creators greater control over their output. A core idea is that, just as blockchains can create unique, digital assets out of currency tokens and hashed documents, they might also give the same quality to content, so that the “double-spend” problem that Bitcoin solved might one day also be applied to, say, digital photos. From that starting point, we may have the makings of a fairer system.
A NEW CONSTITUTION FOR THE DIGITAL AGE
Decentralization isn’t the be-all-and-end-all for every problem. It’s not an end in itself, but rather a means of achieving certain goals: equal opportunity, wider inclusion, greater shared prosperity and collaboration, etc. Where those goals can be better served by decentralization, that approach should be promoted. But in many cases, especially where the intermediating institution is trusted and reliable, a centralized structure will be an inherently more efficient way of processing information. One question we often hear from businesses exploring this technology is, “Do I need a blockchain for this?” Our answer to that would be, “If the cost of centrally maintaining trust within the economic relationship in question is higher than the cost of installing a network of computers to manage trust in a decentralized manner, then yes. If not, no.” Since a community must spend significant resources to prove transactions on a blockchain, that type of record-keeping system is most valuable when a high degree of mutual mistrust means that managing agreements comes at a prohibitively high price. (That price can be measured in various ways: in fees paid to middlemen, for instance, in the time it takes to reconcile and settle transactions, or in the fact that it’s impossible to conduct certain business processes, such as sharing information across a supply chain.)
The first challenge we must address: fixing the Internet. There’s a concerted effort under way to “re-decentralize” the Internet, to rearrange the hierarchy of how files and information are hosted and shared on the Web so that Web site creators have more control over what is published and where. This effort is being framed, ideologically, as a return to the early vision of the Net as an open forum in which everyone would have an unfiltered voice, a way to dismantle the centralized, siloed control over our data and lives that behemoths like Google and Facebook have seized. If we don’t do it, people say, if we can’t bring greater interoperability to the Web, we won’t achieve the true promise of “open data,” with all the rich analytic information that it could unlock about life on this planet.
Many of the institutions on which Western societies depend to intermediate our exchanges and interactions—be they public bodies such as government agencies and courts or private entities such as notary publics and utility companies—similarly are products of centuries of society-building. The smooth functioning of these institutions depends not only on the systems of governance and jurisprudence we’ve developed to hold them to account but also on some vital cultural norms. With those mores in place, we willingly defer trust to these powerful gatekeepers at the same time that the people in charge of them routinely feel compelled to honor that trust. It’s an extension of the deep sense of civic responsibility that leads people to line up for things, to hold doors for strangers, or simply to say “please” and “thank you.” Institutionalized trust is a societal virtue, a form of social capital that’s in short supply elsewhere in the world. In those places where we have it, it’s not clear that we should be doing away with it. In each case where trust has been built up in this way, its value to society is arguably greater than the specific purpose that the institution plays.
Cryptography enthusiasts have a saying: “don’t trust, verify.” That’s wise advice for someone running security on a mission-critical computing system that’s at risk of cyber-attack. And it’s the right approach for guarding your money, at least when dealing with strangers. But when applied more broadly, that maxim diminishes the core element of what brings a society together. It’s not for nothing that trust is seen as a positive thing and why early cryptographers’ descriptions of Bitcoin as a “trustless” system weren’t embraced by non-crypto folks. We should look upon the distributed trust solutions blockchains offer as a way to enable communities to strengthen their bonds of trust in other environments, not as a replacement for them. Functioning as a kind of societal glue, trust makes possible the multiple exchanges we enter into every day, little deals that we can’t imagine taking to court but which nonetheless carry some agreed expectation of mutual exchange: when we don’t butt in on a line of fellow commuters at the bus ticket vending machine; when we get on the bus, swipe our ticket, and expect that the driver and the vehicle will safely get us to our destination within some reasonably expected time frame; when we get off the bus and walk down a busy street, believing that the oncoming people aren’t going to walk into us. The cultural, sociological, and psychological factors that lead us to develop these and countless other trust bonds must be treated as vital components of whatever decentralized governance system we end up designing for our rapidly evolving, digitizing society. They will help us form the connective tissue between our “on-chain,” software-regulated transactions and the human-regulated world in which we otherwise live.
There’s something profoundly empowering about letting self-sovereign individuals record data to a publicly verifiable record, without requiring anyone’s permission to do so. If you’ve created something of value, such as a popular piece of digital art or an idea that could be translated into a profitable venture, it can be a game-changer if you can stake your claim to it without the approval of a business name registrar or some other certifying entity. That’s especially true for people in countries where such institutions are dysfunctional or don’t even exist. And when you add in the fact that this record can’t be destroyed, the possibilities become quite large indeed. Permanence of information is an essential component of democracy.