Trust in a Technological Age: Kevin Werbach

How Blockchain Works

“The problem with normal databases is that you have to trust the actor that is maintaining the database. And there are lots of situations where that’s a problem. So blockchain uses a variety of techniques based on cryptography to allow you to have confidence in what is stored on the ledger without necessarily having to trust any particular actor to maintain that. And then that opens up all kinds of potential.”

The Classic Challenge in Data Sharing

“Take digital identity. We all know there is a need for better digital identity systems to enable all sorts of things, government systems, as well as private activities. Well, all right, how are you going to do digital identity? Because the moment you centralize it, then you’ve got this problem of what can be done, how that central control can be exploited and problematic and hacked.”

The Problem of Trust

“The problem is if you’ve got multiple actors who have data, they don’t want to share either because they don’t want to share with their competitors or they don’t want to share with some powerful central actor. We’ve seen, for example, with the Facebooks of the world, where they get so much power from all the data they integrate, but then they leverage that power. That gives them control, that gives them the ability to exploit it in ways that are concerning. So blockchain allows that trust and that allows the sharing without giving up control.”

Transparency and Automation

“We can clear up the smoke as much as possible, and we should, but it’s a mistake to think that we can just get humans out entirely. Instead what we need to do is look more closely at these mechanisms of governance, which of them can be automated, what are situations we’re at different levels, we want to put mechanisms in place because that’s really how we’re going to get good results in the real world.”

A Unique Challenge

“The thing that makes blockchain so tricky in addition to what we’ve already talked about is that it’s inherently interdisciplinary. Just to understand the basic technical consensus mechanisms, you have to understand economics, you have to understand computer science, some game theory, and a bunch of other pieces. And so for me, that’s what’s cool and exciting about it, is that we can actually have these conversations and it forces people like me to say, well, here’s what we know from law and here’s what we know from the technology world. But what can you tell me from economics? What can you tell me from political science? And that’s a good thing, but it’s also a challenge.”

Brooke Struck: Hi everyone. And welcome to the podcast of The Decision Lab, a socially conscious applied research firm that uses behavioral science to improve outcomes for all of society. My name is Brooke Struck, research director at TDL, and I’ll be your host for the discussion. My guest today is Kevin Werbach, professor at the Wharton School of Business at the University of Pennsylvania and the author of The Blockchain and the New Architecture of Trust. In today’s episode, we’ll be talking about blockchain, the facts, the fictions, and the forecasts. Kevin, thanks for joining us.

Kevin Werbach: Thanks for having me.

Brooke Struck: So there’s a lot of hype out there and blockchain is a buzzword that I hear all the time. As an expert in the topic, please set me straight, what is blockchain? If I say that I’m going to put my trust in blockchain, what is it that I’m trusting?

Kevin Werbach: So, as you said, the book that I wrote is called The Blockchain and the New Architecture of Trust, because I think that’s fundamentally what blockchain is. But the challenge is that it’s a technology, and really it’s a family of technologies. So you can understand blockchain in a lot of different ways. At a basic level, it’s a kind of database, what’s called a distributed ledger technology for recording information.

Kevin Werbach: The problem with normal databases is that you have to trust the actor that is maintaining the database. And there are lots of situations where that’s a problem. So blockchain uses a variety of techniques based on cryptography to allow you to have confidence in what is stored on the ledger without necessarily having to trust any particular actor to maintain that. And then that opens up all kinds of potential.

Kevin Werbach: The first application was Bitcoin was a cryptocurrency because money is something recorded on the ledger. And so the challenge is to trust in the value of any currency, you typically have to trust the government that issued the currency. And if you’ve got this blockchain technology that creates this new structure of trust, then you can create value, have something like money without the traditional infrastructure of governments behind it. That was the first step, but really this applies to any kind of information. And that’s incredibly powerful.

Brooke Struck: In our previous discussions, you talked about this kind of distributed ledger system being able to support better decision-making. How do you see this technology delivering on that value proposition?

Kevin Werbach: Well, first of all, as you said, there’s a lot of hype out there. So I think blockchain is an incredibly important technology. There’s so many problems in the world where when you think about how are we going to address them, we’re going to need to address them with a technology like this.

Kevin Werbach: There are other related technologies, but blockchain generally speaking is really the way that the world is going to deal with problems that require overcoming a breakdown in trust. And so much of what we see happening in the world is about breakdowns in trust. So that’s the stage setting for this.

