Trustless New World?
Trust is the core of all social, governmental and commercial interactions. But trust is meaningless without verification. For thousands of years trust has been established by countries, kingdoms, governments, businesses, non-governmental organizations and other authorities. With the rise of the World Wide Web, traditional models of trust became increasingly obsolete, yielding to digital platforms controlled by the developers and executives behind them. But trust in such platforms as Facebook, Twitter, Airbnb and other technology leaders has been undermined by numerous incidents of security failure and data theft. Four decades into this “great digital awakening,” we have been forced to realize that digital platforms are dangerously insecure vaults for our most important information. The fact that Facebook granted selected companies access to users’ data, even if they had disabled all sharing, is simply adding one more to a very long list of betrayal and wrongful behavior.
Entirely decentralized structures that govern our transactions of value offer a completely new definition of trust. That's the promise of Blockchain technology. Terms such as "trustless world" and "decentralized systems" are part of pretty much all short descriptions of Blockchain projects and startups. Admittedly, those are truly fascinating concepts that have to be the goal of our increasingly native digital world. However, as of today, there aren’t many projects out there that have earned our trust. Blockchain concepts and projects offer new hope that centralized digital platforms can be replaced by peer-to-peer networks, the essence of blockchain technology. Machine-based trust is being established by algorithms that authenticate transactions and record certain features of participants, such as identity or reputation. In a perfectly decentralized world, fraudulent behavior is not possible anymore because all transactions are stored on all participant's machines. In their electronic unity, they build an immutable ledger that allows any participant to audit all transactions. The benefits of such systems are obvious. Trust can be established without involving a third party. The good news is that there are a number of projects out there that actually try to challenge third-party digital platforms. Companies like ConsenSys experienced tremendous growth over the past few years exploding from a handful of employees to over 1000. However, the growth has not been exponential and the company was recently forced to downsize operations. ConsenSys actively builds the infrastructure, applications, and practices that enable a decentralized world. Unfortunately those projects are very much in their infancy and far from solving the trust issue in the real world. The market has experienced a tremendous increase in the number of cryptocurrency tokens and DApp users. But we are still more than two decades behind the development trajectory of the Internet. The adoption of Blockchain is more difficult than anticipated for many companies, and with the crypto market collapse in 2018, most crypto projects lack the resources to continue to build new applications. The market cap of all cryptocurrencies together is a small fraction of Amazon or Apple (February 5, 2019: Crypto market cap of 112.5b (bitcoin, all tokens and altcoins on coincap.io) / market cap Amazon.com 803b).
Oxymorons and Blockchain
One of the many oxymoron's of Blockchain technology is the relationship between growth and trust. Typically, there is an inverse relationship between growth and trust; that is to say that while the former builds the latter diminishes. To build trust and control the networks, a number of protocols increasingly centralize control to a few developers and/or nodes and reduce decentralization. For most of the public blockchain networks only a small number of highly potent miners are able to secure the majority of Bitcoin transactions, and only a handful of coders implement the bulk of changes to Bitcoin’s protocol. Roughly 20 percent of the Ethereum code was written by the same developer. “Machine-driven trust is about to jump from systems controlled by tech giants to systems controlled by a small group of anonymous tech gurus,” said Paolo Tasca in a recent New York Times opinion piece, executive director at the UCL Centre for Blockchain Technogies. “These governance problems undermine the credibility of blockchain as a trust machine for the new P2P economy. It seems that synthetic trust among peers is not supported by a solid set of principles. This lack of trust inevitably atomizes the community and fragments group solidarity, as evidenced by the many chains that have forked off from the original protocols of Bitcoin and Ethereum.”
As if that weren't enough, almost all blockchain projects invest heavily in marketing by engaging on highly centralized, untrustworthy platforms. To launch an ICO without a Telegram and Reddit group, including an armada of community managers and trolls, was seen as odd and doomed to fail for much of 2018. Blockchain marketing also includes the appointment of self proclaimed blockchain experts who are positioned as the central authorities in certain fields. Crypto advisors sprung up like mushrooms in 2017 and particularly 2018, oftentimes by inflating their following on social media platforms like LinkedIn and Twitter. Unfortunately, many of them were (and still are) ill equipped in terms of economic theory, and provided ill advice. But companies like ConsenSys continue to use broken trust systems, such as social media channels or even the World Economic Forum in Davos, to try to build trust in the company (and Ethereum) and create an aura of magic around blockchain. I once asked Joe Lubin, founder of ConsenSys and Co-Founder of Ethereum, why his signature events, the Ethereal Summits, were set up in an almost cult-like way. He replied that the gathering is supposed to be a spiritual experience. Considering that Bitcoin is by far the most dominant crypto currency, set up entirely without marketing or advisors, this is a remarkable development.
To build trustless systems and to initiate a fundamental change in society and economy, immense trust is required by a number of people and institutions. This very same trust has been tampered with by countless blockchain projects by marketing and selling a technology before it was built and creating impossible expectations. Many white papers contain excellent ideas. But a good idea is usually only the beginning of successful technology companies. Too many projects allocate too much resources on polishing their white papers and ideas and too little is being built. And if blockchain applications are built, they are not successful. DApps can be happy to get a few thousand users per day and the vast majority of projects shows no signal of success whatsoever. It takes an awful lot of time to build trust. But most projects, including more prominent ones like Tezos, were built without precise processes for the short term. With the inflation of the market in 2017, roadmaps were hastily adjusted and loaded with what is called Moon or even Mars shot, completely unrealistic goals in a completely unrealistic time frame.
Despite all growing pains Blockchain technology is here to stay. The full potential of blockchain is still to be discovered. The experimenting with Blockchain, particularly with certain applications such as crypto currencies, will continue for a few years and decades until our society changes. Blockchain is not a disruptive technology, which competes and eventually over-takes traditional business models with smarter cost structures and more targeted branding. Blockchain is a foundational technology, creating new foundations for our society and economy over a long period of time. So let’s treat it this way and build for the long term, trying not to make the same mistakes as today’s broken digital platforms.