Recommended Reading: Trust & Blockchain
Title: The Blockchain and the New Architecture of Trust.
Who: Kevin Werbach, professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania, and formerly Counsel for New Technology Policy at the U.S. Federal Communications Commission.
Published: 2018
Why: This is an informative and thoughtful discourse on what is trust, the nature of smart contracts, and an understanding of governance in the context of “trustless protocol” technology and the “code is law” aphorism. Offering well-researched and illustrative examples that left me with sobering thoughts and a better appreciation of how the technology can be applied to support a Decentralized Autonomous Organization (DAO) and why trust and governance are necessary elements.
What: Kevin presents the material in three parts:
Part 1: Examining the who, what, why and how of blockchain, and the salient features of Satoshi’s solution to the “trust crisis”. Exploring why trust is “confident vulnerability”, Kevin explains how the Blockchain is a new type of trust architecture, describing the value propositions regarding how we conduct business, and examples where that trust has been violated — where the vulnerability was exploited.
Part 2: Is the vision of the technology being realized? And is it compatible with the law? — an essential element in functional societies. Kevin notes cryptocurrency networks are technologies of governance where the blockchain decentralizes the rule-enforcement aspects, but not necessarily rule creation. Good governance is required to realize full potential of the technology. Blockchain networks cannot rely solely on their consensus rules to resolve conflicts that operate above the level of basic transaction validation. A framework for regulation is discussed as it aims to address societal objectives.
Part 3: So how do we build the decentralized future? What are the limitations of law and technology? Kevin explores what systems can be developed by matching the “dry code” of smart contracts (that are neither smart nor contracts per se) with the “wet code” of legal practice. Arguably, innovative solutions can make the law operate more consistently with governance through software code. Solutions include safe harbors, sandboxing, modularizing contracts, fiduciary duties, and Ricardian contracts. Kevin explains how the technology may be used to enhance confidence by serving to supplement, complement, and substitute the law as necessary.
Sampling of Quotes from the Book:
The blockchain represents a reinvention of trust, not its elimination.
Code is a form of law…and not necessarily the best one.
There is no trust without vulnerability. And vulnerability traditionally means giving up power to others.
The blockchain may dramatically improve the efficiency and liquidity of funding companies. But it will not change human nature.
Vili’s paradox: a well-governed blockchain system is not truly decentralized, and a truly decentralized blockchain system will not be well governed.
Ethereum’s successful rebound from the fiasco of The DAO illustrates the importance of governance. Its processes are far from perfect. Even the more-established blockchain networks are still experimenting to find the right balance of flexibility and formality.
Like the Internet, the blockchain is a foundational technology whose impacts could reach into every corner of the world. To move forward, though, law and distributed ledgers need one another. How the story plays out will be a matter of trust.
If you would rather listen than read — consider the following:
Kevin Werbach (June 23, 2021) on unSILOed podcast Episode #23 Blockchain: Understanding Decentralized Governance and Currency
Kevin Werbach (May 24, 2019) on Talks at Google explaining how technology’s potential is both deeper and harder to achieve than it seems — and the path to trustworthy blockchains runs through law, regulation, and governance.
