Stable Coins, Oracles, Trust, and Identity

One of the biggest structural challenges for digital platforms, ranging from blockchains to social networks, is figuring out how to translate the real world into a language that digital systems can process. It is one thing to build a self-contained digital ecosystem for distributing information or encoding contracts and memory. It is quite another to get those systems to talk to the rest of the world in a trusted way so that the system can be useful.

The cryptocurrency world got a stark reminder of this last week with the outcry over Tether, the stabilized coin supposedly backed one to one by U.S. dollars held in an account “off chain”—but which some say might not be. Guaranteeing the movement of tokens is far easier than guaranteeing that the tokens represent something in the real world.

This isn’t just a problem for crypto. I believe that there are broadly two paths forward for technology.