Blockchain: Trust Economy

Eric Piscini , Gys Hyman and Wendy Henry

Part 1 of a five-part series. Read Part 2, Part 3, Part 4, and Part 5.

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Blockchain is outgrowing its adolescent cryptocurrency identity, with distributed consensus ledgers becoming smart contracts facilitators. Beyond creating efficiencies by removing the legal and financial intermediary in a contractual agreement, blockchain is assuming the role of trusted gatekeeper and purveyor of transparency. In the emerging “trust economy” in which a company’s assets or an individual’s online identity and reputation are becoming both increasingly valuable and vulnerable, this latest use case may be blockchain’s most potentially valuable to date.

Blockchain, the shared-ledger technology that only a few years ago seemed indelibly linked in the public imagination to cryptocurrencies such as Bitcoin, is assuming a new role: gatekeeper in the emerging “trust economy.”

First, a bit of background. Last year’s Tech Trends report examined how maintaining the procedural, organizational, and technological infrastructure required to create institutionalized trust throughout an increasingly digitized global economy is becoming expensive, time-consuming, and in many cases inefficient.

Moreover, new gauges of trustworthiness are disrupting existing trust protocols such as banking systems, credit rating agencies, and legal instruments that make transactions between parties possible. Ride-sharing apps depend on customers’ publicly ranking drivers’ performance; an individual opens her home to a paying lodger based on the recommendations of other homeowners who have already hosted this same lodger. These gauges represent the codification of reputation and trustworthiness. We are growing accustomed to the notion that positive comments appearing under an individual’s name means we can trust that person.

In a break from the past, the trust economy developing around person-to-person (P2P) transactions does not turn on credit ratings, guaranteed cashier’s checks, or other traditional trust mechanisms. Rather, it relies on each transacting party’s reputation and digital identity – the elements of which may soon be stored and managed in a blockchain. For individuals, these elements may include financial or professional histories, tax information, medical information, or consumer preferences, among many others. Likewise, companies could maintain reputational identities that establish their trustworthiness as a business partner or vendor. In the trust economy, an individual’s or entity’s “identity” confirms membership in a nation or community, ownership of assets, entitlement to benefits or services, and, more fundamentally, that the individual or entity actually exists.

Beyond establishing trust, blockchain makes it possible to share information selectively with others to exchange assets safely and efficiently and – perhaps most promisingly – to proffer digital contracts. This transforms reputation into a manageable attribute that can be baked into each individual’s or organization’s interactions with others.

In the next 18 to 24 months, entities across the globe will likely begin exploring blockchain opportunities that involve some aspects of digital reputation. We’re already seeing companies that operate at the vanguard of the trust economy acknowledge blockchain’s potential. When asked during a recent interview about possible blockchain deployment by P2P lodging site Airbnb, company co-founder and CTO Nathan Blecharczyk replied, “I think that, within the context of Airbnb, your reputation is everything, and I can see it being even more so in the future, whereby you might need a certain reputation in order to have access to certain types of homes. But then the question is whether there’s a way to export that and allow access elsewhere to help other sharing economy models really flourish. We’re looking for all different kinds of signals to tell us whether someone is reputable, and I could certainly see some of these more novel types of signals being plugged into our engine.”

The blockchain/trust economy trend represents a remarkable power shift from large, centralized trust agents to the individual. And while its broader implications may not be fully understood for years to come, it is hardly a death knell for banks, credit agencies, and other transactional intermediaries. It may mean, however, that with blockchain as the gatekeeper of identity and trust, business and government will have to create new ways to engage the individual – and to add value and utility in the rapidly evolving trust economy.

The potential is real: Insight from Joi Ito, director of MIT Media Lab

In my role with the MIT Media Lab, I spend my days exploring how radical new approaches to science and technology can transform society in substantial and positive ways. When I look at the current state of blockchain, I’m reminded of the early days of the Internet – filled with promises of disruption, a brand-new stack that needed to be built, unchecked investment, and more than a few crazy dreamers (I was, and remain, one of them). Much as naysayers initially did with the Internet, some consider blockchain, smart contracts, and cryptocurrencies to be fads, but in my opinion, they are not. The potential is real.

In the early 1990s, we knew we were on the cusp of something big. But we were lacking the layers needed to take advantage of the promise: a universal networking protocol (TCP/IP), routers and switches for enterprises to establish and scale communications, a standard for client connectivity and information exchange (HTTP), and many others. The incumbents – cable companies and telcos – were building monolithic, closed systems in order to explore the new frontier. Largely informed by the reference point of their existing businesses, their approach led to set-top boxes, closed communities and online forums, and proprietary systems for search, messaging, and mail. But as we look back, most of the big winners of the era were the native Internet companies that provided each necessary layer that would eventually become the full stack we know today.

Blockchain is like that. There is a layer for transmitting bits and managing the shared ledger. There’s a wallet for organizing and conducting business with one’s assets. There may be a bookkeeping layer for uniformly describing the content and context behind assets on the blockchain. There will be a smart contract layer, and others will likely emerge.

The currency piece of the blockchain is a lot like email was to the Internet. Email may be the most used function on the Internet, and it changed the way businesses work; it was a killer app that pushed the Internet to widespread deployment, after which came Google, Facebook, and Twitter. In the same way, many smart contract layers and other sophisticated use cases will be feasible once blockchain is deployed everywhere.

It remains to be seen whether American institutions will give blockchain the same kind of free rein the Internet enjoyed in its early days. Regardless, there is a need to redraw existing regulatory boundaries. If you diligently deploy a blockchain solution following the existing laws – especially those focused on money laundering – you could twist yourself into knots trying to design your business and products around old statutes. The interplay between technology and public policy played a central role in the Internet’s adoption. Given that the stakes around blockchain are much higher and possibly even more transformative, anything we can do to amplify, accelerate, and advance our collective progress in a prudent but progressive way can transform the world around us to the benefit of society.

Copyright ©2017 Deloitte Development LLC. All rights reserved. Reprinted by permission.

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Eric Piscini

About Eric Piscini

Eric is a Deloitte Consulting LLP principal serving the technology and banking practices with 20 years of experience defining IT strategies including M&A, technology infrastructure, IT operations, post-merger integrations, echannel strategies, payment, and digital transformations. In addition to serving financial institutions and banking regulators in core aspects of their technology environment, he also leads the Deloitte global cryptocurrency center serving financial institutions and retailers.

Gys Hyman

About Gys Hyman

Gys is a principal in Deloitte Consulting LLP’s Deloitte Digital practice, the world’s first creative digital consultancy. He is currently focused on the banking industry and has helped a number of organizations with large scale digital transformation efforts, ranging from designing, building, and implementing green field’s digital banking capabilities to large scale core banking systems transformation efforts.

Wendy Henry

About Wendy Henry

Wendy is a specialist leader in Deloitte Consulting LLP’s Federal Technology practice and works with clients to distill emerging technologies into simple business value discussions. An ever-curious individual, she thrives on understanding how emerging technologies can drive her clients’ business towards newly created value. She is a hands-on technologist with 30 years of large-scale, complex system integration experience across a wide variety of technologies, including blockchain, cloud, digital innovation, and location-based technologies.