Beyond its initial association with crypto-currencies such as bitcoin, the distributed ledger technology known as blockchain has important applications for the emerging trust economy. Its unique capabilities give blockchain technology the potential to alter radically the world, disrupting the ways businesses, services, productsOpens a new window , governments, organisations and individuals interact, by delivering trust as a service.
The Emerging Trust Economy
The term “trust economy†has come into use as an increasing volume of digital processes and exchanges occur worldwide on a daily basis that necessitate a shared foundation of trust – the willingness to get into an Uber car driven by a stranger, stay in an Airbnb apartment in another city or purchase shoes using PayPal. Such so-called democratic transactions have already revolutionized the ways we do business; they are more trust- or collaboration-oriented than historic models of retailing and marketing.
Over the past two decades, the digital revolution has overtaken most spheres of commercial activity, spawning a host of market-disruptive products and services. These disruptors have succeeded largely by utilizing cheaper, easier-to-access, digital-based transaction models validated primarily through reputational trust.
Today, brand trust and loyalty – traditionally obtained through expensive advertising campaigns – are more frequently acquired via online reviews and appraisals, which have replaced the personal, locally-based, word-of-mouth endorsement in a global context – in the way that TripAdvisor and LinkedIn have become the new arbiters of reputational trust in the travel and recruitment industries. But while these platforms rely on individuals’ validations to build credibility, they also require a data-certified (and metric-quantified) mechanism through which consumers can trust each other and carry out exchanges.
Yet, this digital consumer revolution has taken place against the backdrop of a global crisis of trust, fueled by persistent reports of wrongdoing by financial institutions, the rise of “fake news,†and the apparent manipulation of political processes through access to individuals’ personal data. Even once-respected non-governmental organisations and charities such as Oxfam have been affected by scandals spread by digital channels, including the emergence of “citizen journalists,†making trust an increasingly scarce – and hence valuable – commodity.
Therefore a system that can establish trust beyond any reasonable doubt, between multiple parties in any global chain, is critical to the success of businesses, individuals and organizations. Cue up the blockchain revolution.
What the Applications of Blockchain Mean for Trust
While the trust economy has emerged as a dominant economic force shaping society, it is not actually new. The same principle was used in ancient trading rituals, where tribal chiefs exchanged tokens to signify a deal had been made. This “token†concept was behind the initial blockchain technology first employed in 2008 in the form of a crypto-currency (bitcoin), which could serve as a literal token of a virtual transaction.
However, once blockchain technology had become operational, it soon became apparent it could not only supply a platform for businesses to switch to an electronic financing model, but also provide the data and metrics to verify the credibility of services and organizations.
In other words, blockchain is capable of generating the trust necessary for transactions to take place. These factors have accelerated blockchain’s adoption as a model in a digitally-oriented society where trust is the operative currency and online review metrics becomes a business’s virtual credit rating.
Put simply, blockchain is a digital, public distributed ledger that records and validates transactions across multiple computers. Because the data is spread across a chain, the record is immutable, and cannot be altered without the entire network’s collusion, or without all subsequent blocks being affected; it is “blocked†or locked from external interference.
While most businesses and services rely on archived or cached data stored in centralised databases on their premises or in the cloud, blockchain enables transaction records to be stored and shared digitally across multiple decentralized networks. This means all applications requiring fact-checking, authentication of data or records, or any other verification process – for instance financial, medical and criminal records, candidates’ higher education and professional qualifications, tax information and insurance claim documentation – can be immediately accessed and shared via the blockchain.
As the blockchain collects, stores and records data about users’ personal preferences and activities, it creates a digital profile of that business or individual, including records of consumer transactions, likes and habits, along with measurable metrics that can be evaluated to establish trustworthiness. These data are dispersed across the open distributed ledger networks in the chain and become immediately accessible to the public.
Blockchain can therefore act as a guarantor for business and personal (peer-to-peer) transactions, providing a virtual credit rating that eliminates the need for credit scores, guaranteed cashier’s checks, lengthy background checks or centralized database records. As it distributes data across multiple networks, blockchain can streamline financial and other transactions currently performed by intermediaries, mostly relying on complicated and inefficient legacy verification systems.
Implications for Intermediaries
By providing an underlying basis for confidence in a business, service, product, organization or individual through serving data cleanly and transparently to the public, blockchain delivers a key benefit to businessesOpens a new window by increasing the level of public and consumer trust.
But it also offers a cheaper and more efficient service by carrying out tasks formerly performed by intermediaries. It can facilitate all types of business and service transaction, from sales to hotel bookings and charitable donations, in which authentication and verification are required.
In an environment where businesses and individuals increasingly stand or fall based on their virtual reputation, the right digital profile and metrics to validate trustworthiness will become increasingly important. Since blockchain eliminates the need for expensive and time-consuming methods of forging reputational trust by providing businesses with immediate, ineradicable transparency, it can also contribute to meeting the global sustainability ambitions set out in the United Nations’ Sustainable Development Goals framework.
There will be massive implications for established intermediary service providers, including banks, retailers and credit scoring agencies, involved in a range of legal, financial and logistical processes from supply-chain tracking to peer-to-peer payments. Such suppliers of products and services will be obliged to reevaluate their brand and offering, and perhaps become a different type of organization altogether.
Blockchain neither creates nor destroys trust. It merely provides a mechanism for trust to be transferred, from intermediaries such as banks that verify money exists in the form of paper currency to authorize a transaction to the blockchain that facilitates the transaction. The immutability of the data in the blockchain creates its credibility since it cannot be tampered with – by its inherent design, the chain would immediately detect such activity. In addition, since it is decentralized over multiple networks, no single party has full control over the chain, and therefore cannot manipulate it.
That is its strength, but also its weakness: The technology itself must be trusted to ensure that the transfer of trust takes place. Against a backdrop of wildly fluctuating crypto-currency values and regular reports of data hacks, there may be greater hurdles of perception to overcome in terms of public perception before the blockchain wallet is whole-heartedly embraced.
Yet, once it is understood as an efficient and reliable tool, no business can afford to ignore emerging blockchain technologies. No wonder 60% of executives surveyed in the most recent Accenture Tech Report believe blockchain will be critical to their businesses over the next three years. The trust revolution is only just getting underway.