Trust between two parties in an interaction has always been pivotal in every exchange. Whether it was hunter gatherers exchanging berries for venison, or it was Joseph Bonaparte and Marquess Cornwallis signing the Treaty of Amiens to end the French Revolutionary Wars, each person has to trust the other to keep their word if the transaction is going to happen.
The crypto revolution brought a new notion of trust to the fore. Cryptocurrencies aspired to recreate the environment of trust by putting the burden of trust not on or between participants, but rather on the software running the currencies themselves. US Dollars have “In God We Trust” printed on them.
Cryptocurrencies might analogously have “In the Protocol We Trust” printed into their wallets. It’s fair to say that cryptocurrency users, especially early adopters of the libertarian and anarchist bent, have been successful in their push to outsource trust entirely. All faith is to be put into the protocol, its security via cryptographic hashes, and its reliability via the trustworthiness of the network writ large.
But, what if that inter-human trust never actually disappeared? What if it’s still present as strong as it’s ever been, and those early adopters mis-characterized and/or misunderstood the trust issue altogether?
Tim Sullivan explores this possibility in his article for a 2015 edition of the Harvard Business Review:
Digital currency is really just people too. Whatever the concomitant technical details of its cryptography, blockchains, hash algorithms, mining, and virtual central repositories, it is far more embedded in real-world social relations than in technology, even though the tech often gets the most attention.
Sullivan presents his dissent to the notion of software being able to wholly dis-intermediate trust between people. Technology has had such a strong run over the past generation that it’s arguably getting the benefit of the doubt on strong claims like being able to move trust to the digital layer. He goes on:
At the heart of any currency is trust: trust in one another. After all, anything can serve as a medium of exchange, as long as it’s scarce—gold, counterfeit-proof paper, cigarettes, tins of anchovies, giant stone heads—provided that we all agree on it.
Tim Sullivan isn’t alone in pondering the fundamental requirement of trust between people, whether software is involved or not. Marella et al. make a thorough attempt to address the issue of trust in their very recent 2020 paper entitled Understanding the creation of trust in cryptocurrencies: the case of Bitcoin.
Their paper serves as a seemingly holistic treatment of the cryptocurrency-trust topic, and luckily the abstract is short enough to delight us here:
Contemporary cryptocurrencies lack legal, monetary, and institutional backing that traditional financial services employ. Instead, cryptocurrencies provide trust through technology. Despite the plethora of research in both trust and cryptocurrencies, the underlying attributes of the technologies that drive trust in cryptocurrencies are not well understood. To uncover these attributes, we analyze the corpus of 1.97 million discussion posts related to Bitcoin, the oldest and most widely used cryptocurrency. Based on earlier research, we identified functionality, reliability, and helpfulness as the focal constructs with which to evaluate users’ trust in technology. In our analysis, we discovered 11 different attributes related to three technology constructs that are significant in creating and maintaining users’ trust in Bitcoin. The findings are discussed in detail in the article.
They immediately hit on the fact that trust is crucial in the world of financial payments, that banks and currency issuers have long served as the trusted intermediaries, and that cryptocurrencies spawned from a period of extreme lack of trust in traditional financial institutions.
One of the main ways cryptocurrencies have differentiated themselves from government backed currencies, the paper argues, is by “blockchain technology” which grants immutable tamper-proof transactions that “eliminate” the need for a trusted third party.
Zheng et al. presented a comprehensive analysis at IEEE 6th Congress looking at how the architecture and consensus mechanisms combine to result in such a trust-less result.
This is where we get into the meat of the Marella et al. paper. As they list the drawbacks of cryptocurrencies, it becomes apparent that – maybe – all trust hasn’t actually been moved to the all-powerful software layer as they originally assumed:
[Cryptocurrencies] are not institutionally or legislatively backed; while this cuts down transaction costs, it also makes cryptocurrencies unpredictable, volatile, and risky (Brezo and Bringas 2012). Second, cryptocurrencies are typically pseudonymous, meaning that users are identified by their public key address (a 32-bit string with a combination of characters and numbers) rather than their name and social security. Consequently, this makes cryptocurrencies an easy tool for money laundering, tax evasion, and illegal trade in drugs and weapons (Brezo and Bringas 2012). Third, Bitcoin and all other cryptocurrencies are yet to obtain legal status as an investment option in many countries. Therefore, buying or selling cryptocurrencies in these countries would be extremely difficult. As such, there are several uncertainties and barriers regarding cryptocurrencies.
