by Barbara Vrettos, The Legal Forecast
How we transact, interact and behave is underpinned by how we trust.
Blockchain technologies, however, provide an alternative that can industrialise the reliability and predictability that fosters trust. Thus, blockchain technologies can scale trust at lower costs than traditional human avenues. This calls into question established legal assumptions about how to transact and facilitate trust.
Why do we need trust?
Author Rachel Botsman defined trust as “a confident relationship with the unknown.” Using this definition, individuals rely upon people that appear reliable and predictable to establish confidence when transacting with the unknown. These individuals, intermediaries, help to bridge the trust gap with the unknown.
Prior to the first industrial revolution, the trust gaps humans encountered were significantly smaller as people lived and trusted locally. Unsurprisingly, this did not scale. As we started transacting with unknown parties we turned to intermediated trust – relying on institutions to lay the foundations for an industrial society. However, recent history has shaken our institutional trust.
The Global Financial Crisis damaged trust in the financial industry – this endures today with Deloitte’s 2018 study finding that “almost half of customers [do] not trust their own financial service provider.”
Institutional trust provided the blueprint of how individuals transacted beyond their immediate community. Consequently, legislation and regulation are made on similar assumptions of how individuals will interact. Thus, these structures assume an array of intermediaries that can be regulated and held accountable. For example, securities exchanges mandate the role of stockbrokers and trusts require trustees.
However, Botsman suggests that institutional trust does not suit the digital age. Specifically, now that individuals can transact directly with each other through platforms including Airbnb, Uber, and Alibaba; rethinking the intermediated model is encouraged.
Towards distributed trust
The departure from industrial trust ushers in the disruptive era of distributed trust which moves from trusting institutions towards trusting individuals and networks.
Blockchain, in some cases, can present a more radical way for direct interaction by providing a platform such as Airbnb but without a centralised server.
For example, the Bitcoin Blockchain, for “the first time in the history of humanity,” presents a permanent public record that is not controlled by a third party and can be reliably verified by all parties. The Bitcoin network uses mathematical rules to provide predictability and reliability as all information added to the ledger abides by those rules (for example, making sure money is only spent once).
These mechanisms enable
individuals to take a “trust leap” between the known and the unknown.
This raises the question; what is the role of an intermediary when blockchain
can provide much of the ‘trust’ that traditional intermediaries provide?
There are no easy
answers as intermediaries’ roles are neither identical nor static. However, Blockchain
questions how we should trust each
other – a decision not offered by existing frameworks. This can reduce the
cost of creating trust as networks and mathematical certainty may reduce the risk of human
error and greed. As such, the impacts this
has on traditional legal presumptions should be considered
 Rachel Botsman, Who Can You Trust? How Technology Brought Us Together and Why it Might Drive Us Apart (Public Affairs, 2017) 3.
 Brad Millken, Tom Alstein and Sharon Sun, Restoring Trust in Financial Services in the Digital Era (July 2018) Deloitte <https://www2.deloitte.com/au/en/pages/financial-services/articles/restoring-trust- financial-services-digital-era.html>.
 Corporations Act 2001 (Cth) s 768A(1).
 Lexis Nexis, Halsbury’s Laws of Australia (at 30 January 2018) 430 Trusts, ‘Constitution of an Express Trust’.
 Botsman, above n 4, 210 (emphasis added).
 Botsman, above n 4, 20.
 Sinclair Davidson, Mikayla Novak and Jason Potts, The $29 trillion Cost of Trust (24 July 2018) Medium <https://medium.com/@cryptoeconomics/the-29-trillion-cost-of-trust-be8ffbd5788d>.
Barbara Vrettos is a South Australian Executive Member of The Legal Forecast. Special thanks to Michael Bidwell and Lauren Michael of The Legal Forecast for technical advice and editing. The Legal Forecast (thelegalforecast.com) aims to advance legal practice through technology and innovation. TLF is a not-for-profit run by early career professionals passionate about disruptive thinking and access to justice.