To blockchain proponents, one of the technology’s major advantages is that it doesn’t require trust to conduct transactions.

Today, transactions require trust, or intermediaries, to facilitate a transaction, record the details and serve as guarantors that each party has sufficient assets.

However, intermediaries cannot always be trusted, as illustrated by the “Byzantine Generals problem,” an oft-cited analogy used to explain blockchain. Proponents argue that blockchain removes the need for trust (and therefore intermediaries), but our analysis suggests that blockchain technology may not reduce the need for trust so much as shift the burden of trust.

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The focus on blockchain has been on ensuring that parties complete their transactions and that transactions are immutably recorded. However, we argue that trust is still a factor outside of the immediate transaction environment. Take, for example, the trading of renewable energy certificates.

Traditionally, a certificate-creating regulator must verify the validity of the renewable energy generator, while brokers aggregate certificates from the generators and link buyers and sellers.

Proponents of blockchain renewable energy trading argue that these multiple intermediaries are not necessary because the technology allows parties to trade directly, and only when both parties have their assets ready.

However, this argument looks at the renewable energy trading system through the narrow lens of immediate transaction mechanics. The broader “transaction ecosystem” still requires trust, making it one where renewable energy trading shifts the “burden of trust” from transaction intermediaries to parties outside the enclosed ecosystem.

This shift might transfer responsibility to entities that are not prepared, which could be particularly dangerous as the blockchain purposefully does not allow for arbitration or the undoing of transactions — in other words, “all sales are final.”

Our assessment that blockchain does not reduce the need for trust but rather shifts the burden of trust raises questions for investors looking at blockchain-enabled applications, as well as those assessing how to improve efficiency of trading.

The ability of the technology to set the boundaries of the transaction environment may create as much complexity and risk as it resolves. At what point does it become prohibitively expensive to expand the scope of technological control to remove the need for trust? Investors purely focused on transaction-level trust may not be aware of the risks that might arise from such shifts and may benefit from assessing the relative cost versus the efficiency of redistributing responsibilities of trust outside the immediate transaction environment.