Kevin Werbach: In terms of decision-making, well, good decision-making requires good data. And much of the time when we try to think about what’s the problem where there’s a breakdown in getting access to good data, it’s a problem of integration. It’s a problem of getting the data from the ones who collected and the ones who have it to the ones who need it. And that’s a trust problem a lot of the time.

Kevin Werbach: The problem is if you’ve got multiple actors who have data, they don’t want to share either because they don’t want to share with their competitors or they don’t want to share with some powerful central actor. We’ve seen, for example, with the Facebooks of the world, where they get so much power from all the data they integrate, but then they leverage that power. That gives them control, that gives them the ability to exploit it in ways that are concerning.

Kevin Werbach: So blockchain allows that trust and that allows the sharing without giving up control. Again, there are all kinds of applications for this. There’s a lot of uses, for example, in supply chain context there’s a law for pharmaceuticals that there needs to be tracking all the way from manufacturing, through distribution to the pharmacies. And the problem is none of those parties want to give up information because it’s competitively sensitive.

Kevin Werbach: Well, if you use blockchain, there’s a platform called MediLedger that’s doing that. You can have all that information be shared. Well, how does that lead to better decision-making? If you have one integrated platform that all the information is on and everyone can trust it, then you can leverage that. So, for example, another blockchain system in supply chain is one called Food Trust that was originally a partnership of IBM and Walmart.

Kevin Werbach: They’re tracking food products from the farm, which might be in China, say, all the way through to supermarkets and distribution. And, same problem, the data just didn’t get integrated because it was too fragmented and there wasn’t trust. Well, they’ve created this one platform and that means, let’s say that someone gets sick and we know that they shopped at a certain supermarket, what we want to know is figure out that product that got them sick, let’s say it was bad raspberries or something, where was it grown?

Kevin Werbach: Where in the world was it grown so we can figure out how to shut down that farm? We had an incident a couple of years ago where there was bad romaine lettuce. There was E. Coli in romaine lettuce. They had to literally pull every head of lettuce off of every supermarket shelf in America because they couldn’t figure out quickly enough where it came from. So that’s a decision problem.

Kevin Werbach: If you’ve got this one platform, it’s just a database lookup. IBM said the initial trial with Walmart before this platform, it took six and a half days for Walmart. This is Walmart, they’re really good at this, six and a half days to figure out where the produce came from. Once it was on the blockchain platform, two and a half seconds, just a database lookup. So that’s really powerful for decisions.

Brooke Struck: Some of the other elements that we had discussed previously are around transparency. So if decision making needs to be kind of laid out in a code, that kind of closes the door to the smoky back room where actually what integrates into a decision is completely opaque and we got this kind of front facing messaging that offers some post hoc rationalization of why this decision was a good one or was the decision taken as opposed to the “real reasons”, which are the things that get discussed in the smoky back room. Do you see opportunities for that kind of concretization and laying there if the grounds for decision-making as increasing trust and increasing transparency in our institutions?

Kevin Werbach: Absolutely. So the next layer up from what I’ve talked about is first there’s the integration of the data. But this is not just a static database, that information goes in and nothing happens to it. It’s a network of computers, that’s what a blockchain is. It’s a shared ledger that is on, in some cases, thousands of different computers, which may all be replicating the ledger.

Kevin Werbach: And what they’re trusting and able to verify cryptographically is that they all have the same information. Well, those are all computers that are running programs all the time. They’re constantly verifying the blockchain, that’s software code. So the blockchain itself is a software application being run in parallel in a decentralized trusted way.

Kevin Werbach: And what that means is that the information is not just information, it’s what’s called smart contracts. Every transaction on the network, and transaction could be a financial transaction like I’m transferring Bitcoin to you, but a transaction can be really anything that you can write into software code.

Kevin Werbach: So, therefore, these smart contracts allow for activities and applications to be built on top of them, where you can say it’s not just trusting that the company in charge, that the bank is doing the right thing with your money, that they made a decision based on the criteria that they spelled out to you, you can actually look at the code. These are open systems and you can see exactly how it is written and it has to execute that way.

Kevin Werbach: In order for the system to be trusted every step in the code needs to be executed the same way. So that’s the potential. And that’s the opportunity here. I think we’ll get into, there are also some risks and downsides of this, but definitely, blockchain is about taking decisions and advancing the ways these get written into code. It’s not the first time that happened. We have lots of automated software developed contracts, but this is about not just writing the contract in code, but actually executing and implementing it that way too.

