Can encryption really rebuild social trust?

In the blockchain industry, different people define the word “trust” differently. For software engineers, trust often refers to “zero-trust interactive systems,” “trustless transactions,” and other trust-minimizing techniques. Nonetheless, trust has always been the key to helping us truly understand cryptography.

Trust is derived from the Old Norse word “traust”, which means confidence and protection. The word has always meant the same thing: trust that people and processes will deliver on their promises. Trust is the cornerstone of how societies function – trusting societies also generally develop more prosperous economies and harmonious societies, where counterparty risk is lower and dispute resolution processes are more equitable. 

Unfortunately, the public has begun to lose trust in the central institutions responsible for keeping the economy running. Confidence in major U.S. institutions has declined over the past 45 years, according to Gallup polls. While the degree of trust collapse varies across industries and countries, it is clear from the negative sentiment towards the existing system that everyone is looking for a fairer solution. 

New technologies such as blockchain, Cryptocurrency, smart contracts and oracles are emerging to coordinate social and economic affairs in a more secure, transparent and accessible way. More importantly, these techniques demonstrate that cryptographic safeguards, also commonly referred to as “cryptographic truth”, will be effective at rebuilding people’s trust in everyday socioeconomic activities.

Note: The term “app” in this article refers broadly to any interface that interacts with a company, government, or other user on the same platform, including apps downloaded on mobile phones or websites. In addition, blockchains discussed in this article mostly refer to permissionless blockchains (ie: Ethereum and Bitcoin blockchains), because the scope of application of such blockchains is much larger than that of permissioned blockchains (ie. : consortium chain and private chain).

Pain point: the collapse of social trust

The public has lost trust in traditional institutions and processes, and this problem is reflected in every aspect of modern society. The following lists four reasons for the collapse of trust, which directly affect people’s quality of life and socio-economic development.

Centralized ownership of data and processes

The initial design architecture of the Internet determines that applications are largely centralized. Typically, a centralized entity owns the intellectual property of the application, controls its back-end algorithms, determines its future development direction, and profits from the data and revenue generated by the application. This centralized model leads to an unequal relationship between users and applications. Applications can easily extract user value, which also leads to users losing trust in applications.

For example, apps often censor user actions without their consent. There may be some actions that do violate the terms of service, such as illegal acts. But many times the review has no clear basis, but is subjective. This can not help but call into question the neutrality of the platform. A neutral platform should not treat or discriminate against anyone, especially because of self-interest, external political or social pressure, or differences in values. The public also has very polarized views on whether social media, financial services, streaming, and other social platforms have the right to censor their content.

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“A June 2020 Pew Research Center survey found that about three-quarters of adult Americans believe that social media platforms are very likely (37%) or somewhat likely (36%) to deliberately remove inappropriate platforms political views of values.”

Centralization can also lead to the phenomenon of concentration of power, where a small group of people has the right to control the distribution of platform revenue and the direction of platform development, while users have little say. Granted, apps are first created and managed by founders, so the founders are partly responsible for the app’s success. But at the same time, users also create rich content and great value for the application. For example, users bring value to social media platforms through content creation. App developers can monetize this content directly through advertising. And users can’t help but wonder if they’re getting paid and the right to speak.

In addition, users are increasingly uneasy about handing over their private data to apps. To use the app, users must create an account. Thus the application can obtain and store the user’s personal data. This centralized storage model has the potential to be hacked and lead to serious information leakage, such as the Equifax incident. In this mode, applications can monetize user data and put all the proceeds into their own pockets. As many have said: “What appears to be a free product actually ends up being a slush for the user”. And this is the underlying logic of most Web2 economic models.

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Equifax, one of the world’s largest consumer credit reporting agencies, leaked the personal data of 148 million Americans, including names, home addresses, phone numbers, birthdays, Social Security card numbers, and driver’s license numbers.

No recognized source of truth

Another reason for the collapse of trust is the inability of participants in social and economic affairs to refer to a single source of truth. For example, in many business collaborations, participants each maintain their own set of records. The unintentional mistakes of either party can lead to inconsistencies in the process, and all parties need to spend a lot of time reconciling. It may even be possible for one party to deliberately tamper with records in order to delay the progress of an agreement, evade responsibility or falsify the outcome of the counterparty. 

