Business Bookshelf: How blockchain technology is a form of trust
February 23, 2019 at 1:38AM
The first blockchain was the database introduced in 2009 as the infrastructure of bitcoin; it is where every transaction involving bitcoin is stored. Because this database is "distributed" (supported only by the network of its many thousands of users) and because, thanks to a cunning design, it can essentially guarantee the integrity and authenticity of the information it stores, it demonstrates that a functioning currency does not require a bank or equivalent centralized institution.
In "The Blockchain and the New Architecture of Trust," legal scholar Kevin Werbach argues that "like the internet the blockchain is mistakenly viewed as the final answer to the problem of intermediation." The trouble with this view, he notes, is that intermediaries, when trustworthy, play many beneficial roles: pairing buyers with sellers, bundling demand to create economies of scale, correcting imbalances in bargaining power.
Because there is no widespread desire to eliminate intermediaries, he predicts that blockchain technology will most often "supplement or complement conventional legal regimes, not replace them." Blockchain might be used, for example, to mechanize the enforcement of reporting rules for banks, so that government agencies need not actively monitor every relevant bank transaction.
The most significant innovation of blockchain, Werbach says, is not governmental or even technological but emotional: the creation of "a new form of trust" in the system, not its parts.
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