The evolution of the trust factor. From barter to blockchain
By Alfonso Fernández on ALTCOIN MAGAZINE
Trust is a hypothesis about the future behavior of others. It is an attitude related to the future, as long as the future depends on the other action. It is a kind of bet which consists of not to worry about no control of neighbor and time. Laurence Cornu.
In this article, we will use the commercial transaction between people in order to understand how trust has evolved throughout history. In addition, we will use the neuroscience framework to clarify the construct of trust and understand which are the implications of this evolving.
A pill about the basic neuroscience of trust
There is a complex machinery through which we build in our brain the trust construct. If we do a basic exercise of what the brain process would be, at the functional level, the level of uncertainty about others behavior should take into account these elements:
- The information of the senses in the present is filtered by the thalamus and transferred to different parts of our brain as an INPUT.
- Evaluation context: The hippocampus offers us information related to the context in which we carry out the assessment. It is an INPUT of the past.
- The orbitofrontal cortex collects signals from other parts of the limbic system associated with the punishment and reward and establishes a representation of the emotional value of this information. Intermediate OUTPUT.
- Emotional activation: Depending on the situation emotional mechanisms can be activated in the limbic system which will affect our assessment. For example the amygdala. Another INPUT.
- Prefrontal cortex: The previous INPUTS reach the part of our brain responsible for decision making. Here there is one of the most specialized parts in reasoning, the dorsolateral zone, and other one specialized in emotional assessment and social behavior, ventromedial zone. Thus, we obtain several intermediate OUTPUTS.
All these intermediate OUTPUTS conform the final OUTPUTS with which we will regulate the level of trust about others behavior. Consequently, it will allow making decisions one way or the other.
Obviously, complexity is much greater than that described, but the above is enough to understand how we build the trust
Over the millennium. The barter
Let’s establish a commercial context through a barter transaction in 2000 B.C. in ancient Egypt. Two dwellers want to make an exchange of provisions. We propose several contexts:
- There is already experience of the same barter between the same people: Due to the background, the evaluation of trust regarding the uncertainties of the product (conservation state for example) is straightforward. According to the past outcomes, in addition to the factors mentioned above, we obtain our appraisal.
- There is no previous experience of bartering between them, but of other exchanges between those two people. The uncertainty increases because is a barter with a new product and, although they trust each other, it is necessary to evaluate the value of the offers. The uncertainty grows.
- There is some experience in this type of barter in the tribe culture, but they are two strangers. The memory regarding past transactions will play a positive role in the uncertainty, but because they are strangers both the limbic system and the prefrontal ventromedial cortex will work very hard. The outcome will depend on multiple no rational factors.
- There is no previous experience in this barter and they are strangers: This is the most unfavorable case. The uncertainty will be very high.
We have seen the trust generation engine worked (cognitive load) a lot in those days. It was no easy to generate trust because of the high levels of uncertainty between people.
Over the millennium. The coin
The first minted coins date from 1st century BC in current Turkey. Bartering, as we have seen, was very complicated and thus the coin was born as a metal with a stable value on which the value of the other goods could be referenced
Let us imagine we are in Achaemenid Empire during the 1st century BC. The emperor Darius I order to mint coins with the name of Darics. A merchant wants to buy a sack of grain and to the marketplace. Of course, he comes with his coins. The grain will have a quite stable price in Darics and after a tough bargain, the exchange takes place.
Let’s note the coin has managed to diminish the uncertainty level of the transaction and, therefore, the trust between people has grown. These are the reason why the uncertainty regarding bartering has decreased:
- The cognitive load is lower because the product’s value has not been evaluated subjectively.
- The stability of the coin value allowed a lower cognitive load every time you had to assess its future value.
- In a first transaction uncertainty about the reputation of the buyer is deleted.
Coin helped to reduce cognitive load related to the trust establishment and, therefore, it created a greater volume of trading transactions.
Over the century. The trade policy and regulation
Let’s continue with the trade transaction context, but let’s go to the Republic of Venice during the XV century BC. In this city-state there was an institution, the Senate which, among other issues, was in charge of business affairs. The Senate created procedures and strict laws that regulated trade and business. Furthermore, they establish a continuous flow of coins to favor that regulation. The ideal medium helped foreign businessmen land in Venice.
Now imagine a transaction between a foreign businessman and a Venitian merchant. The existence of a legal framework supported by the institution of the Senate allowed creating a common knowledge about duties and rights regarding that transaction. They knew if something went wrong always were some option in order to recover the investment.