The most typical case is the Wirecard scandal. The German company Wirecard was found to have faked a 1.9 billion euro deficit on its books, an incident that has led to losses for many financial services companies. Likewise, the 2007-2008 financial crisis hit the global financial industry hard, largely due to the lack of a unified understanding of the systemic risks of RE-S securities and their related derivatives.

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Wirecard’s bankruptcy filing has left many UK customers without access to cash in their accounts, as multiple mainstream fintech apps use Wirecard to process payments.

The underlying reason for this incident is that users do not understand what legal relationship exists between them and the institution. Some people think the fault is on the user because they didn’t read the terms of the service agreement carefully. But we should also ask, should users just take the time to read and understand long and obscure legal contracts? These contracts are intentionally obscure, ambiguous, and there are many different interpretations. When all is well, misunderstandings may not be a problem. However, in the event of an accident, users often find that their relationship with the institution does not seem to be what they thought. Since users are not fully aware of their relationship with the institution, many traders simply don’t realize that Robinhood has the right to block them from buying a stock until their trade in GME stock is blocked by the platform It dawned on me when I was forcibly interrupted. In 2015, Greece’s domestic banks surprised many by telling customers that they could only withdraw up to 60 euros a day from ATMs. 

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Although Robin Hood’s banner is “financial services for everyone,” after the platform suspended GameStop trading, many retail investors can’t help but wonder: Is Robin Hood serving everyone or just Wall Street hedge funds?

Likewise, users often misunderstand their relationship to social media apps, especially the collection and sharing of user data, and the apps’ content-pushing algorithms. The lack of transparency in social media platforms’ algorithms has largely contributed to the collapse of trust. Users can’t figure out why some content is recommended first, while others are not displayed at all. Algorithmic opacity also leads users to suspect that social media is politically inclined, or to manipulate users’ views and opinions on news, which further leads to a breakdown of trust. 

Lack of enforcement and accountability

In some cases, disputes are unavoidable. Therefore, when disputes arise, they must be resolved in the fairest way. However, large institutions usually have a greater say in the dispute resolution process. This problem is especially acute when agreements are signed between large institutions and individual users. These agencies know they have more leeway to break their promises because users don’t have enough time, money or influence to win a lawsuit. In fact, in some developing countries, the legal system is vulnerable to coercion and bribery, so some economic relationships are completely in the air.

Once the dispute resolution mechanism loses its credibility, it may lead to institutions becoming “too big to fail”. Too big to fail means that if an institution is too large, its failure poses a systemic risk so severe that even if it falls into crisis because of its own bad decision-making, the government will come to the rescue. The term first appeared during the financial crisis of 2007-2008. At that time, many large banks and financial institutions had declared bankruptcy due to holding too much toxic subprime mortgage assets, so the government decided to come to the rescue. The current government and central bank also seem to lack accountability. Although the government and central bank say they want to control inflation and promote economic stability, high inflation and economic inequality are increasing. Maybe we will encounter the same financial crisis in the future. 

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For a long time, governments and institutions have habitually issued “blank promises” and pledged to stay only in words and on paper, because of the lack of robust enforcement mechanisms and accountability mechanisms.

Process inefficiencies in multiple links

The emergence of trusted third parties and human verification technologies has, to a certain extent, eliminated the risks posed by lack of trust in socio-economic relationships. However, these processes are also more expensive, have longer wait times, and require more trust. Process inefficiency has always been the soft underbelly of international remittance business. In 2020, an average transaction of $200 required a 6.5% fee, and sometimes the settlement time took more than 24 hours. Due to the rapid development of digital technology, money transfers can theoretically be done in almost real-time, but not all banks trust each other. Therefore, remittances must be sent to several affiliated banks before finally reaching the recipient’s bank account. This process incurs additional fees and increases settlement time. 

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International money transfers often involve high fees, long wait times, and complex inter-bank relationships to manage.

