Trust, Blockchain-based Technologies, Public Sector, and the Social Good

Abstract

Many public institutions, government bodies, municipalities are experimenting with blockchain based systems, decentralized ledgers, smart contracts to deliver new innovative services to citizens, or improve the speed, efficiency, accuracy of existing ones. This short policy analysis looks at the potential mismatch between usually high-trust public institutions, and trust-minimizing technological infrastructures.

We warn that, in general, we should avoid replacing a high-trust environment with a trust-minimizing technology. Pre-existing trust is very valuable, and no new technology should endanger trust which is extremely hard to build but very easy to destroy.

Of course, not all institutions enjoy the trust of the citizenry. In low-trust environments the implementation of trust minimizing technologies need to consider the relative benefits and harms of the different approaches to dealing with low-trust environments. One can decide to implement a technology that is able to operate in such low-trust settings. The alternative to this is to try to implement technologies and policies that foster the emergence of trust.

What is the preferable way forward: replacing distrusted public entities with trust-minimizing technologies, or improving their trustworthiness? Should we implement a trust-minimizing architecture, or a trust-maximizing one?

Our institutions may be imperfect, and often produce arbitrary outcomes; sometimes they are downright oppressive. But at least there are clear lines of social, public, institutional, political and economic accountability and oversight. Such mechanisms of trust are yet to mature with regard to blockchain technologies. Unless these technologies can be brought into the fold, they remain largely unaccountable, thus fundamentally untrustworthy. And even if they are, we still don’t know which is preferable: a polycentric system of power of checks and balances, which involves democratic oversight, or an ideally decentralized and disintermediated one, where power concentration is prevented?

This should be a warning to well-intentioned public servants, institutions and private actors who are looking at implementing blockchain systems in order to better their domain or be seen as innovative, or simply because they fear missing out on a technology development sold to them as a revolution. It may be worth their while not to rush. It is OK to be slow and cautious. Disruptive digital innovation that targets trust should be treated with extreme caution.

Keywords: trust, public institutions, blockchain, decentralized technologies, policy

JEL Classification: h4, h7, k00