- Institutions and legal entities still don’t know how to treat these assets. Are they even assets?
- Acceptable amounts of regulation to prevent overtly negative outcomes are difficult to do. We could expand this bullet point to include GDPR compliance.
- Again, legal status is still up in the air.
Would it be reasonable to say that many projects in the crypto space have either tossed up their hands at these problems, or denied them as problems entirely?
Some of the bigger projects are built upon the core idea that they don’t intend to be regulated. Bitcoin has no mechanism by which to directly engage with lawmakers, but benefits from being the most prominent project in the public eye. Institutions and lawmakers have had no choice but to begin engaging with BTC.
The Enterprise Ethereum Alliance has made an effort to onboard corporate leadership and attempt to create standards around the ETH platform. By all accounts, Bitcoin and Ethereum have done reasonably well with engaging governmental and institutional bodies as they try for mainstream adoption. The same cannot be said of many other projects in this space at all.
Besides those big two, IOTA stands out as a beacon of hope on every single one of these fronts. The magic of the IOTA Foundation is that while nearly the entire world of crypto has been doing everything it can to avoid confrontation with the difficult questions surrounding regulation and standardization (“we’ll self regulate” was the common refrain), IOTA has been going full blast ahead into the most challenging issues.
Could it be that the IOTA Foundation sees something that few others do? That building trust at every layer – at an institutional level, standardization level, and between individual people – is paramount to gaining real-world protocol adoption? Could it be that they see trust was never actually moved 100% to the software layer? That trust was only rearranged, leaving the vast majority of trust still resides in its traditional homes: institutions/standards/people?
The science journal, Nature, published an article written by Jon Baldwin in 2018.
Digital cryptocurrency signals a shift in confidence to “In Digital We Trust.” Since its introduction in 2008, bitcoin has been widely championed in some quarters as being independent of any third-party control such as government or a central bank. Cyber-libertarians, techno-utopians, venture capitalists and others have celebrated bitcoin as a digital currency that can challenge the global economic order, facilitate forms of freedom, be a decentralising force for good, and revolutionise everything from online commerce to the nation-state.
Baldwin can be forgiven for going with “In Digital We Trust” rather than our preferred “In the Protocol We Trust” from earlier in this article, and he is to be commended for recognizing what has become the thesis of this article: Cryptocurrency ideologies have almost unanimously converged to agree that trust is no longer a human thing in value/data transfer. Technology takes care of it all now.
He’s apparently pessimistic on the promises of decentralized technologies, but it might have been difficult to parse out tech promise from the speculative financial bubble he had just witnessed. Prognosticators who write off crypto solely due to “In the Protocol We Trust” are missing out on the fact that there might be unrecognized human ways around that problem.
The question becomes: what happens if trust between institutions, standards, and people is still as important as ever, but almost nobody has recognized this fact?
Despite being so focused on the topic of trust and how it comes about it in crypto (they’re looking at Bitcoin in particular), Marella et al. are still caught up in the consensus of digital trust.
What is still not fully understood is […] what are the attributes that facilitate creation of trust in cryptocurrencies and related technologies? Bridging this gap is of crucial importance since the locus of trust is shifting from people to technology, we need to understand the attributes of the technology that can replace the human component of trust.
The paper remains mired in trying to figure out how to replace the old human component of trust with this shiny new technology. It goes on to pin down 11 keywords associated with trust in bitcoin, the most closely semantically related to “trust” being very non-human related words like “immutability”, “transfer”, and “openness”.
