Blockchain

In NFTs and Blockchain technology, we trust? by Benjamin Ho

In NFTs and Blockchain technology, we trust?  by Benjamin Ho

Are we in a crisis of confidence? Trust in institutions—governments, medicine, media—has been in decline for decadesand a lack of confidence in public health programs has fueled COVID-related deaths. It seems like every day we see news stories about misleading leaders or evasive government officials, giving us new reasons to be wary of the companies and institutions we have always relied on.

Can we then find hope in the form of technologies that allow us to trust each other in new ways, through new institutions?

Twitter recently added a feature which allows users to identify themselves with an NFT image, distinguished by a new hexagonal border, rather than just a profile picture. An NFT (non-fungible token abbreviation) is a digital commodity, usually an image, whose ownership is recorded on a ledger stored on a blockchain. This definition probably makes no sense to the average consumer; indeed, many businessmen view NFTs as frivolous and a fad.

But the technology underlying NFTs reminds us of something crucial about how we function in society. Twitter’s decision isn’t just a gimmick, it’s also about trust: the trust people place in new technologies, but also the trust we place in each other. NFTs create new ways for us to trust, based on self-expression.

My research focuses on the history of trust, from its hunter-gatherer origins to its fundamental role in today’s economy. It’s a story about how humans learned to work together over great distances. Extensive cooperation carries risks – it is much easier to trust your neighbor than a supplier across the ocean – but the institutions that facilitate trust have enabled us to form societies that create and innovate globally. Today, trust permeates every part of the modern economy. You can see it in the money we use that is backed by the full “faith” and “credit” of the government (the word credit comes from the Latin word for trust). New institutions, like those that allow strangers to ride in our cars (Uber) or sleep in our homes (Airbnb), are also building trust.

Blockchain technology and its primary application, Bitcoin, were designed to shift the place of trust from centralized institutional authorities to decentralized networks, using a computer algorithm. A blockchain provides a way to store a ledger (think of a spreadsheet) not just on a single computer, but spread across thousands, so that no untrustworthy bad actor can manipulate the ledger on their own purposes. Bitcoin is simply a currency, where the record of how much money you have is stored on a ledger distributed over the internet, rather than in a stack of paper bills or on a computer in a bank.

Many blockchain proponents believe that the technology will allow us to manage the exchange of money or property rights without the burden of bureaucratic rules and outdated systems imposed by old institutions. Yet it often tries to solve “problems” that are already mastered by trusted systems. Few of us worry that the banks we use will lose our money or that the Federal Reserve will depreciate the US dollar. Moreover, removing people from the system and replacing them with an algorithm creates its own new set of problems. For example, while records stored on blockchains are protected from interference by complex computer algorithms, accessing your money in these systems often only requires a password or “digital key”. What happens when someone loses their password? Billions have been lost on the blockchain in such cases. And billions have been stolen from blockchains by hackers exploiting errors in the computer code.

However, blockchain technology can be useful in reviving trust in new institutions in developing countries. Game theory and economic experiments (as well as everyday experience) suggest that trust is earned through repeated interactions, forged by customs and norms that can take generations to develop. The US financial system has had hundreds of years to build trust, but people in a developing country with relatively new and/or weak legal institutions may be less likely to trust a new bank. New decentralized financial services, powered by blockchain technologies, could be particularly useful in building trust in such environments. El Salvador recently became the first country to adopt Bitcoin as legal tender, hoping to capitalize on these new innovations.

Many of our interactions with other people already happen online. As our social lives become digital, perhaps in the coming metaverse, people will spend more and more money to express themselves online, just as they do in the offline world today. today.

New digital geographies also lack trusted stories and institutions, and therefore could benefit from blockchain technology. Which brings us back to NFTs.

An NFT allows someone to claim ownership of a particular instance of a digital asset. Once created, NFTs can be bought and sold, with fees for each transaction going to the blockchain and associated service providers. Such services could easily have been provided by a government, which already maintains records to track ownership of digital property rights such as patents and copyrights. But governments are slow to adopt new technologies. Similarly, a private entity could also have offered similar services, but creators are less likely to entrust the monitoring of their art to a for-profit company or a new organization. Placing NFTs on a blockchain speeds up the process of getting creators and consumers to trust the new system, as the technology helps ensure transaction transparency and protection against manipulation.

Why would we want to claim ownership of an instance of a digital image in the first place? Because, more and more, we live in the digital world. Many of our interactions with other people already happen online. As our social lives become digital, perhaps in the coming metaverse, people will spend more and more money to express themselves online, just as they do in the offline world today. today.

They could buy digital clothes. A die main sources of income from video games is in-app purchases, including digital outfits for a player’s avatar to wear in-game. Aloy, a video game character, was recently featured on inaugural digital cover of Vanity Fair Italy. Companies like Nike sold virtual shoes for Fortnite game players and are moving to sell you shoe NFTs that would only exist in the metaverse.

Buying and wearing clothes is a way of expressing ourselves. For now, that means publicly displaying our clothed bodies in physical spaces. When someone buys designer clothes today, they don’t own the right to reproduce that garment, just the right to show that particular (expensive) instance of the garment and wear it. Until now, there was no easy way to buy a digital designer outfit the same way we would buy a physical designer outfit. NFTs are changing that and opening up a world of expression online, creating a system that protects creators by allowing consumers to distinguish between licensed and unlicensed copies of digital goods.

This kind of expression counts. In some of my research with Jonah Berger and Yogesh Joshi, we find that the brands we buy – in fact everything we buy – convey to the world something about who we are: our social status, our personality, our reliability. For example, psychological experiments find that people can form surprisingly accurate assessments of someone’s personality simply by observing the objects in their room.

Our fashion choices and other purchases, whether digital or not, reflect who we are. Throughout history, humans have (for better or worse) used shared identity – shared family, shared ethnicity, shared religion and shared language, but also shared taste for music, movies or sports teams – as a way to decide who to trust and therefore engage in business, romance, friendship, and more.

The new Twitter NFT feature is designed to allow Twitter users to further personalize their social media profiles in the same way our clothes are exposed to the world, but with added confirmation of its value. Some lament energy costs of NFTs and their contributions to climate change, but these costs are small compared to the emissions associated with other expressive goods like fast fashion.

Others lament the rise of NFTs as another overrated Silicon Valley tech trend, representing the excesses of late capitalism. I see it as something different – another way for humans to do what we’ve always done, to find new ways to express ourselves authentically, and to connect with the people we trust.