Brooke Struck: Let’s take a step away from the technical or the technological side of this and talk about the elements that you think are critical for blockchain to earn this trust. So in your recent book, The Blockchain and the New Architecture of Trust, there are three elements that you identify as critical to foster trust in a decentralized system, which you identify as being very, very different from any kind of system we’ve put our trust in before. So those three elements that you identified are law, regulation, and governance. Can you explain what each one of these means and how they fit together to foster this kind of trust?

Kevin Werbach: There is this assumption among a lot of blockchain advocates, especially the early ones, that this is a technology that eliminates the need for government. Because if you can have money that has value without having to be issued by a central bank and if you can have activities that are executed automatically through these smart contracts, well then we don’t need to worry about laws and government and all of that.

Kevin Werbach: And the people that make this argument are saying that’s a good thing, that we can’t trust governments, governments are biased, governments are too powerful, we can just trust math, is what they say. Because the cryptography underlying these systems, it’s just math. Now I disagree with that. I obviously think that the technology is important and valuable and the decentralized trust is part of what makes it unique, but this is not a trustless system.

Kevin Werbach: That’s the mistake that often gets made in the hype you hear about blockchain. Well, now we don’t need to trust because we have this decentralized technology. Well, no, you have to trust the blockchain. If you’re willing to, for example, put your money into Bitcoin, you’ve got to have some confidence that it’s not just going to disappear.

Kevin Werbach: And there are lots of ways it could disappear, not just through a direct attack on the cryptography. And it turns out when you open up these systems, there are lots of points, lots of things that you need to have some trust in. Not necessarily the traditional kinds of centralized human points of trust, but other kinds of trust. And if you want to trust the system, you need to figure out what to do if something goes wrong, that’s really the problem.

Kevin Werbach: So, for example, if you have a technology that is really great for facilitating money laundering, human trafficking and fraud with no way to provide recompense for that, that’s not going to be a trusted system. And so that’s one of the things that the legal system does. So law, regulation, and governance.

Kevin Werbach: Law is basically the policies that are put into place by governments, and that means protecting against certain eventualities. I can build a computer system that doesn’t have any way of stopping a transaction, that’s what a blockchain is designed to do, but there are some transactions that should be stopped. If we know that this money is going to terrorists, it’s not enough to say, “Well, we just have to let that happen because we want to have systems that are not too much involved by the government.”

Kevin Werbach: So law is about allowing the legal system to come into play where needed. It’s also about providing a backstop. So in traditional contracts, if there’s a dispute, you can go to court. And the problem with the blockchain system, just a naive blockchain system with these smart contracts, is there’s no court, it self executes.

Kevin Werbach: And what that means is the contract has to be perfect ahead of time. It has to consider every conceivable eventuality for all time, because if it doesn’t, something’s going to happen and the parties are going to disagree. And no contract can do that. That’s what economists call a complete contract. And it basically doesn’t exist in the real world because we’re imperfect creatures.

Kevin Werbach: So we need mechanisms for redress, so that’s about the legal system. And some of that can actually be built through the blockchain. Regulation is about dealing with problematic situations. What if, for example, this is a really great way for people to have all their money stolen by fraudsters. We saw that with these, what are called initial coin offerings on blockchain, a lot of them were just total scams.

Kevin Werbach: And so there needs to be some way to say, well, no, that should be addressed. And we don’t want to just make it easy for that to happen. And then governance is about decision-making. Governance is about ways for these decentralized communities to come together. Because we’ve already seen situations. For example, there was something called the DAO, a blockchain-based crowdfunding system, someone exploited a bug in the code and basically stole the money.

Kevin Werbach: And then all the people that put money and said, “Wait a minute, that’s a thief.” Well, the blockchain didn’t know it was a thief. The blockchain thought, “Okay, it’s just someone calling this function code.” And so the question is, what do you do? And the blockchain had no answer. The blockchain had no answer for if something happens, how do we get together and decide the right course of action?

Kevin Werbach: In the end, basically the leaders of the community convinced what are called the miners, the people actually who run the code to roll back the transaction, which was the right answer, right? This was clearly theft and it would undermine trust and confidence in the whole system, but that required messy human governance, those black, smoke-filled rooms again.

Kevin Werbach: We can clear up the smoke as much as possible, and we should, but it’s a mistake to think that we can just get humans out entirely. Instead what we need to do is look more closely at these mechanisms of governance, which of them can be automated, what are situations we’re at different levels, we want to put mechanisms in place because that’s really how we’re going to get good results in the real world.

Brooke Struck: Let’s dig into the squishiness and the messiness of our human existence. So you mentioned the Silicon Valley very tech-oriented community and some of the anti government and anti-red tape kind of mentality that sometimes goes with that. I’m reminded of Tony Stark and I think the first Iron Man film where he kind of reveals this suit that he’s built and he says, “I’ve just privatized world peace.”

