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Walton College

The Sam M. Walton College of Business

All You Need Is Trust: Blockchain Technology and Reliability

Blockchain technology, trusting the process

May 22, 2020 | By Michael Adkison

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Researcher: Daniel Conway

When it comes to a business environment, you have nothing if you don’t have trust.

Trusting that each firm will contribute its end of the deal defines entire supply chains: an organization must convince its customer-base of its trustworthiness, and, internally, a business must trust its employees to contribute and hold each other accountable.

But, as researchers Daniel Conway and Kiran Garimella write, “establishing and maintaining trust is time-consuming and expensive.” How do businesses quickly – and affordably – prove their reliability and contribute their role in a massive supply chain? Obviously, there is no singular answer, but Conway and Garimella offer one potential solution: blockchain technology.

Their article, “Enhancing Trust in Business Ecosystems with Blockchain Technology,” explores corporate trust and the role blockchain technology has to play in it. “In highly complex and globalized modern economies – where no person, group of people, or company is an island unto itself – ecosystems play a dominant role. Even seemingly simple transactions depend on many entities who are usually unknown to the end parties of the transactions.” Using a blockchain allows businesses to store information into a secure, trustworthy database and transfer information with ease.

The Challenges of Trust

Corporate trust is a lot easier said than done, and Conway and Garimella define two key challenges pertaining to trust: establishing trust and maintaining trust. “This can be a long process in the absence of institutional support, as in the case of simple societies and one-on-one relationships.” But even once those challenges are overcome, the simple occurrence of human error inhibits the business ecosystem. “A breach of data, exposure to excessive risk, or high leverage in one of the participants exposes the rest of the ecosystem to disproportionate risks due to a domino effect.” The answer to “managing systemic risk is the ability to manage systemic trust.”

Conway and Garimella ask the question, what if a business ecosystem no longer had human error? Rather, what if we no longer had to trust in humans per se, but trust in technology? “A blockchain,” the researchers write, “is an append-only list (or chain) of records, called blocks, that have been validated through consensus and cryptographically secured to make them immutable; copies of the chain of blocks are stored by multiple, independent parties.” Blockchain is entirely unique from prior data-technology in its pursuit of eliminating human error by cryptographically securing information.

In order to determine whether or not blockchain can actually replace human trustworthiness, Conway and Garimella define specific factors that play a role in corporate trust. “Elements of trust in people include verified identity, reputation, credit worthiness, accreditations, and history of interactions.” Today, blockchain companies are meeting these criteria; Arkansas-based company iDatafy, for example, developed a program called SmartResume, which uses blockchain to allow users to build a resume verified by organizations and accreditations. “Trust in processes depends on independent testing, risk assessment, compliance with standards, backups, and other fail-safe mechanisms. Trust in technology requires transparency in how the technology operates.” Blockchain, albeit intimidating, can match these requirements; or, as the researchers say, “blockchains do not eliminate trust, they reallocate it … to those participants or technology mechanisms that do not introduce undesirable side-effects.”

The Blockchain Advantage

“Blockchain’s revolutionary value proposition lies in its unique combination of important ideas,” Conway and Garimella write. “These include bringing together practically secure cryptographic techniques, fault-tolerant or crash-tolerant distributed systems, attack-proof consensus, and immutable recording of transactional data.” Sure, it might sound like something out of 2001: A Space Odyssey, but the fact of the matter is that trusting blockchain technology reliably and visibly eliminates single points of failure. “By solving these technical problems, blockchain also minimizes two business problems: reconciliation and the power of intermediaries.”

That said, intermediaries can provide some services that blockchains cannot. Intermediaries, of course, are the middle-men between collaborating organizations. Trust within a supply chain is essential. Intermediaries allow firms to collaborate quickly and confidentially, without the risk of a data breach. As the researchers note, intermediaries are often bound by law to perform their duties without corruption, bringing the risk of human error down significantly. Even a terrible intermediary has its benefits over blockchain. “While the technology of blockchain is practically secure, the surrounding non-blockchain technology failed its participants. Such failures are caused by criminals, insecure wallets, lost private keys, questionable custodianship, and sheer ignorance of securities regulation.” Blockchain, notably, lacks interoperability features, meaning it doesn’t connect with other operating tools.

One important distinction to make is between public and permissioned, or private, blockchains. “Permissions blockchains are those that only allow participants who have been verified and permitted to join. Public blockchains have no such restrictions and anyone can participate.” Private blockchains often have permissioned networks, which limit who has access to the blockchain. Getting into that private blockchain is like getting into an exclusive party: you either have to have an invitation, or you have to know somebody inside. Much like the butterfly effect, the more individuals involved in the business ecosystem, and more specifically the blockchain, the greater the potential for chaos and error within the blockchain. “Permissioned blockchains eliminate this uncertainty through business models designed to provide business value to the participants.” Permissioned blockchains ensure that only verified individuals can access data, “ensuring certainty in the finality of transaction settlement.”

Who Can You Trust: Workplace Implications

There is no perfect answer for every business – should you rely on intermediaries and human nature, flaws and all, or do you trust the blockchain technology and limit the potential for discrepancies? Both obviously have their benefits and their drawbacks, and the researchers point out one key fact: no two businesses are exactly the same. Even within blockchain, there are numerous different types and procedures for the technology; “there is no one best blockchain for all problems.” Since there is no way to completely eliminate error, establishing a trustworthy, reliable system is all the more important. “The more complex the business ecosystem, the more urgently we must address the issues of trust.”

Conway and Garimella offer numerous strategies and tips to determine whether or not blockchain meets your business’s needs. Most importantly, they describe the importance of knowing the ins and outs of your business and its surrounding economics. Instead of shying away from the uncertainties and the problems, Conway and Garimella recommend you address them head-on and find a solution. “Don’t use the phrase ‘blockchain’ as if it’s a magical silver bullet that solves everything,” they write. Not every business necessarily needs blockchain, but it’s an important asset to consider in solving certain issues.

Finally, Conway and Garimella offer a list of practices that help in implementing blockchain:

  • Analyze the characteristics and trust requirements of the business ecosystem using a people-process-technology framework.
  • Identify capabilities of the target blockchain platform that support the trust requirements of the business ecosystem.
  • Identify and address elements of the attack vector that could adversely impact trust.
  • Identify and address single points of failure in the trust infrastructure.

Intermediaries often play integral roles within the business ecosystem and eliminating them entirely might not be the solution. The researchers even caution businesses from using blockchain “just because it is ‘popular.’”

Post Researcher:

Matt WallerDaniel Conway is clinical professor and associate director of the Blockchain Center of Excellence at the Sam M. Walton College of Business at the University of Arkansas. He has previously served on the faculty at Notre Dame, Indiana, Northwestern, Florida and Virginia Tech. His current interests involve the intersection of analytics, ethics and blockchain.

Post Author:

Matt WallerMichael Adkison is a recent graduate of the University of Arkansas's School of Journalism's MA Program. As well as writing for Walton Insights, he reported and produced for UATV, and he worked as a manager and social media assistant for University of Arkansas Recreation. He currently serves as a multimedia journalist and reporter at KRCG in Jefferson City, Missouri.