Blockchain: 'A novel solution to the problem of trust' beyond Bitcoin
Wharton's Kevin Werbach explains
The Italian traders who founded Western capitalism started with books of lists: ledgers, tracking the cargoes they sent out and the gold they brought in.
Reuters, Dow Jones, Bloomberg, our global financial-news services, all started with price lists -- more ledgers -- sharing information, exposing the world's assets to public scrutiny, linking markets so investors can buy, sell, trade, pressure, stimulate.
Government, too, wants to track money, so it can tax it, promote certain kinds of growth, limit banned behavior. Accountants don't run the world, but they sure keep score. It's gotten to be a big job, updating all these ledgers.
And now, computer scientists -- some with libertarian leanings, skeptical of government -- have worked up ways to create and track new stores of value, systems of payment, outside government control. For example, Bitcoin, the electronic currency, with its own coded record-keeping accessible to anyone willing to learn and use the software.
The ingenious internal tracking system behind Bitcoin -- the "blockchain" of secured electronic ledger records, which irreversibly update for all users for each new transaction, showing in detail why a deal is legit -- "is actually something deeper" than just a private currency. It's "the most significant development in information technology since the internet," and "a novel solution to the age-old problem of trust," argues Kevin Werbach, associate professor of legal studies and business ethics at Penn's Wharton School.
In a widely circulated 78-page draft paper, "Trustless Trust," Werbach makes the case that blockchains (there are others besides Bitcoin's) have the potential to create a third great system of trust, alongside government force and private peer groups (those networks of ethic and civic solidarity, faith and school ties, enforcing common social norms sketched by Nobel Prize winner Elinor Ostrom).
Blockchain, he concludes, offers a new way to secure the personal and social confidence necessary for any human transaction above the level of theft.
New blockchain-based services have sprung up to track "academic certificates, electronic medical records, warranty information for purchases, records of clinical trials, supply-chain verification for diamonds and persistent attribution for creators of digital works," Werbach notes.
Add "smart contract" blockchain extensions, and start-ups are also offering blockchain-backed "Uber-like ridesharing, eBay-like online marketplaces," and more, he says.
Investors have lately put more money into blockchain start-ups than Bitcoin start-ups, according to Werbach's footnotes, which link to what amounts to a new ledger of blockchain start-ups.
Calling his paper "the first work of legal scholarship on the blockchain" as a repository of social and economic trust, Werbach details the "trust architecture" of blockchain systems and "maps the intersections between blockchain trust and law." Blockchain can "democratize finance" and other systems, making it cheaper for ordinary citizens to connect to buy and sell and access intellectual property without depending so much on government or corporate agents.
Enthusiasts of Werbach's paper have asked whether blockchain is an answer to our poisonous politics and the public confusion over lying political leaders and what they are really up to.
"A number of people have suggested that blockchain could be a solution to the 'fake news' problem, in particular, and the larger concern about our information environment," Werbach says. But he has "tried to tamp down those expectations." In part, blockchain works because other users verify information they are in a position to know. That's what ride-share and room-share and restaurant-review services rely on, in the blockchain world as on the internet.
Improving sourcing, which is what ledger records do and blockchain does quickly, accurately, and ubiquitously, "doesn't solve the human problem by itself. That requires more than machines acting in isolation," Werbach adds.
We're back to the problem of trust. It takes more than smart algorithms to open minds. Trust, even when it's backed by threats of prison or sacred oaths or relentless blockchain record collection, still depends on a person's willingness to depend on the process, and to fail if it fails. That's a leap familiar, say, to Sixers fans.
So "fake news and lack of trust are not necessarily things the blockchain can address," Werbach tells me. "The key to trust in the news often goes beyond factual, rational predictions. If you need to attribute to a source, blockchain is a way of verifying a fact. But if you have people who are just not willing to believe a fact is true, or believing a falsehood is true, not even the blockchain can change that."