Brooke Struck: Somehow this is technology culminating in being able to overcome the failures that all this messy, squishy humans just couldn’t get any traction on. And the initial stories around tech platforms like Uber, for instance, how effectively they were able to cut red tape in a lot of cities, bypass these regulations and this legislation that had so choked up the taxi industries, and they were able to offer a dramatically more pleasing service at a much more competitive rates and all of these things.

Brooke Struck: But then of course, at the end of the day, Uber ends up reproducing a lot of those challenges that that red tape was put in place to compensate for in the first place, right? That actually it’s just far too easy to exploit workers in these kinds of precarious situations who will take a little bit of a part-time gig here and a part-time gig there.

Brooke Struck: Are we really actually solving the problem by moving to this technology, or is the acknowledgement that governance structures still are really essential in order to have trust in the system? Is that not kind of the abdication that in fact, we’re never going to get away from governance and in fact, all of the efforts that we’re going to put into thinking about governance for blockchain are parallel to the same kinds of efforts we should be thinking about governance elsewhere?

Kevin Werbach: We don’t want to get away from governance. We want to think harder about what should be done by governments. And there’s certainly room to say that some things that governments do, they do badly, or we can do better with various kinds of technological systems. But we shouldn’t just assume that governments inherently do it wrong.

Kevin Werbach: That Tony Stark example it really, I think, crystallizes that there’s this mistaken idea that government and governance is all about power, so whoever has the most power is in charge. The reality is it’s about trust. And trust is not about extreme power. So if I hold a gun to your head and tell you to do something and you do it, I’m not trusting you, right? The reason I’m holding your gun to your head is because I don’t trust you, right? That’s the whole point. Trust is about a leap of faith.

Kevin Werbach: In the book, I talk about it as confident vulnerability. There’s inherently some messiness. If there’s certainty, there’s not trust. Trust is about a willingness to do something without being absolutely positive because you have a level of understanding. And trust may be built on a track record, it may be built on relationships.

Kevin Werbach: I talk in the book about different structures of trust. So blockchain, it’s a different kind of trust, but it’s not the elimination of trust. That’s what we want. I mean, the there was a blockchain system called the Parity Wallet. And again, another flaw in the code, and someone just by accident deleted the smart contract because they thought they were fixing a bug or preventing something.

Kevin Werbach: They deleted the smart contract that allowed people to take their money out. So there’s $150 million at the time of cryptocurrency, it’s locked up. It’s there, but no one can touch it. And it’s just impossible to get around that. That’s a bad result. And everyone agrees it’s a bad result. I think it’s the notion that we can either somehow fix human nature or somehow eliminate human nature. These are all tools.

Kevin Werbach: And just as we’ve seen with so many other technologies, they have tremendous benefits. Again, I’m really excited about blockchain because there are these big problems that we can’t address without it. But we need to have our eyes open and we need to not think that the big problem is humans and just automating everything makes the problems go away. Or the big problem is governments and just getting rid of governments make the problems go away.

Kevin Werbach: We need to see what the problems actually are. Frankly, when you get beyond the kind of radical statements in some of these early examples, and you look at who’s actually developing and deploying blockchain systems at scale, and there’s actually a lot going on now, those people talk in a much more nuanced way.

Kevin Werbach: So for example, the Ethereum network, which is the second most valuable cryptocurrency, and really the one that has the biggest chunk of developer adoption for these smart contract platforms, people are building stuff on it, other than just trading a cryptocurrency like Bitcoin to make money. You talk to the people at the core of that community, and they talk all about governance and about human processes and about messiness.

Kevin Werbach: Ideologically, they all say, “Okay, we want to keep going towards as much decentralization as possible, but we want to make things that work.” And so that’s what they’re doing. And most of the blockchain platforms that are actually being used in production systems like those supply chain ones, for example, I talked about, they trade off some degree of decentralization.

Kevin Werbach: They have mechanisms in place to say, all right, if something goes wrong, here’s who needs to get together to figure out what to do, and here’s how we are compliant with regulation. For example, blockchain systems being used now for insurance, which is a really great example for you’re talking about good decision making, having an effective insurance system.

Kevin Werbach: There’s one called Etherisc, they’re doing a project in Sri Lanka for crop insurance. There’s a huge percentage of people, subsistence farmers in Sri Lanka don’t have crop insurance, even though they could afford it, they could actually pledge their crops to security. It’s just no one can get out there at low enough costs to provide this product to thousands of subsistence farmers in Sri Lanka.

