The Blockchain and the New Architecture of Trust

by Kevin Werbach

Overview

How the blockchain—a system built on foundations of mutual mistrust—can become trustworthy

The blockchain entered the world on January 3, 2009, introducing an innovative new trust architecture: an environment in which users trust a system—for example, a shared ledger of information—without necessarily trusting any of its components. The cryptocurrency Bitcoin is the most famous implementation of the blockchain, but hundreds of other companies have been founded and billions of dollars have been invested in similar applications since Bitcoin’s launch. Some see the blockchain as offering more opportunities for criminal behavior than benefits to society. In this book, Kevin Werbach shows how a technology resting on foundations of mutual mistrust can become trustworthy.

The blockchain, built on open software and decentralized foundations that allow anyone to participate, seems like a threat to any form of regulation. In fact, Werbach argues, law and the blockchain need each other. Blockchain systems that ignore law and governance are likely to fail, or to become outlaw technologies irrelevant to the mainstream economy. That, Werbach cautions, would be a tragic waste of potential. If, however, we recognize the blockchain as a kind of legal technology that shapes behavior in new ways, it can be harnessed to create tremendous business and social value.

Product Details

ISBN-13:	9780262038935
Publisher:	MIT Press
Publication date:	11/20/2018
Series:	Information Policy
Pages:	344
Product dimensions:	6.10(w) x 9.10(h) x 1.30(d)
Age Range:	18 Years

About the Author

Kevin Werbach is Professor of Legal Studies and Business Ethics at the Wharton School of the University of Pennsylvania. Founder of the technology consulting firm Supernova Group, he has advised the FCC and Department of Commerce on communication policy. He is the coauthor of For the Win: How Game Thinking Can Revolutionize Your Business.

Table of Contents

Series' Editor's Introduction ix

Acknowledgments xv

Introduction: The Parable of the Tree 1

Buttonwood to Blockchain 1

Logically Centralized, Organizationally Decentralized 7

Law and Quantum Thought 9

The Path Ahead 11

I A Revolution in Nine Pages

1 The Trust Challenge 17

Without Relying on Trust 17

A Crisis of Trust 18

Defining Trust 21

Trust Architectures; Peer-to-Peer, Leviathan, Intermediary 25

Trustless Trust 28

2 Satoshi's Solution 33

Too Trusted to Fail? 33

In the Beginning, There Was Bitcoin 39

Nakamoto Consensus 42

The Significance of Cryptocurrency 48

3 More than Money 53

It All Started When They Nerfed the Siphon Life Spell 53

Permissioned Ledgers 58

Smart Contracts 63

The DAO Saga 67

4 Why Blockchain? 71

Beyond the Whoppercoin 71

The Enduring Value of Intermediaries 74

Decentralization 76

Shared Truth 79

Translucent Collaboration 83

Tokens of Value 85

II Ledgers Meet Law

5 Unpacking Blockchain Trust 95

Something from Nothing 95

Distributed 96

Cryptoeconomic 98

Immutable 101

Transparent 105

Algorithmic 107

6 What Could Possibly Co Wrong? 113

Vision and Reality 113

Satoshi's Error 116

The Limits of Decentralization 119

Not-So-Smart Contracts 123

Trusting the Token Issuers 127

Centralized Edge Providers 129

Rules of the Road 131

7 Blockchain Governance 133

Vili's Paradox 133

The Power of Consensus 135

Governing the Governors 138

The Social Contract 141

Governance in Practice 143

8 Blockchain As/And Law 149

Vlad's Conundrum 149

Things That Cryptoregulate 153

This Time It's Different? 156

Ex Ante Design vs. Ex Post Dispute Resolution 160

Law as a Technology of Trust 163

Modes of Interaction: Supplements, Complements, Substitutes 165

9 We're from the Government, and We're Here to Help 175

We Need to Begin Somewhere 175

Regulatory Controversies 178

The Token Offering Test Case 182

Regulation and Innovation 189

A Framework for Regulation 194

III Building the Decentralized Future

10 Connecting the Legal and the Technical 203

The Education of Nicholas Szabo 203

Making Law More Code-Like 204

Making Code More Law-Like 212

Fusions of Cryptogovernance 218

11 An Unpredictable Certainty 225

As Speculative as They Are Rich 225

Decentralization Cannot Hold 228

Overcoming the Trust Trade-off 233

Blockchain as Spanning Layer 236

12 Conclusion 241

Mike Hearn's Odyssey 241

A Matter of Trust 245

Notes 247

Index 305

What People are Saying About This

Endorsement

Who rules the blockchain? Everyone, and no one, and lawyers, too.The Blockchain and the New Architecture of Trustis a tour de forcetour of the hidden layers of power and politics that make blockchains work. Werbach makes a compelling case for taking blockchain governance seriously.

—James Grimmelmann, Professor of Law, Cornell Tech and Cornell Law School

From the Publisher

Kevin Werbach writes with great clarity and insight about the powerful blend of social, technical and legal components that provide the architecture of trust underlying blockchain. Combined in the right way these components provide a wide set of capabilities in a surprisingly wide set of circumstances. This elegant analysis is sure to become a classic and will change how individuals, guilds, organizations and governments invent new kinds of institutions and institutional architectures for our fast moving, radically contingent networked world. I highly recommend this paradigm shifting book.

—John Seely Brown, Co- author The Social Life of Information (HBS Press, 2000 & 2017) and Design Unbound – designing for emergence in a white water world (MIT Press, 2018), Former Chief Scientist, Xerox Corp. and Former Director of its Palo Alto Research Center (PARC)

Forget the hype – read this book! With his eloquence and insightfulness, Kevin Werbach made me realize why blockchain truly matters, and the ways it will alter how we transact in business and as consumers. A truly indispensable guide!

—Viktor Mayer-Schönberger, Professor of Internet Governance, University of Oxford and co-author of Reinventing Capitalism in the Age of Big Data

In a world where Blockchain has become the new buzzword du jour, Werbach is balanced and thoughtful describing the opportunities, challenges and the underlying technical and social issues. He uses easy-to-read examples and explanations accessible to newcomers but worth reading for even seasoned experts to better understand this important phenomenon.

—Joi Ito, Director of the MIT Media Lab and cofounder of the Digital Currency Initiative, MIT

Who rules the blockchain? Everyone, and no one, and lawyers, too. The Blockchain and the New Architecture of Trust is a tour de force tour of the hidden layers of power and politics that make blockchains work. Werbach makes a compelling case for taking blockchain governance seriously.

—James Grimmelmann, Professor of Law, Cornell Tech and Cornell Law School

Editorial Reviews

However, Werbach argues, the most significant innovation of blockchain is not governmental or even technological but emotional: the creation of 'a new form of trust,' in which you put your confidence in a store of information without relying on any single person to authenticate it — trust the system, not its parts. The outstanding question is whether this method of cultivating trust is viable, and if it is, in what ways we can best deploy it. The answers we come up with are likely to determine blockchain's future.—New York Times Book Review—

From the Publisher