Solution: Trust Network Based on Blockchain and Oracles

Imagine if we could develop an infrastructure that would guarantee a fair outcome without the need for counterparties to trust each other, and without the need for a third party to monitor each party’s commitments? And there aren’t any centralized administrators in this infrastructure yet! 

In order to achieve the above goals, this infrastructure must follow two key design principles: minimal rent-seeking behavior and trust-minimized enforcement. 

  • Minimal rent-seeking behavior refers to the elimination of rent-seeking behavior as much as possible when the infrastructure assists user interaction. This infrastructure is different from the average for-profit enterprise, whose only function is to connect users together, and does not pursue any economic return. For example, financial markets with very low transaction fees, where users can trade financial assets. 
  • Trust-minimized execution means that there is a very high probability that the process will run correctly, statistically speaking, this probability is almost 100%. That is, users don’t have to trust this infrastructure because it is inherently very deterministic, and all potential variables that could affect the process have been eliminated or reduced. So the probability of the process not being executed according to the code is almost zero. While completely trustless is an ultimate ideal, some refer to this type of infrastructure as “trustless infrastructure.”

Blockchain combines the above two qualities to provide users with a minimum level of coordination and execute code in a trust-minimized manner. This is because the blockchain does not have a centralized administrator, but instead a decentralized computer network that maintains a ledger based on economic incentives, which records the ownership of data and assets in the network. Every time a user creates new assets, transfers existing assets to other users, or stores data on the blockchain, the decentralized network of nodes must reach a consensus on the validity of each interaction before it can be published on the chain . For example, if a user wants to transfer funds from one account to another, the blockchain needs to verify that the account has sufficient funds to complete the transaction before executing the transaction. 

Blockchain combines decentralized consensus and cryptography to provide the basis for cryptographic facts, namely: the verification of new transactions based on historical data already stored in the blockchain ledger and considered fact. In this sense, the blockchain is deterministic because no additional or external data is required to approve new transactions.

If you want to know more about blockchain, please read the two articles “Understanding Blockchain Technology in One Article” and “Understanding the Similarities and Differences of Blockchain and Oracle Machines and Their Synergy in One Article”.

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In the traditional bank payment system, the bank is the trusted custodian between users; in the blockchain payment system, the blockchain is a trust-minimized non-custodial intermediary.

In the eyes of many, blockchain is a cryptocurrency-based payment system. But what blockchain can do with smart contracts is far from that. Smart contracts run on the blockchain based on the code logic of “if condition x is met, execute y” and are immutable. Developers can use one or more smart contracts to create decentralized applications (hereinafter referred to as dApps). The smart contract contains the conditions that the user must meet when interacting with the dApp. If you want to learn more about smart contracts, please read “Understanding Smart Contracts in One Article”.

Oracles are a key element in developing advanced decentralized applications. Due to its unique security model, blockchain cannot directly connect to the outside world, just like a computer that cannot connect to the Internet. Oracles provide the infrastructure for blockchains, connecting them to external data and systems. With oracles, smart contracts can use external data to trigger execution (e.g. settle prediction markets with sports results); send data to external systems for settlement (e.g. send payment messages to execute bank payments); and Smart contract interactions on other blockchains; and off-chain computations. Therefore, the blockchain can implement hybrid smart contracts, with two modules on-chain and off-chain in one application. 

Chainlink created the Decentralized Oracle Network (DON), enabling trust-minimized oracle services and eliminating rent-seeking space for oracle providers. The emergence of the Chainlink decentralized oracle network has spawned a whole new set of smart contract use cases, including decentralized finance (DeFi), non-fungible tokens (NFT), Play-to-Earn gaming (P2E), and Decentralized insurance, etc.

To learn more about oracles and Chainlink, read the articles “Understanding Blockchain Oracles in One Article” and “Understanding Chainlink in One Article”.

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Chainlink’s decentralized oracle network enables two-way interactions between smart contracts on any blockchain and any external system or resource, while maintaining security, reliability, and accuracy in the process.

