There are many business relationships where trust is one-sided. In the contract between two parties A and B, A needs to trust B but B does not need not trust A.
Let me give a few examples of such relationships:
Mobile phone subscriber consumes data. The consumption is measured by the Mobile Network Operator (MNO). If the consumption exceeds the quota included in the subscriber’s plan, the MNO raises a bill for the excess data. Bills raised by MNOs are based unilaterally on measurements made by their own metering systems. Although there are consumer-side apps to track data usage (e.g. Onavo), I don’t know a single MNO that, in the event of a dispute, will accept the reading shown by the subscriber’s app. So, consumer needs to trust that the MNO measures the bandwidth correctly i.e. it does not pad the bandwidth in order to make a few extra bucks.
Student pays tuition to college. College does not issue any receipt and says “it’s in the system”. While the student can download the receipt from the system, their access to the system is controlled unilaterally by the college, the owner of the system. So, the student needs to trust the college not to revoke their access rights to the system.
Suppliers need to trust that their customers would make their payments as soon as they fulfill the terms of the contract signed by the two of them.
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In all these cases, trust is asymmetric.
Mobile phone subscriber needs to trust the MNO but MNO does not need to trust the mobile phone subscriber. Student needs to trust the college but college does not need to trust the student. And so on.
Asymmetric trust relationships have been around for a long time. Given that the sky hasn’t fallen during this period, they seem to be working quite well.
However, that’s not to say there’s no scope for improvement. Especially when it comes to #3 — ensuring that suppliers get paid on time.
Good news is, blockchain offers a way to inject mutual trust into business relationships. In the context of the above examples, it can do that in the following manner:
- MNO and Subscriber agree on a third-party metering dApp hosted on the blockchain. Subscriber has full visibility into their data consumption and is thus assured that MNO can’t pad its bills.
- College publishes the fee receipt on the blockchain. With their unfettered access to the blockchain, a student can download the receipt anytime without going through the college.
- The contract signed by the Supplier and Customer should be converted into a Smart Contract and published on a blockchain. As soon as the supplier’s fullfillment of all contract terms is reported to the blockchain, the Smart Contract should automatically transfer the due amount from the Customer’s bank account to the Supplier’s bank account. That’d be similar to the way in which a blockchain flight delay insurance product pays out the insured amount automatically when a flight is delayed — without the need for the policyholder to file a claim or do anything else. That way, the Supplier is assured of getting their payments on time.
At the technology level, Blockchain is a panacea for trust deficit problems inherent in asymmetric trust models.
However, when it comes to adoption, the rubber meets the road.
The College in Example #2 might claim that it does not have the tech chops required to onboard the blockchain. The Customer in #3 wouldn’t be eager to sign a Smart Contract that would strip their power to pass — or hold back — invoices.
(I’m optimistically assuming that the MNO in the first example might move its metering system to the blockchain as a way of differentiating itself from its competition.)
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Al Capone, the Chicago Mafia Don, once said, “you can achieve a lot more with a smile and a gun than with a smile alone”.
Likewise, you can achieve a lot more with Blockchain and Regulation than with Blockchain alone.
Let me take a related example from payments.
Banks used to enjoy float by taking 4–5 days to clear cheques.
There was no chance that they’d voluntarily forfeit the extra bucks by executing the payment in real time. So the UK government had to intervene and mandate banks to implement Faster Payments, so that the money goes from payer to beneficiary in near real time.
Likewise, regulation can compel MNOs and others to move their systems to the blockchain in order to drive symmetric trust between the two parties in a business relationship.
I’m generally against overzealous regulation. But, in this case, in the absence of regulation, I’m quite sure that businesses would only implement one-sided blockchain solutions that are favorable to themselves, like the automated property title transfer use case I’d described in Will You, Won’t You, Will You, Won’t You Get Your Blockchain App?.
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Blockchain was supposed to eliminate the need for trust and to disintermediate middlemen like regulators.
But it’s clear from the above use cases that (a) blockchain can foster trust, and (b) regulating it can actually bolster its adoption.
That’s surely ironical but no more than the hope of Bitcoiners that cryptocurrencies will receive a boost from a Wall Street platform like ICE Bakkt that actually strips cryptocurrencies of their uniqueness.
Originally published at GTM360 Blog.