The Blockchain and the New Architecture of Trust

Abstract

How the blockchain—a system built on foundations of mutual mistrust—can become trustworthy. The blockchain entered the world on January 3, 2009, introducing an innovative new trust architecture: an environment in which users trust a system—for example, a shared ledger of information—without necessarily trusting any of its components. The cryptocurrency Bitcoin is the most famous implementation of the blockchain, but hundreds of other companies have been founded and billions of dollars invested in similar applications since Bitcoin's launch. Some see the blockchain as offering more opportunities for criminal behavior than benefits to society. In this book, Kevin Werbach shows how a technology resting on foundations of mutual mistrust can become trustworthy. The blockchain, built on open software and decentralized foundations that allow anyone to participate, seems like a threat to any form of regulation. In fact, Werbach argues, law and the blockchain need each other. Blockchain systems that ignore law and governance are likely to fail, or to become outlaw technologies irrelevant to the mainstream economy. That, Werbach cautions, would be a tragic waste of potential. If, however, we recognize the blockchain as a kind of legal technology that shapes behavior in new ways, it can be harnessed to create tremendous business and social value.

Proof of Work as a Three-Sided Market

“…Davidson et al (2018b) argue, however, that while there is some overlap between trust and generic transaction costs, the two concepts can and should be considered separately. Non-economists such as Schneier (2012), Sundararajan (2016), and Werbach (2018) have provided argument and evidence pointing to the importance of trust in a market economy wellbeyond the notion of trust simply constituting yet another transaction cost. Schneier suggests society needs a lot of trust and it is costly.…”

"This Place Does What It Was Built For"

“…Two representative design challenges are Bitcoin's scaling debate and the debates around proof of stake. The difficulties around how to resolve these debates demonstrate the need for institutions around each coin that, in many ways, undermine the trustlessness that is supposed to distinguish cryptographic currencies from fiat currencies [114,117]. We deem these challenges "constitutional crises" because of our assessment that they result in part from a lack of attention to the constitutional layer of institution design.…”

"The Most Trustworthy Coin"

“…Instead, it is maintained by the distributed network of computers and the community of people around it. Because it isn't backed by a government, the question of trust in the system is very important [66]. If people don't trust the currency, they can't rely on it to behave in a predictable and expected way and it won't be useful or valuable.…”

“…Bitcoin is a particularly interesting socio-technical system to study right now because it is very new, complex, and not well understood. Werbach claims that Bitcoin represents a new and fundamentally different way of structuring trust in technology [66]; Bonneau et al agree and claim that Bitcoin is a system where "practice is ahead of theory" [10]. Bitcoin is an especially interesting socio-technical system to study in the context of trust due to the fact that Bitcoin was purposefully designed to attempt to eschew some of the forms trust has taken in other sociotechnical systems [51].…”