Here’s what IOTA has done to stand apart in the three crucial human-centric areas of institutional trust, standardization trust, and people trust:
1. Institutional Trust
German not-for-profit foundations are called Stiftungs. These entities have a deep history. Plato set up his academy in the form of a foundation/Stiftung. It outlived him by nearly two centuries. Aristocrats built long lasting schools, orphanages, and hospitals as stiftung equivalents for a thousand years beginning in 5th century A.D. Many stiftungs still exist today after being created in the 10th century in Bavaria. German king Otto the Great donated Quedlinburg Abbey as a stiftung which lasted … almost 900 years!!
If one were to signal their intention to create a multi-generational legacy, a stiftung has long been the preferred method in Europe.
And with this long history, modern day Germany is not eager to compromise on their centuries-old stiftung standards. By virtue of choosing to take the IOTA Foundation down the stiftung route, the founders committed to the arduous process of trying to become the first ever cryptocurrency funded German foundation and having to deal with all of the attendant headaches.
Other crypto projects were doing everything in their power to avoid regulatory barriers by incorporating themselves in less strict environments.
As a legal entity, a stiftung is a legal construct under longstanding German civil law which was granted in modernity under Bürgerliches Gesetzbuch (BGB) and has roots going back to the Code of Justinian during the late Roman Empire.
Today, Germany is effectively the center of the European Union. It has the most sway, owing to it being the largest economy in the Union. With Brexit, it’s now not only the economic center of Europe, but also contains the newly drawn geographic center of the EU (according to France’s National Cartographic Institute).
From the middle of nowhere to the middle of the EU – welcome to Gadheim, where only one traffic light can be found
— DW News (@dwnews) April 9, 2019
Germany has some of the best economic freedom / regulatory metrics in the world. It boasts great scores in property rights, government integrity, business freedom, trade freedom, investment freedom, and has elite fiscal health.
2. Standardization Trust
If you’ve been following weekly HelloIOTA Roundups you’ll know that standardization has been a top news item more frequently than not. Make sure to go watch the most recent Roundup which focused on politics and standards around IOTA.
Object Management Group’s industry standardization of the IOTA protocol is so important that it deserves it’s own upcoming article.
3. People Trust
One needs only to watch presentations by IOTA board members and advisors to see how strong the “People Component” of the Foundation is. Dom has been able to build personal relationships with people like Dr. Rolf Werner.
@DomSchiener @RolfWerner and @ninoulrich (co-founder of @i_am_pass ) will be present in this event/forum and live showcase their iampass prototype. @tangleblog @iotatokennews @iotatokenhttps://t.co/3QqRe2bLzf
— Horst Rieder ⏳ Coordicide is coming ⏳ (@horscht144) September 26, 2018
Julie Maupin is a brilliant lawyer and economist who has been integral in putting IOTA in front of some of the largest policy bodies on the continent.
Dr. Navin Ramachandran is a practising physician in London who also now sits upon the IOTA Foundation BoD.
Mat Yarger is not only a distinguished 8 year combat veteran who did tours of service in Iraq for the United States military, he’s a U.S. Department of Defense certified forensic examiner and cyber security expert. He’s relentlessly driving IOTA adoption in the United States.
And Dan Simmerman, the Head of Financial Relations, is also in the US. He’s linking IOTA up with exchanges and other financial partners in North America.
Wilfried Pimenta de Miranda has an impressive business and technology background (double masters in computer science plus an executive MBA) who must be pushing IOTA partnerships wonderfully behind the scenes if the news flow is anything to go off of.
We could go on forever listing every person in the Foundation, but suffice to say it’s full of a great group of people who clearly recognize the importance of human connections.
The IOTA Foundation has been built on a mixture unique to the cryptocurrency space:
- The initially seemingly crazy choice to establish a German Stiftung, which has since paid off tremendously in institutional and regulatory respect
- Recognition of the need for standardization. Largely happening through OMG and other industry working groups
- And most importantly a great group of human beings who understand the importance of what they’re working on
HUMAN trust is just as important as ever, even in crypo-land. IOTA has left no stone unturned, and will eventually reap the regulatory rewards. The long play usually wins out in the end.