Kevin Werbach: Well, they built it on a blockchain where the whole insurance product is automated through smart contracts. And you can get it on your phone using a cryptocurrency. And so they’re providing insurance for those people. That’s great, but the point is, that is not a substitute for insurance regulation or a substitute for legal enforcement, or a substitute for these governance mechanisms. So we need to work through all of that. Again, if you really talk to the people who are trying to get things done, that’s what they’re doing.

Brooke Struck: So there are two messages that came out for me in what you just said. The first is that decentralized doesn’t mean uncoordinated. You still need to be very, very coordinated in how the blockchain functions and how the community surrounding that piece of technology will function. That strikes me as kind of at the heart of the law, regulation, and governance.

Brooke Struck: There needs to be a coordinated action around it, regardless of whether that coordinated action is centralized or not. The second thing that stands out to me is that you identified that there are certain problems that seem to be well addressed here. So let’s focus on coordination problems specifically. If this is not the silver bullet solution that I was kind of poking fun at, if this is a genuine solution to a real type of problem, it fits better in some circumstances than others, what is the type of problem that is really well addressed by blockchain, that this is a significantly better solution than what was out there before?

Kevin Werbach: So it’s either a problem where trust is the difficulty or it’s a problem where there’s not enough trust. So problems, for example the Uber example you gave is partly a good example in terms of the mistake in thinking that just privatizing everything with technology automatically makes things better.

Kevin Werbach: You talked about the impact on drivers, but a pedestrian in Arizona died because an Uber self-driving car they were testing crashed into her. And the investigation showed it was really this notion of move fast and break things. They cut corners on safety. You can’t do that. Someone lost their life as a result. And there lots of other examples of this as well.

Kevin Werbach: So one issue is that, but the other issue is the Uber system is not a decentralized system. It’s often talked about as it’s all based on these ratings and so forth. Well, yes, but who controls the network? Uber controls the network. Who extracts the value out of the network? Uber extracts the value. They are the centralized actor. So blockchain deals with problems where a central entity has too much power because it can replace it with this decentralized platform.

Kevin Werbach: Now, again, that doesn’t mean all the problems go away, but that’s one set of problems. If we are worried about Uber or things like it being too centralized, or we’re worried about Facebook having all of our data, then a blockchain alternative would be a valuable alternative. The second category of problems is where there’s not enough trust. And that’s the situation where the data integration just doesn’t happen because there’s not trust.

Kevin Werbach: So I mean, some of these supply chain examples are really good examples of this. There’s another one called TradeLens, which is for international shipping, Maersk was one of the initial developers of it. And there’s several trillion dollars a year of commerce that goes over the oceans and on trains and trucks and so forth shipping goods all around the world.

Kevin Werbach: So, all right, if you’re a company that ships something, right now there’s no place you can go to figure out where in the world that thing is. You can call up the freight forwarder or try and reach the shipper or the trucking company, and they’ll all give you an answer, but you don’t know if what they’re telling you is the truth and they don’t always know.

Kevin Werbach: Today, and we’re in 2020, why don’t we just put it all in a database, right? It’s really quite simple. Technically because they don’t trust each other, they don’t all want to share the information. So what if we have a blockchain system where everything gets put on to one common platform, then we don’t have to worry about the lack of trust between the participants. Because that’s what this platform is doing.

Kevin Werbach: Now you can go and see, all right, the system tells you that here it is in the shipping container which is here on the ocean. So that’s the kind of problem where either you find that there is some entity that has too much power. And again, that might be a government or that might be a private actor, or you have a situation where you say, well, okay, why do these things not connect when technically there’s no reason that they couldn’t. And the answer is because the parties don’t want to. That’s the situation where blockchain may be what overcomes that gap.

Brooke Struck: So there’s a lot of hype out there right now about blockchain as we’ve indicated a few times in our conversation. For those who are interested in capitalizing on the potential out there, on doubling down on the fact and maybe not doubling down on the fiction, what would you say is the single most useful thing that they can do starting today to figure out what the rest of the journey might look like for them if it turns out that indeed there is potential there for them?

Kevin Werbach: Well, obviously I’ll say go read my book because that’s one reason that I wrote it and one thing that it tries to do in a generalized way. So it’s a challenge because the technology is fundamentally tough to understand. And you don’t need to understand it at a deep level. Most people don’t understand how the internet works.

