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Blockchain technology: Redefining trust for a global, digital economy

Mariana Dahan's picture



a longer version of this blog post is available on the
MIT Media Lab’s Digital Currency Initiative platform

With Google Trends data showing that searches for the word “blockchain” have exponentially increased, we may be entering the peak of the hype cycle for blockchain and distributed ledger technology.

But here’s the thing: the blockchain is a major breakthrough. That’s because its decentralized approach to verifying changes in important information addresses the centuries-old problem of trust, a social resource that is all too often in short supply, especially amid the current era’s rampant concerns over the security of valuable data. It turns out that fixing that can be a boon for financial inclusion and other basic services delivery, helping to achieve the global objectives laid out in the Sustainable Development Goals (SDGs).

Sorting out hype from reality may depend on how well we identify where institutions that have until now played a role in mediating trust between people are falling short, especially in the key area of money. Deploying the blockchain in those settings to generate secure, decentralized trust could achieve great strides in inclusion and innovation.

What do we mean by decentralized trust? The concept is unfamiliar in part because its converse -- centralized trust – is something that we often take for granted, at least while it’s working. But if we look at the history of transactions since the early barter systems to modern-day digital money exchanges, we can see how different trust protocols for keeping track of our exchanges of value have evolved and how, in each case, centralizing trust within particular institutions has periodically caused problems.

As strategies for dealing with this challenge evolved and as the complexity and frequency of transactions grew, different trust bearers emerged. We went from relying on the memory and discretion of tribal leaders, to central governments issuing currencies in the form of precious metals, to commercial banks acting as trusted intermediaries and issuing their own bank notes, to central banks managing a hybrid system in which sovereign fiat banknotes circulate alongside a debt/credit form of money managed by regulated banks and internal ledgers.

The Accountability Lab: Does Money Pervert Incentives?

Roxanne Bauer's picture
Which is more important to development: systemic change or small-scale projects? Which has a greater impact: money or social capital?  Most people responding to these questions are tempted to say systemic change and material resources are the most important factors in lifting people out of poverty. 

However, others working in the development sector, like Blair Glencorse of Accountability Lab, argue that money can actually pervert incentives. He states, "all of our projects are very small-scale [...] but the emphasis is on financial resources actually being less valuable than some other resources like intellectual capital, relationships, networks." 

Accountability Lab believes that making power-holders accountable leads to more responsible decisions and actions. In turn, resources are used more efficiently and expectations for further reform are generated, ensuring continued demand for accountability. This is not a clear-cut process, and it is often beset by difficulty. Sudden or massive increases in funding for certain sectors can negatively impact the process and do not lead to lasting accountability of power-holders. 

Watch the video and let us know if you agree! 
 
Does Money Pervert Incentives?