The combination of blockchain and oracles can make the process trustless from end to end and reliably coordinate socio-economic activities. Blockchain is a tamper-proof back-end architecture responsible for writing, tracking, and executing smart contracts; and oracles can help smart contracts accurately verify real-world events, interact smoothly with existing systems, and securely implement cross-border transactions. chain interaction. Under this new model, applications and digital contracts can get rid of uncertainty and human intervention, confirm through decentralized consensus, and ultimately guarantee certainty.

Future Prospects: Rebuilding Social Trust with Encrypted Facts

If the blockchain and oracles are used to build a network of trust, then the above problems can be effectively solved – the world can operate based on objective facts, everyone and processes are completely in accordance with the agreement, and all data is accurately recorded.

Data is owned by individuals, process ownership is decentralized

One of the biggest advantages of blockchain technology is that it can decentralize the applications or institutions responsible for running social and economic activities. Blockchain technology can create completely neutral platforms that cannot arbitrarily censor user content due to any economic, political or social pressure. Once the terms are written into the smart contract and stored on the blockchain, the relationship between the user and the dApp can be viewed by anyone and cannot be tampered with by any party, not even an administrator.

A decentralized system also eliminates intermediary custodians. Blockchain is more of a non-custodial facilitator, all data generated by dApps is publicly viewable and cannot be tampered with by anyone. Users can directly control their own data and assets through the private key, and the private key can only be owned by the user. For example, anyone can view the full transaction history of the bitcoin ledger, and can host and send bitcoins from their own accounts to other users in the network, all without the need for a bank.

In addition, there are now some privacy-preserving oracle solutions, such as Chainlink DECO. DECO users can send private data to dApps without disclosing the content of the data. For example, a user can prove that he lives in a certain jurisdiction, or that his bank account balance exceeds a certain threshold, without disclosing his specific residential address or account balance to the dApp. This way, dApps can use the data even without knowing the specific data.

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Chainlink DECO uses zero-knowledge proofs to protect data privacy in smart contracts and does not disclose data content to the blockchain.

Blockchains and on-chain dApps are also gradually lowering the barriers to entry. For example, Ethereum is currently transforming to a PoS consensus mechanism, which aims to allow anyone in the world to stake ether in smart contracts and become a verification node in the network (Note: staking refers to locking tokens in a non-custodial manner). After users become validators, they can share a portion of the value generated by Ethereum blocks by validating transactions. 

DeFi applications such as Curve have adopted the same pattern. Curve is a decentralized trading platform with low transaction slippage. Users can pledge native CRV tokens in smart contracts for a maximum term of 4 years. Token holders can obtain the governance rights of the protocol, and can share 50% of the transaction fee income proportionally.

Shared Truth

Blockchains and dApps are often open source technologies, and all users can view the underlying code of the dApp and the data it produces. Blockchains are public, unified databases that are fairly open to all participants, so there is no disagreement and any systemic risk is readily apparent. Transactions are verified through a decentralized consensus mechanism, not based on the subjective judgment of a user or administrator. That is, the relationship between the user and the dApp is based on clear contractual terms.

If external data needs to be verified, oracles usually use a decentralized network of nodes and multiple data sources to avoid the risk of a single point of failure during verification and execution. For example, Chainlink Price Feeds are decentralized oracle networks that provide real-time asset price feeds for decentralized finance (DeFi) on the blockchain. DeFi applications provide users with financial services such as lending, derivatives, and stablecoins. 

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Chainlink Price Feeds currently guarantees tens of billions of dollars in value for various DeFi applications. It is decentralized at the three levels of data source, node and oracle network, and can provide real-time asset price feeds for dApps.

Other oracle solutions that generate accepted facts include Ledger of Record, developed by former Coinbase CTO and A16Z general partner Balaji Srinivasan. Ledger of Record uses oracles to encrypt and sign data on the blockchain to prove the origin of the data and establish a verifiable data traceability system. This can not only effectively prevent fake news, deepfakes (note: using AI face-changing technology to fake pictures), and news from being quietly deleted; it can also promote the establishment of a reputation system to track data sources and analysts’ reputation records.