Kevin Werbach: Most people really don’t know a lot about best efforts packet switch networking, and yet they have a good enough conception about what it means when you send an email or use Snapchat to send a photo to someone or whatever, but they can take advantage of it. And they can then take advantage of it in a business or another context. So blockchain is similar. You want to try to get to the point where you can answer that first question you posed to me.

Kevin Werbach: If someone says to you, what is blockchain, then you can feel comfortable about an answer. There’s a lot of great material out there, but it’s in lots of different places. So I would say go on the journey, try to find resources that make sense for you. And don’t assume that it’s any one thing.

Kevin Werbach: There are lots and lots of sub-communities out there, but there’s some good reports out there. Look for reputable organizations. There’s good… all of the major consulting firms, the World Economic Forum has some really good blockchain reports that they put out, it talks a lot about social impact applications and so forth. Good reputable institutions, lots of government agencies and international organizations have written reports on blockchain.

Kevin Werbach: So think about the industry that you’re in or the area that you’re in, what are the hard problems of those characteristics I talked about, and then go look at where blockchain is being applied in that kind of context. I can’t point to again, other than the stuff that I’ve tried to contribute, say like just do this specific thing. I would say hold off rushing to judgment on either side.

Kevin Werbach: I hear from a lot of people, either who are just totally convinced that blockchain is a magical solution who don’t want to get into the problems, but I actually hear even more from people who react negatively to that, who say, “Oh yeah, blockchain, it doesn’t work. It was all a fraud. It’s all about just getting rich on cryptocurrencies and scamming people,” and they just turn off.

Kevin Werbach: And they’re not willing to see the legitimate examples and they’re not willing to give it time. This is a foundational change in technology. It took decades for the internet to go from something which was a really fascinating science project and something that was interesting to a small group of people to something that the whole world runs on. And today the whole world runs on it.

Kevin Werbach: Blockchain is similar. It’s a mistake to think that it is going to mature in a handful of years, but it’s so important. So I would just say that. I would say have a good air of skepticism, but also be willing to understand that if we can get it right. And there’s lots of different blockchain efforts in lots of different ways, there’s not one technology. If enough of these get to their point of maturity, it’s going to change the world. It really is that deep a change and a really important structure. Everything is built on trust.

Brooke Struck: Right. So that’s interesting. I like that there are kind of two facets to this critical lens that you bring to it. The first is that anyone who’s really, really sure of the answer, whether they’re sure that blockchain is the guarantee of everything turning out right or they guarantee that everything’s going to come crashing down in a fiery blaze. Anyone who’s that certain should be regarded with a certain air of skepticism. That’s one.

Brooke Struck: And the other is to not be in a hurry to come down on your judgment right away, that actually this is something that’s growing and evolving. Rome wasn’t built in a day. Don’t worry that wherever you come down on this issue, whether you think that blockchain represents a very interesting opportunity for you or not, you don’t need to have decided by tomorrow morning.

Kevin Werbach: Absolutely. And it is evolving and changing and it’s still a really immature technology at a lot of levels. And it’s a network technology that’s built in layers. So there’s the basic, what we call consensus of how the blockchain works. But then there are these smart contracts and applications. And we’re just working out what a lot of those are and developing them.

Kevin Werbach: I guess what I would say is ultimately to flip it around and look at some of these hard problems. So say take digital identity. We all know there is a need for better digital identity systems to enable all sorts of things, government systems, as well as private activities. Well, all right, how are you going to do digital identity? Because the moment you centralize it, then you’ve got this problem of what can be done, how that central control can be exploited and problematic and hacked.

Kevin Werbach: And then well, we’re talking about this globally. So Canada or the United States, or China may figure out a system that works in their country, but that’s not global. And the world is global and people and companies and goods and services go across borders. So how do you do that? Because there’s no global government. The question is once you understand a problem like that, and there are several of them, really everywhere you look, how else are we going to solve that problem?

Kevin Werbach: It may not be with blockchain as we know it today, but it has to be with something like blockchain, because it has to be with something that is both decentralized and trusted. That’s just a criterion for this kind of solution. So that, for me, is the starting point, that when you look at so many of these issues, what needs to happen, we need a technology that works in this way, and we need people to figure out how to make these technologies better, how to deal with the flaws and how to respond to them.

Kevin Werbach: And again, there’s a lot of good work going on both in the private sector in the tech community, as well as in government. I spend a lot of time talking to regulators and there’s this notion that they’re all saying, “Stop it, get rid of it. It’s horrible. We’re scared of it.”

