Building trustworthy and trusted communities

Summary 

Crypto systems are ‘trustless’ to the extent that they do not need trusted intermediaries to implement and enforce their rules. However, trust is not eliminated altogether since we still need to trust various groups of people and organisations who are responsible for the protocol and defining its rules. This raises the question: how can we ensure this ‘social layer’ remains trustworthy to maintain confidence in the protocol? This is the first in a series of blogposts that explores how to answer this question. 

We begin by explaining how trust operates at scale. To determine who we should trust, we rely on informal heuristics- cognitive shortcuts- and other ‘societal pressures’, such as people’s appearance, identity, morals and reputation. However, these do not scale well as groups and communities grow, so we codify moral values and reputational norms into institutions of formal rules and systems of laws. We may not trust unfamiliar people directly; instead, we trust the institutions that regulate their behaviour, including the intermediaries created to implement and enforce these institutions’ rules. Key principles for trustworthy institutions include transparency; comprehensibility; verifiability; and shared values and visions.

We then explain how crypto systems are ‘trustless’ by viewing them as ‘confidence machines’. Confidence emerges when these systems are believed to function reliably and predictably according to their rules. Consequently, they can support economic institutions that do not need trusted intermediaries to implement and enforce their rules. But who decides the rules of the confidence machine? If ‘code is law’, then who writes the law? We are confident in the protocol because we trust the political institutions of a social layer of various groups of people and organisations who are responsible for defining the protocol’s rules.

We present a case study about the UST and LUNA crash in 2022 that highlights social assumptions about crypto systems and the trust placed in the social layer. 

Finally, we conclude with a proposition: can demonstrating the trustworthiness of this social layer confer crypto systems with a competitive advantage? 

New crypto based institutions are emerging that have the potential to reshape economies and societies across the world. Mina could set an exciting example about how these institutions can be designed and governed in trustworthy ways. 

How does trust operate at scale?

Aligning trust with trustworthiness

Trust is fundamental to nearly all forms of coordinated human activity, especially cooperation. Without it, society would not function. 

Each day there seem to be more reports that trust in various people or organisations has declined so we need to increase it. But this assumes that these people or organisations are already trustworthy. For example, if someone scams us, it would have been worse- not better- if we had trusted them more.

Instead, we need ways to assess their trustworthiness before deciding whether to trust them. We need evidence that these people or organisations are reliable, honest and competent. Often this evidence is incomplete, so we also need to assess the risks of misplacing trust to avoid trusting the untrustworthy and not trusting the trustworthy.

We rely on a range of heuristics- cognitive shortcuts- and other ‘societal pressures’ to make these assessments (see Table 1).

Inducing cooperation through morals and reputation

Morals support an intimate, everyday kind of trust with family and friends, tribes and villages. In these personal interactions, we assess trustworthiness directly, quickly and intuitively when we communicate face to face and observe people’s expressions and gestures. Do their face and body language signal honesty? How are they emotionally reacting? Is what they are saying coherent and true? How does it compare to the information we already have about them?

Reputation is a social identity that represents other people’s opinions about us that is often informally communicated through gossip, hearsay and rumours. The social nature of this identity highlights our sensitivity to social norms, especially status and deference to authority within the groups that we are members of.

Inducing cooperation through institutions

However, morals and reputation do not scale well as groups and communities grow into towns and cities and people appear as unfamiliar strangers. Consequently, we codify moral values and reputational norms into institutions of formal rules and systems of laws. We trust strangers indirectly via these institutions that we trust to regulate societal behaviour.

For example, imagine you hail a taxi. You do not personally know the driver but you believe that they are trustworthy because you trust the authority that certified they had passed their driving test; the agency that issued them a driving licence; and the well respected company logo on the car.

Aligning interests to solve the principal-agent problem

Institutions create intermediaries to implement and enforce their rules. Since these intermediaries- the ‘agent’- have their own interests, we need to trust that they align with ours- the ‘principal’ (see Figure 1).

Transparency is needed so they can provide evidence that they are reliable, honest and competent. However, transparency alone is insufficient if they do not share evidence that is comprehensible- accessible, intelligible and assessable. This evidence also needs to be verifiable so we can check that it’s truthful. 

Often we rely on experts and algorithmic processes to help us. For example, auditors assess the regulatory reporting of institutions. We often use rating and review systems based on people’s expertise or direct experiences to assess whether an organisation, product or service can be trusted. 

Transparency, comprehensibility and verifiability reveal the fundamental interests of these intermediaries. Ultimately, aligning their interests with ours requires that they share our values and visions.

Inducing cooperation through security systems

Scaling these institutions also has its limits so cooperation can be induced even where there is no trust by designing behavioural rules and laws directly into the hardware and software of security systems. 

