Pictured: https://www.iizcat.com/post/4418/Hilarious-comic-about-trust-and-the-cat

I don’t want you the trust me, I want you to validate what I say yourself. Placing trust in other humans is a necessity and happens everyday in life, whether it's the bus driver, a chef or your work colleagues. Many things in life involve trust but also many things don’t have to. In the case of Blockchains and cryptocurrencies, the whole idea is the value comes from removing trusted intermediaries in interactions and replacing them with mathematically verifiable proofs.

For example, if I tell you 1+1=2, do you believe me? Why would you need to ‘believe’? Believing in this context means you trusting what I have to say without logic or question. However, you can actually prove that 1+1=2 is true without needing me involved. Proving that something is true is much better than believing as you can come to a conclusion about something in a universal, transparent, provable way without needing to involve any third parties to ‘trust’. Our brains do this all the time to validate sensory data around us. The brain universally accepts that the sky is blue and above our heads as we can use sense data from our eyes and confirm this observation with others in our social network, we can prove then that this observation is true without trusting someone else on the topic. Verifiability and proofs help our brain think less about certain information and focus more on other more important things- if we were unsure the sky was above our heads every moment of every day it would be quite worrisome as perhaps it could fall down and crush you at any moment, but we know this not to be true as we can validate the fact that it wont fall down with a number of mathematics, observations and data. ‘Trustless’ is better than ‘trusting’ and in this context allows us to live more fulfilled lives.

Incentives

Often in this world, the questions about What, How, When and Where are asked in all manner of ways but it can leave out a very important question which gives context to all the others- Why. I see this alot in the financial world, a news report will come out headlining “Company X makes a blockchain” or “Central bank bans X” they will list a number of specifics about the post- who posted it, what is the content, how is it implemented etc, but there is very little analysis as to the Why. Why did a company think a blockchain is good for them? Why did the central bank want to ban something?

Asking these questions can lead to a number of subsequent questions which can lead to a better understanding about the motivations of the people making the announcement. Maybe the company announces a blockchain because they want to pump their stock (https://www.bloomberg.com/news/articles/2017-12-21/crypto-craze-sees-long-island-iced-tea-rename-as-long-blockchain) and maybe a central bank just doesn’t like competition to their monopoly (https://youtu.be/iFDe5kUUyT0?t=78).

Most of the time people do the things they do because of incentives. Nobody would go to work everyday if you didn’t get paid. Payment is the incentive to work, get paid then you can do other stuff you are interested in with the money. It is no different when we are talking about trust. What are the incentives for people to trust and for someone to ask you to trust them, are the incentives aligned? Can they be trustworthy? Why can they be trusted? Alot of these words trustworthy and trusted are asking a question about incentives- if someone can benefit at your expense then it would make sense not to trust them. Likewise if both people can benefit from the trust relationship then it might be beneficial to trust them, the incentive there is that you can gain without any expense.

So aligning incentives and trust are very important, often you need to identify the incentives before concluding that trusting that person is the best course of action. However in a trustless transaction the incentives only involve one party, yourself- and can therefore be much less risky to determine the resultant outcome. If I know that fire is hot as a universal truth, I can easily validate that sticking my finger in fire will hurt and be a bad outcome for me. I am not taking any risk in this situation that ‘fire is hot’ as I have determined this to be true based on verifiable mathematical truths, that fire is above a temperature of 100 degrees. I can therefore take an action (not sticking my finger in the fire and therefore not get burned) with a 100% success rate. It is much easier for me to weigh these incentives when I dont need to deduce the Why the fire is hot today, if the fire is cheating me or take a risk on whether another party has the same incentives as me.

It is therefore evident that in trustless scenarios, incentives are neutral and depend entirely on the individual making a decision. This is an excellent state of affairs as I have now de-risked my decision making so I can make more positive decisions in my life. Trustless proofs are what get us here.

Transparency

The more public you are with a validation of a proof the better. I do not trust readers of this article to pay for my next meal, even if one person sent me a private message telling me they’ll pay for my next meal they have not taken on much risk in doing this. However if Bill Gates announces to the world and his millions of followers he will pay for my lunch I would say the likelihood that he pays for my lunch is alot higher as he has made a public statement which everyone can verify and later everyone can audit his statement by checking the restaurant bill and holding him to account. All of his followers also do not trust each other, they are essentially individuals and potentially adversaries but are all in the category of ‘Bill Gates follower’ so there is no incentive for them to collude- Why would they? What can they gain? How could they even collude to falsify confirming that Bill Gates paid for my lunch if they don’t even trust each other and have nothing to gain by doing so? We can therefore see that the more distributed number of verifiers party to a transaction (Bill buying my lunch) that do not trust each other and yet can agree on the same outcome the better. If only one person confirmed it, it doesn’t have as much weight as if 1 million people verify it all of whom do not trust each other. Blockchains are like this.

Trustlessness can only be achieved through making the proofs verifiable to the public and by ‘public’ we mean a distributed number of verifiers who do not trust each other. If a scientists tells me he created a time machine but only tells me, this would have a lower level of trust than if he told 1million people and provided the plans to the time machine to the public. Transparency is key to eliminating risk and removing the need to trust.

Verifiability

Being able to verify a claim in a transparent and public manner is another essential mechanism to removing the risks associated with trust. If verification involves additional layers of trust then it brings about the same concerns about the verification. If to prove the scientist has built a time machine I need to use a time machine device scanner which I do not understand then the scientist could be dishonest in the operation of this time machine scanner and I would not be able to prove it irrefutably. Whereas if proof of his time machine was made public, one could verify his claims using mathematics and physics principles to verify if his time machine actually would work. The tools provided would need to be universally accepted truths- mathematics being essential for trustlessness aided by deductive reasoning and logic.

A Trustless Truth- Why Is This Important?

If more interactions were trustless the world would be a better place. Removing an element of risk in our daily lives and potential for a malicious individual or collective to exploit it leads to the betterment of society. What we have described above are some essential principles for providing trustless interactions, the biggest example of this today in our lives would perhaps be money itself.

Government issued money relies entirely on ‘trust’. Cash itself is merely an IOU for the amount of government money issued on the paper, it used to be an IOU for an equivalent amount of gold but this has not been the case for almost 50 years. Banks by law hold only a tiny fraction in reserve of the amount of money they owe an individual, by definition if everyone wanted their money back from the bank the money is not there, the numbers in your account are fake but the bank is betting that you will trust them enough for everyone to not want their money back at the same time (see: Bank Run https://en.wikipedia.org/wiki/Bank_run). This truth is often hard to grasp for some people at first but is fundamental to understanding the financial system.

Luckily we now have trustless money. Cryptocurrencies represent verifiable, transparent money with built in incentives to ensure the integrity of those participating in the system. The key note here is that cryptocurrencies are voluntary, no government decree or use of force is required for people to use it and value it, the value is derived entirely by a free market of people exchanging it for what they think it may be worth at any one time. Money touches all aspects of everything in our lives and ensuring that this is as free from coercion as possible is essential to ensuring a long term sustainable and morale economy, this is why the difference between trust and trustlessness matters.

TechnoKing Step.finance