Reputation Depends on Identity and Trust

Mar 30, 2021

We’ll never cooperate at scale until we solve Reputation, Identity, and Trust at scale

As humans we all have to address the problems of cooperation. Without cooperation, any one of us would quickly die; with it we’ve conquered the planet and become the dominant species on Earth.

(The “problems of cooperation” are ever present. While we’ve managed to use cooperation to out-compete all the other species, we’ve not yet figured out how to cooperate well enough to NOT poison our planet. That level of cooperation gets undercut by subgroups who benefit themselves at the expense of others.)

Cooperation in small groups can be relatively easy because everyone gets to know everyone else. But humans need to cooperate beyond the small groups whose members can know each other intimately.

Cooperating at Scale

To try to ease the burdens of cooperating at scale, humans have long used the concept of “reputation”. It hasn’t been easy. Reputation has been so important that some cultures have encouraged men to fight duels over it. Societies have come to value reputation enough to try to protect it. All legal regimes today provide some relief (in theory), via laws against slander and libel, for malicious harm to one’s reputation.

Reputation has value because a good reputation can serve to speed and ease transactions that might never happen (or only happen with great effort and expense) with no reputation, let alone a bad one.

Value of Brands

One reputational tool, the brand, is so important that even illegal drugs dealers will periodically brand (or attempt to brand) their products. With a good brand, a commodity like flavored sugar water becomes a premium product, Coca Cola (which turned a $6b profit in 2020), and shoes that cost $12 a pair to make, sell for hundreds because they are rare Nikes. (Nike reported $16b gross profit for 2020.)

As humans have tried to automate the reputation game, we’ve seen the now-expected attacks. Every online, automated reputation system has been gamed by self-interested and fraudulent actors. From eBay buyer/seller reputation to Amazon reviews to Google reviews and beyond, it’s routine to see knock off products passed as the real thing — fake products touted via fake reviews from fake personas.

Counterfeits

Such attacks make financial sense. As long as reputation is valuable, and it is, fraudsters will be tempted to spend $10 to undermine a system that could yield them $100 in ill-gotten gains. The US State Department estimates the counterfeit goods trade at $250b per year, with the proceeds fueling criminal and terrorist groups.

Blockchains Power Cooperation

A new tool in the ongoing struggle to “solve the problems of cooperation at scale” is the blockchain, a subset of Distributed Ledger Technology (DLT). DLT can create a “shared source of truth” that eliminates much wrangling over the question “What is true?” in order to free up participants to wrangle over “What shall we do about what is true?”

Thus, trade partners can spend less money and effort on lawyers and clerks to disagree about which documents were or were not sent to whom by when, freeing those firms to spend more money and effort in partnering better to solve more customer problems.

It makes sense then that people will try to “put reputation on the blockchain.” Such efforts are already under way.

But Reputation hinges on two elements that have yet to be automated successfully: Identity and Trust.

I’ll discuss these next.

 

Photo by Michał Parzuchowski on Unsplash

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