Kevin Werbach: There’s some of that, but there’s a lot of them that are saying, “It’s great. We want to promote innovation, but just tell me how it’s going to deal with this problem. Tell me… okay, that sounds great for digitalization, how’s it going to deal with the privacy problems and the privacy rules that we really care about for our citizens?” And so on and so forth.

Kevin Werbach: And so that’s the conversation that’s happening. And I completely want to emphasize to people it’s an ongoing process over many years, don’t rush to judgment. But do spend a little bit of your mindshare trying to get to the point where you feel like you understand it.

Brooke Struck: I’m going to put a crazy point to you and ask you to respond. Given the importance of governance and of coordination of actors, even if there’s not a centralized body of power, should people who are interested in blockchain be rushing out and investing in a bunch of people with political science and philosophy degrees to try and figure out the next best governance technology that’s really going to allow blockchain to take another step?

Kevin Werbach: Yeah, it’s already happening. So Elinor Ostrom and Oliver Williamson shared the Nobel Prize in economics for their work on the economics of governance in very different ways. Williamson was focused more on corporations and firms and contracts, and Ostrom was focused on decentralized commons management, how you can have an effective governance system without necessarily having law or centralization.

Kevin Werbach: And so there’s a whole set of fields here and there are experts from these fields now starting to wake up and saying, “Wow, this blockchain stuff is kind of interesting.” And the blockchain people are starting to wake up and saying, “Oh wow, okay. There’s all of this fascinating work on how to design governance systems with these characteristics. How do we put them together?”

Kevin Werbach: And so the thing that makes blockchain so tricky in addition to what we’ve already talked about is that it’s inherently interdisciplinary. Just to understand the basic technical consensus mechanisms, you have to understand economics, you have to understand computer science, some game theory, and a bunch of other pieces.

Kevin Werbach: And so for me, that’s what’s cool and exciting about it, is that we can actually have these conversations and it forces people like me to say, well, here’s what we know from law and here’s what we know from the technology world. But what can you tell me from economics? What can you tell me from political science? And that’s a good thing, but it’s also a challenge. So yeah, absolutely.

Kevin Werbach: Again, I would say to anyone who’s interested in this, once you start to get a handle on it, think of what you know that could contribute to this conversation. Because again, it is so deep that it applies to so many different things. And we need experts in all of these areas. It’s not going to be one thing that they’re just one set of expertise that’s valuable.

Brooke Struck: So a blockchain like Bitcoin, for instance, the ledger indicates who owns which coins.

Kevin Werbach: It basically says what is the history of the ledger back from the beginning.

Brooke Struck: Right.

Kevin Werbach: And by looking at that, you can figure out which identities have how much.

Brooke Struck: Right. So who owns the ledger?

Kevin Werbach: No one.

Brooke Struck: That strikes me as problematic. If I think about something like the GDPR in the European Union, the whole idea is that data that is about me belongs to me. I am the owner of my data. And this question of data ownership strikes me as really important here, especially when we get into issues of coordination. So I’ve been thinking about this use case.

Brooke Struck: My reflections were sparked by a number of things that you said over the course of our conversation. I’m thinking about contact tracing applications for COVID-19, I’m thinking about the kinds of discourses around people’s concerns around data privacy and data ownership and these kinds of things and wondering whether something like a blockchain would be a powerful solution to try to overcome some of these challenges around the adoption of this technology.

Brooke Struck: That if people had more confidence in what was being done with the data, and there was more transparency around it, that they would be more trusting of the technology that would allow them to take better informed actions around managing the spread of this disease. And part of the idea that came to mind there is that in some of the discussions that I’ve had about tracing applications, one of the challenges is like, well, who owns this data and what is the body that is building this application?

Brooke Struck: So we’ve seen a lot of private sector development, as well as a lot of government development of these applications and the backend technologies and the datasets, ownership of the data on which they run. And part of the challenge is that in both of these cases, whether it’s an application that’s being built by a private sector company or by a government, we have a single, powerful actor that people are worried about how they will behave in possession of data that is about them, and especially around data that they believe belongs to them. How might we use blockchain to overcome some of these really, really thorny problems?

Kevin Werbach: First thing is owning the ledger is different from who owns the data. And in fact, that’s one of the benefits of blockchain. Those two things don’t have to be tightly coupled. So you can control your data and you can provide your data into this shared platform. So again, think of those supply chain examples I talked about.

Kevin Werbach: The reason that today you can’t tell where your shipping container is in the world is because if the party that knows that provided that information, then whoever they provided it to would be all powerful and they could control it and exploit it. And so they just don’t share, or they say, “Well, I’ll build a private application programming interface that you’ve got to plug into and the other side is to plug into that one.”

