Blockchain is an Institutional Technology, in the sense that its functions transcend industries and are principally concerned with manufacturing trust, the primary function of institutions. This can be a bit of a concept to wrap your head around because institutional technologies don’t come along very often…. Do you remember when ‘Government’ was invented? I don’t.
Of course, this has profound implications for the ways in which business models change. Enabled by blockchain technologies, however the most likely epicentre of these business model changes is extremely easy to identify.
Trust is a social construct. There are several ways in which it has been conceptualised over the years, one of my favourites being the ‘trust equation’.
CREDIBILITY + RELIABILITY + INTIMACY / SELF ORIENTATION = TRUSTWORTHINESS
What this show are primarily social activities, with huge opportunity for improvement with blockchain technologies.
Blockchain technology has given rise to a new platform for business relationships that combines ease of use, low cost, and high security. It creates a new basis of trust for business transactions that could contribute to a considerable simplification and acceleration of the economy.
Trust is the foundation of every business relationship. Success is built on it, and it’s part of how we care for our business and networks. We also use intermediaries in our relationships, and they create trust and must have our trust. Banks ensure that we deal with the correct counterparties and the transactions are for the correct amounts. We employ lawyers so that our products are not copied or illegally distributed. Overall, the use of intermediaries is very complex, costs a lot of time and money, and in this age of hackers, it also carries security risks.
Does a person have verifiable knowledge, license, or ownership of a thing?
This is usually assessed by a third party and often documented. These ‘assessment’ activity between the person and the assessor and ‘signalling’ function of the document between two parties, are the social elements of credibility.
In Blockchain this is referred to as an attestation and much of the work that is being done today revolves around the establishment of digital identities that can utilise these verifiable claims for various purposes from credentials, such as an academic transcript, to clearances and endorsements such as background checks, or simply confirmation identity.
Does the person do what they said they would do?
This is primarily concerned with auditing action. While this is more abstract, reliability becomes social via someone’s confidence that something will happen, regardless of their supervision of it.
Blockchain and smart contracts offer an opportunity to encode ‘proof of work’ in various ways, to make reliability something quite easily quantified along with providing built in incentives for compliant behaviour.
The final two aspects, intimacy and self-orientation are still important, but are more concerned with the nature of interpersonal trust. The nature of your friendships and relationships with spouses and family members is usually mediated by how ‘close’ you are to them. Similarly, someone’s intention (self-orientation) can undermine trust in a relationship if there are no mechanisms to incentivise behaviour which benefits both parties and affect the permanent reputation of the parties involved.
I believe they will become less important as blockchain applications become more mainstream. What these technologies facilitate — as a new kind of institution — is a mechanism for all parties to be self-interested but do so in a way that does not necessarily exploit others in the process. This is one of the most fundamental consequences of ‘decentralising’ the world. Everyone becomes a portable agent with universal cross-compatibility.
The Cost of Trust
It is important to identify the real economic case for why trust is such a likely candidate for disruption. It’s extremely expensive.
By improving the way firms identify, verify, and relate to their customers and supply chain partners, there are significant productivity and value gains to be made. This opens the door to a giant future for digital innovation and blockchain enabled business model innovation.
The Way Forward
The most profound impact of this, is the likely undoing of the ‘platform’ business models that have come to define the last two decades of growth in the tech industry.
With a revolution in relationships and new methods for creating and utilising trust, blockchain applications is fast affecting other aspects of business model innovation. By incorporating distributed ledger technologies, businesses are beginning to introduce mass markets to blockchain technology in a more accessible way, helping facilitate access to products and services they are already familiar with, in new ways.
As people become familiar, literacy is improving, and demand for more sophisticated ‘digital products’ is on the rise.
There are still some major technical challenges to overcome, most prominent of which are standards for how different blockchain applications work and interact with each other in a ‘self-sovereign’ world that is completely decentralised, but it is nevertheless an incredibly exciting time to be thinking about the ways that value can be created, delivered, and captured.