Can technology replace trust?

In the context of digitalisation, there is a growing number of voices suggesting that the need for trust could be reduced or that trust itself could even be completely replaced by the use of technological systems. The basic idea is to replace human and institutional action – which is trust-demanding and often errorprone – with deterministic and error-free technology. In particular, the blockchain technology introduced in 2008  plays an important role in this context: According to the inventor of Bitcoin, known under his pseudonym Satoshi Nakamoto, it allows transactions between individuals “without having to trust”. A journalist from the Economist even stated in 2015 that blockchain “creates trust”. Others argue that blockchain technology changes the nature of trust or eliminates its necessity and makes a society without trust possible. In such a society, trust would become obsolete, since all interactions between individuals would be precisely regulated by technology, as with a cybernetic machine. Can (blockchain) technology really do that? Should we trust it? Our research illustrates that complex technical systems are rarely perfect. For example, we uncovered a potential way of attacking participants in the Ethereum Network. Ethereum, the second most important blockchain after Bitcoin in terms of the market capitalisation of its underlying cryptocurrency, is particularly popular as a platform for “decentralised finance”.

The term stands for a combination of classical financial concepts and products that we are familiar with from the banking industry with blockchain technology. For example, some products that are being developed make it possible for users to lend cryptocurrency and receive interest in return. The vulnerability we identified allowed participants to be isolated from the rest of the network and their virtual money to be stolen. The software underlying the network was “repaired”, in collaboration with developers from the Ethereum Foundation and this vulnerability was largely closed. This example shows that trust in the manufacturers and operators of the technology must be maintained. At the same time, it reveals the need for human intervention to keep the technical system in functioning condition.

When technical systems are used to enforce legal standards, for example when Internet platforms automatically detect and block copyright infringements – in such cases, at the very latest, the possibility for human intervention should also remain for legal reasons. If we assume a perfectly functioning technical system that simply makes infringements of rights impossible, the question arises in the spirit of Joseph Weizenbaum, the man after whom our institute is named: would the use of such a system even be desirable? Should society’s trust in citizens’ compliance with the law (combined with an ex-post possibility of enforcement) be replaced by fully technical ex-ante enforcement?

Many blockchain proponents seem to largely agree with regards to economic transactions or at least accept technical law enforcement in order to achieve more “decentralisation” and thus disempower financial service providers and (central) banks, which they do not perceive as trustworthy. Under the guise of decentralised finance, such proponents seek to extend the subversive idea underlying Bitcoin – digital money beyond state control – to a wide range of financial services and instruments. Particularly many innovations are focused on the design of novel currencies. While almost 6,000 so-called cryptocurrencies are being traded, they can hardly be used as alternative currencies. Perhaps the biggest obstacle here is the inherent price instability. The lack of clear concepts for assessing the intrinsic value of digital tokens could destabilise trading patterns on stock exchanges. Some initial empirical investigations that we have conducted as part of our work support this thesis. In 2019, we published a paper on practical projects for price stabilisation in cryptocurrencies. It became clear that many of the projects studied are struggling with the technical and economic realities. A good third of the of the 24 analysed projects ignore insights from economic history and could become the target of speculative exchange rate attacks. Almost two thirds, like Facebook’s Libra, use the simple procedure of full collateralisation using traditional, financial values.

However, the financial securities remain deposited with the distributing company or traditional banks – the idea that this does “not require trust” clearly seems out of place. More and more practitioners are also becoming aware of the limits of “trustlessness”. Interviews that we have conducted with developers in the blockchain scene show that trust is seen as an important element in the implementation of blockchain-based systems. These need a social layer and are based to a large extent on trust in the community.

It is unlikely and also undesirable that technical systems will ever completely replace human trust. At the same time, however, the symbolic role of new technology is becoming clear. There will probably never be a society without trust, but as a myth it already exists. Within the blockchain community, forexample, it is inspiring numerous softwaredevelopers and entrepreneurs and motivating innovations and ambitiousdigitalisationprojects that pursue progressive goals such as making work easier through automation, technically guaranteed transparency or improved interoperabilityof previously isolatedsubsystems. In other words, venturesthat can lead to improvements – and that might never have come about without strong shared myths.