In NFTs and blockchain technology do we trust? by Benjamin Ho

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Are we in a crisis of confidence? Trust in institutions — governments, medicine, media — has been declining for decades, and a lack of trust in public health programs has led to COVID-related deaths. It seems like every day we see news stories about fraudulent executives or evasive government officials giving us new reasons to distrust companies and the institutions we have always relied on.

So, can we find hope in the form of technologies that allow us to trust each other in new ways through new institutions?

Twitter recently added a feature that allows users to identify themselves with an NFT image, distinguished by a new hexagonal border, instead of just a regular profile photo. An NFT (short for non-fungible token) is a digital commodity, typically an image, whose ownership is recorded in a ledger stored on a blockchain. This definition is probably meaningless to the average consumer; In fact, many business people dismiss NFTs as frivolous and a fad.

But the technology underlying NFTs reminds us of something crucial about how we function in society. Twitter’s move isn’t just a gimmick — it’s also about trust: the trust people place in new technologies, but also the trust we place in each other. NFTs create new ways in which we can trust based on self-expression.

My research explores the history of trust, from its origins as a hunter-gatherer to its fundamental role in today’s economy. It’s a story about how people learned to work together across great distances. Widespread collaboration comes with risks – it’s far easier to trust your neighbor than a supplier across an ocean – but institutions that foster trust have enabled us to build societies that are creative and innovative on a global scale . Today, trust permeates every part of the modern economy. You can see this in the money we use, backed by the full “faith” and “credit” of the government (the word credit comes from the Latin word for trust). New institutions, such as those that allow strangers to get into our cars (Uber) or stay in our homes (Airbnb), also inspire trust.

Blockchain technology and its main application, Bitcoin, were developed to shift the place of trust from centralized institutional authorities to decentralized networks using a computer algorithm. A blockchain provides a way to store a ledger (think spreadsheet) not just on a single computer, but spread across thousands, preventing an unreliable attacker from manipulating the ledger for their own purposes. Bitcoin is simply a currency where the record of the amount of money you have is kept in a ledger distributed across the internet, rather than on a stack of paper bills or on a computer at a bank.

Many blockchain proponents believe the technology will allow us to manage the exchange of money or property rights without the burden of bureaucratic rules and outdated systems imposed by old institutions. However, it often attempts to solve “problems” that are already being held in check by trusted systems. Few of us worry that the banks we use will lose our money or that the Federal Reserve will debase the US dollar. Also, taking humans out of the system and replacing them with an algorithm creates its own new problems. For example, while records stored in blockchains are protected from tampering by complicated computer algorithms, access to your funds in these systems often only requires a password or “digital key”. What happens if someone misplaces their password? In such cases, billions have been lost on the blockchain. And billions have been stolen from blockchains by hackers exploiting flaws in computer code.

However, blockchain technology can be useful for increasing trust in new institutions in developing countries. Game theory and economic experimentation (as well as everyday experience) suggest that trust is acquired through repeated interaction, forged by customs and norms that may take generations to develop. The US financial system has had hundreds of years to build trust, but people in a developing country with relatively new and/or weak legal institutions may trust a new bank less. New decentralized financial services based on blockchain technologies could be particularly useful for building trust in such environments. El Salvador recently became the first country to adopt Bitcoin as legal tender in hopes of capitalizing on these new innovations.

Many of our interactions with other people already take place online. As our social lives become more digitized, perhaps in the coming metaverse, people will spend more and more money to express themselves online – just like they are doing in the offline world today.

New digital geographies also lack stories and institutions of trust and could therefore benefit from blockchain technology. Which brings us back to the NFTs.

An NFT allows someone to claim ownership of a specific instance of a digital asset. Once created, NFTs can be bought and sold, with fees going to the blockchain and associated service providers for each transaction. Such services could easily have been provided by a government that already keeps records of ownership of digital property rights such as patents and copyrights. But governments have been slow to adopt new technologies. Similarly, a private company could have offered similar services, but creators are less likely to entrust the tracking of their art to a for-profit company or new organization. Placing NFTs on a blockchain speeds up the process of getting creators and consumers to trust the new system, as the technology helps ensure transactions are transparent and protected from tampering.

Why should we even claim ownership of an instance of a digital image? Because we are increasingly living in the digital world. Many of our interactions with other people already take place online. As our social lives become more digitized, perhaps in the coming metaverse, people will spend more and more money to express themselves online – just like they are doing in the offline world today.

You could buy digital clothes. One of the biggest sources of revenue for video games comes from in-app purchases, including digital outfits that a player’s avatar can wear in-game. Aloy, a video game character, was recently featured on the first digital cover of Vanity Fair Italy. Companies like Nike have been selling virtual shoes for Fortnite players and are in the process of selling you NFTs of shoes that would only exist in the metaverse.

Buying and wearing clothes is one way we express ourselves. For now, that means publicly displaying our clothed bodies in physical spaces. Today, when someone buys designer clothing, they do not own the right to reproduce that garment, only the right to display and wear that particular (expensive) instance of the clothing. Until now, there hasn’t been an easy way to buy a digital designer outfit the way we would buy a physical designer outfit. NFTs are changing that and opening up a world of online expression by creating a system that protects copyright holders by allowing consumers to distinguish between licensed and unlicensed copies of digital goods.

This type of expression is important. In some of my research with Jonah Berger and Yogesh Joshi, we found that the brands we buy—actually, everything we buy—tells the world about who we are: our social status, our personality, our trustworthiness. Psychological experiments, for example, have shown that people can form surprisingly accurate assessments of a person’s personality simply by observing the objects in their bedroom.

Our fashion choices and other purchases – digital or otherwise – reflect our identity. Throughout history, people have (for better or for worse) used shared identities — shared family, shared ethnicity, shared religion and language, but also shared tastes in music, movies, or sports teams — to decide who to trust and therefore engage in business, romance, friendships and more.

The new Twitter NFT feature is designed to allow Twitter users to further customize their social media profiles in the same way our clothes are presented to the world, but with an added affirmation of their value. Some bemoan the energy costs of NFTs and their contribution to climate change, but these costs are small compared to the emissions associated with other expressive goods like fast fashion.

Others lament the development of NFTs as yet another overhyped Silicon Valley tech trend that represents the excesses of late capitalism. I see it as something different – a different way for people to do what we’ve always done, find new ways of authentic self-expression, and connect with the people we trust.

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