Kevin Werbach: And what blockchain does, is it breaks that linkage. It says you don’t have to have anyone owning the platform. Now, you have to have governance of the platform which we talked about. So that doesn’t mean you have to get rid of all private actors in it, but they don’t have direct control. So that’s the first piece. Second piece is ownership is different from control. There’s, I think, a flawed approach to personal data, which you hear a lot in the US in particular, which says that, okay, we just need more private property.

Kevin Werbach: If we could say that you own your personal data, then you could control it and we wouldn’t have to worry about Facebook and Google and everything. And the problem is well, no, giving you clearer ownership rights just means that they can buy it from you, or they can get it from you pursuant to some contract that you agree to by clicking on something and then you’ve given up all your rights.

Kevin Werbach: And you’re going to do that because they still have the power. So ownership, and we’ve seen this time and time again, the ownership is not the issue, the issue is control. That’s relevant. You talked about the contact tracing example, so that’s relevant in that context as well. The issue is can you maintain control? And that’s also what these laws like GDPR are concerned about.

Kevin Werbach: Can you maintain the ability, the right to be forgotten, to pull certain data out? Can you maintain the ability to see visibly what data about you is in this network? And typically under the traditional architectures, you lose that technically once the information is aggregated into a database. And that’s exactly what blockchain addresses.

Kevin Werbach: What it does is it says you still have that power because of the encryption built into the system even if the data are being shared. Now that then poses some problems about how do you implement something like a GDPR, right to be forgotten, on a blockchain network which makes data “immutable”, which is really hard to eliminate once it’s there.

Kevin Werbach: And there’s actually a lot of work going on. It goes back to what we were talking about early in the conversation. If you set up the system with those criteria going in and design that into the rules and the code of the smart contract, then you can do it or have a backstop that at some point it gets kicked out to a court or some other kind of mechanism. But that needs to be thought about and implemented ahead of time.

Kevin Werbach: We’re seeing this already with things like contact tracing, back to where I started answering your very first question, it’s not that there’s one blockchain thing and then everything else is not blockchain. A lot of the systems, for example, the system that Google and Apple designed for contact tracing uses many of the cryptographic techniques that are in blockchain systems to allow for protection of privacy, that the data gets shared, but it doesn’t mean that Apple gets all the data just because it’s on their phones.

Kevin Werbach: And so that’s not a blockchain system, but it’s an example of the potential of some of these techniques. And a blockchain system just extends that out further. Then the whole network is one that is not owned and the data can be shared across the whole network. And then again, this automation layer can be built on top of it. So, yeah, absolutely. That is a tremendously exciting area.

Kevin Werbach: Because again, when you start asking the question, how do we have control of data? And more and more with machine learning, we need to integrate the data. If you want to solve this problem, for example, of autonomous vehicles, which is incredibly valuable for climate change and for saving lives and for rebuilding cities and everything, all the data, all the driving data needs to be integrated. But that needs to be done in a way that doesn’t give power to one central company that controls the driving data.

Kevin Werbach: Well, how do you do that? Well, you make it possible when you create an incentive system around cryptocurrencies for sharing of data. There are organizations that are doing this now for aggregating machine learning data on a blockchain where the data can be studied and the analytics and the code can be written on top of it for the machine learning. And yet that doesn’t give all of the power to the company that’s doing that to take it for its own private purposes. This is the way we need to go. But then I always stop and say, yeah, just saying that doesn’t mean we’ve solved the problem, it means now we’ve posed the problem in the right way.

Brooke Struck: All right. And I think coming back to just recapitulate those two types of problems we really should be looking for are the kind of central actor problem where we’re worried about one person amassing too much power. And then this uncoordinated set of actors problem, where there’s a powerful use case if we can pull disparate pieces of information together, but for reasons of trust, those disparate actors are not managing to kind of coordinate themselves. The blockchain offers a kind of an avenue for them to reach an understanding and create a shared data resource that everyone can benefit from.

Kevin Werbach: Exactly. It’s either there’s too much trust in something that is untrustworthy or there’s not enough trust.

Brooke Struck: All right. Kevin, thank you very much for your insights today. We really appreciate that.

Kevin Werbach: Thanks for having me, it was fun.

Brooke Struck: If you’d like to learn more about applied behavioral insights, you can find plenty of materials on our website, thedecisionlab.com. There you’ll also be able to find our newsletter which features the latest and greatest developments in the field, including these podcasts, as well as great public content about biases, interventions and our project work.

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