Blockchain organizing: the new trust industry

Paul Bessems, 9-2-207

There’s a new and disruptive concept to organize trust in the supply and demand chain. This concept will make traditional coordination mechanism, like ‘the firm’, ‘the bank’ or ‘the government’, too expensive, almost by default. This new concept is able to organize trust, without expanding complexity. It’s a combination of a new technology with a fundamentally new organization model and we call it “blockchain organizing”. When blockchain technology is combined with a fundamentally new organization model, a disruptive way of organizing trust, our work, economy, and society will emerge. This new way of organizing also means that the IT landscape, first design and architecture and after that also development and management, will fundamentally change.

New context, new models
In the context of the twenty-first century we need new organization models to organize the work of service-, information-, and knowledge workers in way that will improve their productivity and protect our privacy. The World Economic Forum has identified blockchain as one of the mega trends. Their research shows that in 2025, 10% of the GDP will be stored on a blockchain or with blockchain related technology (see: World Economic Forum report, from the Global Agenda Council on the Future of Software & Society: ‘Deep Shift, Technology Tipping Points and Societal Impact’, September 2015). Probably more than half of the people in western societies are occupied in the so called ‘trust-industry’. Think of bankers, auditors, managers, support staff, accountants, and lawyers. Blockchain organizing can change the meaning of work profoundly, improve productivity, protect our privacy, and improve decentralization and democratization. The best idea is to start improving your own processes with blockchain technology. Make them ready to transfer them to decentralized shared transaction networks.

The trust paradox
When we do business with each other we have to trust each other. In order to do that, we want to reduce uncertainty when we exchange values or trade with each other. In order to reduce uncertainty we innovate institutions like: money, contracts, and laws. We institutionalize these tools with organizations like: banks, governments, and companies. The problem with these institutions is that they do not only reduce uncertainty, but they also increase complexity, and with that, uncertainty. We call this the trust paradox: “in order to improve trust, distrust grows”. How does this work?

Figure 1: The trust paradox leads to reflexivity and active inertia.

When you want to reduce uncertainty or improve trust in the social economic order of this moment, you need more institutions and therefore more specialists. If you don’t coordinate specialists in a proper way, the world becomes more complex and in a complex world it’s harder to trust each other. So in order to improve trust, distrust grows. This trust paradox also influences our productivity paradox. As Robert Solow said: “You can see the computer age everywhere, but not in the productivity statistics”. So, if organization technology (but also HR, management etc.) doesn’t improve productivity, why are we investing in it?  Why do we innovate if we don’t become happier or more productive?

Complexity grows
According to research by Gary Hamel and Michele Zanini, more and more people are working in bureaucratic organizations (see: ‘More of Us Are Working in Big Bureaucratic Organizations than Ever Before‘, Harvard Business Review, 5-7-2016). Between 1983 and 2014 the number of managers and support staff grew 90%, despite (or maybe as a result of?) investments in organization technology, HR- and management programs, and all kinds of “lean and mean” programs. All these managers and support staff members have an important function: they reduce uncertainty, they coordinate, or they organize trust. But they also have an effect on the transaction costs. So transactions cost will rise, complexity will increase, and at the end of the day our prosperity becomes too expensive, because our productivity growth cannot keep up with the growth in costs for healthcare, education, and safety.

Solution
So how can we solve this productivity and trust paradox? An important solution is to replace trust, based on a ‘social script’, with trust, based on a ‘technical script’. It’s possible to ‘program’ trust with a protocol. That is what blockchain technology is about, in my opinion. You can see the blockchain as an extra trust layer on the internet. The internet makes it possible to share information without almost any friction. With blockchain we can do business without having to trust each other. The only thing you have to do is to trust the protocol and the people who design, develop, and maintain it. With blockchain organizing you can process transactions (profile, search, select, fiat, make contract, purchase, sent invoice, pay etc.), without almost any friction or transaction costs.

As Johan Cruijff said it: “Before I make a mistake, I know I didn’t make that mistake.” In other words: don’t make mistakes twice and learn from the past. The early internet gave us a realistic vision of a decentralized democratic world that enables information (but also value) exchange without almost any friction or the interference of institutions. But now, we all know that this didn’t happen. In contrary: corporations, financial markets, and governments became more powerful than ever. Let’s not make this ‘mistake’ again with the blockchain. Blockchain organizing is seen as a combination of new technologies and a new organization model that enables us to organize transactions between supply and demand almost without any transaction costs. And that is the basis for a successful organization form that will survive the next decades.

Why do we organize work?
From the early days, when humans started to organize work, the main reason why we organized our work was to raise the standard of living. When we were hunters and gatherers, we discovered that the division of labor and coordination led to better hunting. Even animals that where much larger or faster could be caught, thanks to specialization (divide tasks), collaboration (communication and transactions), and focus (finalization). So it doesn’t matter what kind of work you have to organize, there’s always specialization (supply), coordination, and finalization (demand). And the form with the lowest coordination costs or alternatively the form with the highest efficiency will succeed.

So I believe that when you organize IT management or work, or more general supply and demand, there’s always specialization, coordination, and finalization. And in our digital society the best way (with lowest friction) to coordinate work or transactions is no longer ‘the firm’, ‘the hierarchy’ or ‘the manager’ but new forms like shared networks and decentralized, almost autonomous organizations, based on blockchain technology.

Conflicting policies
But technology alone won’t change much. Since World War II, the US and their allies see mass unemployment as an existential threat. So if we combine a policy of innovation (e.g. blockchain innovation), with a policy of full-employment, we create, as David Graeber calls them, “bull-shit jobs”. Productivity, complexity, and trust will not improve with this conflicting policy. So we have to start thinking again and think of a new definition for work, unemployment, and the role of income in our society. Blockchain organizing alone will not solve this problem.

New concepts
But what we know is that blockchain organizing will affect the IT industry. New systems will be designed and built. They will not be based on company borders and own databases. They will be based on an ontology and taxonomy, with the two smallest building stones (humans and their tools), and transaction at the core. Organizational models will be based on organization principles like: ‘programmable institutions’, ‘structured flexibility’ and ‘apart together’. IT systems will be built with these new organizational principles as the starting point. We don’t need a database per company, we need an ontology that captures the attribute of the values we want to sell or buy. It architectures will be based on concepts like: Privacy by Design, Personal Data Service (PDS), Data As A Service (DAAS), Data Logistics, Decentralized Autonomous Organizations (DAO’s), Attribute Based Encryption (ABE),and encryption- and distribution concepts like Sieve and Enigma from Harvard and MIT.

Conclusion
If we keep organizing trust, our work, and economy with our differences as a starting point, we’ll proceed in making our world more complex. Our productivity growth will not keep up with our cost growth. And that doesn’t make any sense. blockchain organizing  can help to make the world less complex, and less frightening for a lot of people. What we need is new hope and new trust that we, as human beings, are capable of solving the problems that we created ourselves.

 

 

 

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