Based on consensus, the execution is guaranteed by encryption technology

Since the blockchain is based on a decentralized consensus mechanism to verify transactions in the network, neither party is treated specially in the event of a disagreement. There are no administrators in the blockchain, so dApps in crisis cannot be rescued, nor can they hit the reset button at will. Blockchain replaces administrators with a decentralized network that is secure based on cryptography and economic incentives, making it nearly impossible to tamper with consensus or previously stored data. 

Blockchains and dApps can also be changed, but change usually requires many independent users to reach a social consensus, rather than relying on a single person to make decisions like centralized applications. Because of this, many dApps have adopted decentralized autonomous organizations (DAOs) for governance, and changes are initiated by all users voting together. In fact, many dApps have their own native tokens and use these tokens in DAOs, employing a token-weighted voting mechanism to decide whether a proposal is approved or not.

Executing digital contracts on a globally accessible and highly tamper-resistant blockchain platform can significantly reduce counterparty risk. Many blockchains and dApps also introduce automatic punishment mechanisms to punish participants for their malicious behavior. For example, PoS blockchains will confiscate some of the tokens pledged by malicious nodes as punishment. dApps can also temporarily escrow users’ funds until certain conditions are verified before releasing the funds. In this way, it is almost impossible for the losing party to evade payment.

Decentralized oracle networks also achieve the same guarantee by creating authoritative facts. Each dApp can clearly define how they wish to obtain facts from the outside world, with clear boundary conditions. That is, oracles can be more flexible in validating external events for smart contracts. Users can choose to trust different data sources, or they can choose to spend more to increase the level of decentralization of the oracle network. No matter how users design the oracle mechanism, they must first reach a consensus on the facts transmitted by the oracle and recognize its authority. The agreement between the user and the oracle machine can be written into a service level agreement (hereinafter referred to as SLA) smart contract to prevent anyone from tampering with the content of the agreement, and automatically execute the reward and punishment mechanism when the task is completed.

Chainlink Verifiable Random Functions (hereinafter referred to as VRFs) are services that create authoritative facts through oracles. Chainlink VRF uses oracle technology to generate random numbers and encrypted proofs off-chain, and then send them to the chain. The blockchain will use the encrypted proofs to verify that the random numbers have not been tampered with by any oracles. NFTs and gaming applications use the random numbers generated by Chainlink VRF to perform various on-chain functions, such as picking winners of special NFT airdrops, and deciding on treasure chest items. It is worth mentioning that users can independently verify the fairness and impartiality of the entire process, and even game developers or NFT creators have no right to influence the generation of random results.

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Polychain Monsters is a blockchain game that integrates Chainlink VRF to mint NFTs with random properties and scarcity.

Efficient peer-to-peer process

Blockchain computing is not only more secure, reliable and accurate, but also uses a peer-to-peer model. Rent-seeking behavior and settlement times are reduced as all intermediaries are eliminated. This is particularly prominent in the Ethereum Layer 2 scaling scheme. Layer 2 is a network built on Ethereum, which has the advantage of lower cost and greater throughput, while being secured by the underlying Ethereum blockchain. With a variety of layer 2 plans, users can send payments of any amount to anyone in the world in minutes and cost less than standard international money transfer fees.

Innovative parametric insurance dApps have also adopted this peer-to-peer model, including Arbol and Etherisc. Anyone with internet access can buy weather and flight insurance. Once the oracle network confirms the occurrence of the event in the policy, the smart contract settles. For example, crop insurance will be settled based on the seasonal rainfall in a certain area; or flight insurance will be settled based on whether the flight is cancelled. Once the oracle report is transmitted on-chain, the smart contract can pay the compensation from the escrow account immediately, without any human approval in the process.

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Parametric crop insurance smart contracts can be settled efficiently without any human intervention.

Join the blockchain industry now

Comparing the development process of the Internet, we judge that the blockchain and oracle technology are still in the early stages of development. There will be infinite innovation possibilities in the future, and blockchain and oracles have the potential to rebuild trust in the core processes of the social economy.

If you are interested in blockchain and want to join the industry, read How to Become a Smart Contract Developer to learn how to join industry-leading organizations like Chainlink Labs and start your blockchain career. Chainlink Labs is currently hiring for numerous technical and non-technical positions.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/can-encryption-really-rebuild-social-trust/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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