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The economic and social dimension of Trust

Since the dawn of humanity, the trust of someone towards another has been the enabling factor of human interactions. Economic phenomena, ranging from the simplest exchanges to the most structured commercial activities, are possible first of all because we have confidence in the others with whom we interact.

Trust is not a binary phenomenon, since there are different levels and degrees of trust that can depend on external factors, such as, for example, the spatial and temporal context in which we find ourselves interacting. At the cognitive level, trust can be generated by the use of rationality and experiential knowledge, as can happen in a context where one individual trusts another because of their family connection, or because of a reputational aspect.

Trust is also valued, since the person who enjoys trust has more power, as this person will be able to build relationships faster, cheaper, and more efficiently than the one who does not enjoy the same level of trust. Therefore, from an economic point of view, trust reduces the costs of interaction, as it allows to decrease the costs of acquiring information, as well as the costs of monitoring the conduct of the counterparty, for example, during a performance regulated by a specific contract.

The social phenomenon of trust

However, the social phenomenon of trust cannot be represented as the mere entrusting of one subject to the other. Trust often travels together with the ability to verify the qualities asserted by the counterparty. Thus, entities have been constantly created to grant confidence to subjects if certain conditions are met, with the purpose that a higher number of relationships between individuals could easily take place.

The creation of the State, which, by exercising its regulatory power, attributes irrefutable legal validity to certain acts or facts, has ensured that the interactions and exchanges of the people within a certain territorial dimension can occur securely and immediately.

Giving legal value to a document that proves the ownership of an asset, or attributing the identity to a person, makes it possible to establish relationships between subjects who do not know each other, as the State, through the law, gives value to the qualities that these subjects claim to own, without the need for the counterparty to carry out an accurate verification process on these qualities.

Likewise, the creation of intermediaries, who centralize and manage, on behalf of others, certain relationships, is possible thanks to the fact that the intermediary enjoys the trust of the intermediated subject. Depositing your money within a bank is possible because the saver trusts that the bank will manage the savings according to the instructions that the saver will give to the bank during the relationship.

Conferring trust necessarily means also exposing oneself to vulnerabilities, which represents the risk that a subject bears to benefit from more effective interactions.

Vulnerability, as the risk deriving from having granted a certain degree of trust, consists in the possibility that a malicious and opportunistic behaviour of the counterparty is executed to the detriment of the person who trusted, to take unfair advantage of the given trust. Even vulnerability, mirroring trust, is not a binary phenomenon, as the more trust is placed in a subject, the greater the level of vulnerability we are exposed to.

The level of trust also shapes the architecture of any community.

Within corporate organizations, trust plays a primary role since the existence or not of a relationship of trust determines the construction of an organizational structure in one way rather than another. In a company structured according to highly hierarchical schemes, the level of trust of the management at the top towards the subordinates tends to be low and the control and verification mechanisms on the lower levels will be more strict. In this way, despite an increase in verification costs, the management, therefore, mitigates the vulnerability of the company structure.

The centralized architecture, in which we find intermediaries who enjoy, by reputation or by regulatory provisions, the trust of the participants of the community, is certainly the model that has been mostly established in the history of humanity, mainly thanks to the advantages in the management that it entails and the stability that derives.

As there are different levels of trust, there can be different levels of centralization. In contrast to a centralized system, in a decentralized system, all participants interact with each other directly, without recourse to intermediaries, and all benefit from the same level of trust in relations with each other. Because of these characteristics, decentralization has always presented greater difficulties in its implementation and management, especially in complex systems in which members do not know each other, as the risk of vulnerability, given by opportunistic and malicious behaviour of the actors of the system, will be extremely high.

These considerations are intended to highlight the importance of trust in shaping the architecture of an organization or a community; only thanks to this awareness, we can understand the role that technology is playing in revolutionizing traditional forms of interaction.

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