Blockchain’s Impact on Trust

Blockchain – which powers Bitcoin, Ethereum and many other crypto currencies, is often heralded as “trustless technology.” But what does trustless really mean? Is it actually possible to have a trustless system?

A New Paradigm

Blockchain tech is enabling us to move from a centralized and closed system of trust to a co-created and distributed system of trust. That’s a powerful change that enables more people to participate in a more robust trust environment. Will this change replace our existing centralized systems? I doubt it. Rather I think it's an extension and addition to the existing system that's allowing us to interact in new ways. In a world that's becoming increasingly complex and interconnected this becomes a necessary change.

The Playing Field

Blockchain technology is currently mostly used for financial transactions though it can be used for many different purposes. Even though I believe that communities can benefit from this technology in a variety of ways, for simplicity's sake I will use the existing financial system as an example.

Traditional financial systems rely on a central trusted institution – usually a bank, or a credit card company, to act as an intermediary between two parties. Often there are multiple intermediaries that facilitate the transaction. When I send money via wire transfer, PayPal, Cash App or Western Union I trust these entities to deliver the money. I also trust that these institutions and companies won’t suddenly go bust, that my government won’t collapse, rendering the transferred currency worthless, and that shops and other people will continue to accept the currency. The trust required here is pretty broad, we rarely think about it and instead, take it for granted.

Blockchain technology on the other hand uses encryption and a distributed ledger. Simply put the encryption safeguards your account and transactions. The ledger, which lives on a network of computers, records all transactions and safeguards the network and transactions. What makes this system “trustless” is that there is no centralized entity that every transaction passes through. It also enables and empowers anyone to participate without any gatekeepers. This is referred to as permissionless. The idea of “code is law” also applies here: whatever is encoded in the app or smart contract will be executed, often without the possibility of intervention, it functions as a kind of law.

Shifting Trust

This “trustless” technology is changing the way we put trust into the system. But trust is still required. We went from relying on a bank or other centralized entities, to relying on code which is written and maintained by an individual, team or community. Many of these projects are open source, which adds a layer of transparency, allowing anyone to check and verify the code. Whoever is able to read and understand the code doesn’t have to trust the authors. In turn that means that those who can't read or write it, trust those who can.

As much as it's trustless and permissionless there is still trust involved. We need to trust the creators, the developer community and everyone that has the ability to make changes. In addition, we need to trust the companies that are providing the servers that everything is running on. And we need to trust the government not to outlaw any part of this new system. 

More Influence, Better Outcomes

We’ve made the process of exchange more direct. Currently, we need to rely on governments and companies, that is large groups of people, to come to a consensus on laws and regulations and collaborate in a productive manner. Our ability to influence the outcome is minimal. This new distributed and trustless paradigm gives individuals and smaller groups the ability to create pathways to interact in a trusted manner. In turn it gives them more opportunities to participate in and influence the world around them.

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