From the neuroscience point of view, the cognitive load needed to generate the same trust than millennial ago continued to decline.
Over the century. The institutions
According to Douglas North, institutions are the constraints designed to structure political, economic and social interaction. They consist of two restrictions, informal ones such as taboos, customs, traditions, etc. and formal limitations, for example, property rights laws.
During the last centuries until our days the institutions have been evolving and consolidating. Their success is due to the fact that they managed to create order and reduce uncertainty on the one hand, and on the other, they generated an incentive structure that fostered commercial exchanges.
In our commercial context, the weight of an institution both commercial and judicial generates greater confidence in transactions. Confidence, on the other hand, continued to be transferred from the people in front of us to the institutions. But in this case, in addition to the rational component (laws that punish for non-compliances), there is an emotional charge according to what the institution represents for all.
Some authors such as Harari speak of an “intersubjective reality” that allows supporting, from a psychological point of view, the institutional machinery.
The XX century
The twentieth century and the end of the nineteenth century are equivalent, economically, to talk about capitalism and globalization. The number of transactions at the mercantile level increased exponentially. The second industrial revolution was the lever to unleash a perfect storm. The industry immediately needed a huge injection of capital, that’s where a great alliance between industry and banks was born. The latter gave long-term loans and even invested as shareholders.
The most interesting thing is to understand how, in a definitive way, trust was transferred from people to institutions. To the point that an investor in the nineteenth century granted him the right to his broker to invest his fortune (through a paper) in companies he barely knew.
In spite of the tumultuousness of the 20th century, also at the institutional level, the values associated with the nation-state model came out very reinforced. Thus, these values were incorporated into the institutions reinforcing them.
The XXI century. The decline of institutions
The 21st century is a century of transition towards other models. Every transition leads to a crisis. The crisis of values is evident and is deeply affecting the institutions. The process is fed back and the problems in the institutions are also affecting the values.
The fact is that there is a certain decline in confidence in the institutions. This process is not new in history but on other occasions the incentive system for growth allowed to recover the flight and revitalize them. In an extremely polarized world (economically speaking) the policy of incentives is not available to all nation-states, rather it is in the hands of two or three.
This evident loss of trust in institutions is an important problem since society and our well-being are very dependent on it. The work of millennia to transfer trust to an intersubjective entity is being put to the test.
The loss of confidence in institutions generates greater cognitive load in people when making commercial transactions due to an increase in uncertainty.
The XXI century. Blockchain and distributed trust
We do not know what the next few years will bring, but in the equation of trust, a technology has appeared that could change the paradigm.
Until now we have always needed a third entity in charge of legitimizing, for example, financial transactions. In this case, our confidence is deposited in the banking institutions. Blockchain has opened a door to change. Through technology, it has been able to transfer the legitimacy of transactions, transparently, to the members of the blockchain network. We could say that it has decentralized the trust since it is the users themselves who verify the transactions in a reliable way, and all through mathematical algorithms.
What do we expect then to massively implement blockchain? Not so fast. There are certain nuances that we detail and that would make their implementation difficult:
- It is a technology in a state of maturation so it will require a more or less long process before its use spreads in a massive way.
- Imagine that right now they give you two options to make a transaction. The two options are to do it with your trust bank in euros/dollars or do it in bitcoins. Surely you would opt for the first, and is that the generation of confidence in a technology is a relatively long process. Recall the implementation of secure online commerce payment.
- Finally, let’s think about the example of online payment. Actually, we use online payment because there is a confidence in the technology boosted by various institutions, and because we are in an online commerce of trust, we trust even if we do not understand the technology. Therefore, it is the institutions related to the field of action that have to enhance this technology.
Returning to our focus, what happens with the cognitive load necessary to establish the confidence necessary to perform an economic transaction for example in bitcoins? Nowadays it would obviously be higher because of all the uncertainties, founded and unfounded, that surround bitcoin. But, if the cryptocurrency is finally established as a currency legitimized by the interbank system, we would be talking about another context, since we would associate the cryptocurrency with the institution that supports it, that is, more of the same.
Nevertheless, if the decline of banking institutions continues, the technologies derived from blockchain may represent a feasible option that, along with new institutions, from the definitive impulse to a true revolution of the financial system.
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The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and to bring it to the hands and the minds of the masses. This article was written and composed by Alfonso Fernández on ALTCOIN MAGAZINE.