Mina’s httpz vision

This is the power of the zero knowledge proofs and Mina’s ‘httpz vision’ of an internet where people can create, share and verify proofs of information. A zero knowledge proof is a cryptographic method that allows someone to prove to another person that they know a set of data without revealing what this data contains. This form of verification can be extremely effective when the details of data need to remain private; for example, when these people may not trust each other. Whereas HTTPS established secure data exchange between client and server via encryption and trusted Certificate Authorities, introducing a zero knowledge ‘proof layer’ on top of HTTPS allows people to verify the source and validity of data or computation without trusting any authority.

Crypto systems support new types of institutions

Sometimes agents cannot always be trusted if they possess information that their principals do not possess or they pursue their own interests. For example, after the 2008 financial crash, many people concluded that financial institutions were no longer trustworthy and their trust had been misplaced. Consequently, new public and permissionless blockchains supported new, so-called ‘trustless’ economic institutions that did not need trusted intermediaries to implement and enforce their rules (see Table 2).

Crypto systems as Confidence Machines 

Governance experts explain this trustlessness in terms of ‘confidence machines’. Once a transaction is made, we feel confident that it will execute its rules reliably and predictably due to the combination of cryptographic primitives, deterministic computing and distributed consensus (see Figure 2). This confidence is based on previous experience, general knowledge and expert evidence that these technologies and incentives have generally operated as expected or predicted.

Confidence machines are socio-technical systems

Importantly, however, this does not mean that the need for trust is eliminated altogether. Rather, the need for trust is distributed to certain groups of people and organisations whose roles and responsibilities may be obscured or taken for granted.

Trustworthiness seems to involve something more than just reliability and predictability; something moral about intentions and motivations- that someone cares about us and our interests. Can a technology alone really have these moral qualities? Perhaps a technology is trustworthy in a derived sense based on our attitudes towards its designers, implementers, operators and maintainers. We are confident that a technology functions reliably and behaves predictably because we trust the groups of people responsible for it. Even if automation removes the operators, we still need to trust its designers, implementers and maintainers. 

For example, who decides the rules of the confidence machine? If ‘code is law’, then who writes the law?  We are confident in the protocol because we trust the political institutions of a social layer of various groups of people and organisations who are responsible for defining the protocol’s rules (see Table 2).

Illuminating social assumptions about crypto systems 

Studying crises can be helpful because it can highlight assumptions that had previously been taken for granted, as well as blind spots and flaws. 

Assumed stability 

For example, in 2018, Terraform Labs was founded and developed the Terra stablecoin pegged to the US dollar (UST) that used a Terra cryptocurrency (LUNA) as a governance token to absorb volatility by facilitating swaps between UST and LUNA at a target exchange rate. In 2022, UST lost its peg to USD, triggering investor panic and Terra crashed dramatically- US$ 60 billion worth of LUNA and UST collapsed in value to practically zero within a week, wiping US$ 1 trillion off the value of the global crypto market. Although UST was classified as the most popular ‘algorithmic’ stablecoin and despite most people’s assumption that LUNA was a safe investment, it still collapsed. 

Assumed trust in the social layer

Researchers investigated the impacts of the LUNA crash by interviewing 28 members of its community who were affected by it. Their key findings included:

• There were clear differences in their primary motivation for participating in LUNA that affected how they each experienced and interpreted the crisis. People who were mainly ideologically motivated to participate in LUNA struggled more to find meaning in crypto projects; whereas people who were mainly financially motivated could still find meaning but focused on better protections by increasing awareness about potential risks. 
• Regardless of their motivations, they all struggled with negative feelings, including a lack of control and distrust in themselves and in others. To restore a sense of control and trust, they drew on social relationships and connected with people for mutual support and reassurance, turning to community members with high reputation and status for guidance about what to do. 
• In particular, Do Kwon, the co-founder of Terra LUNA, emerged as the focal point during, and in the immediate aftermath of, crash, and people eagerly awaited his next tweet to resolve what had become an existential crisis. . 

Can trustworthiness confer competitive advantage? 

Less trust in the social layer would undermine confidence in the protocol; the less likely that people would use or engage with it; and its community would eventually dissolve. Consequently, could crypto communities have a competitive advantage if they can demonstrate their trustworthiness? 

Mina as a leader in trust

In the next blogpost, we will discuss Mina’s social layer and how key principles for trustworthiness can be implemented in its governance, including:

• transparency to provide evidence of trustworthiness, namely reliability, honesty and competence;
• comprehensibility to ensure this evidence is accessible, intelligible and assessable;
• verifiability to check this evidence is truthful;
• shared values and visions to ensure interests are aligned. 

New crypto based institutions are emerging that have the potential to reshape economies and societies across the world. Mina could set an exciting example about how these institutions can be designed and governed in trustworthy ways. 

Mina Foundation’s Protocol Governance Team hopes to inspire ideas from the community for how these principles could be most effectively applied to Mina’s decision making. Please connect with us on Discord at the following channels:

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