TRUSTING A TRUSTLESS NETWORK. The Paradoxes of Trust in Blockchain Technology

The era we live in requires us to take trust leaps at a surprisingly high rate – we have jumped from using credit cards to dabbling with cryptocurrencies; from making reservations at trusted hotel brands to booking rooms from complete strangers; from public transportation to using Uber or Blablacar; from libraries and encyclopedias, to open informa... See more

Vitalik Buterin, co-founder of Ethereum, distinguishes two kinds of cryptoeconomic systems: objective and subjective. In an objective system, the protocol’s operation and consensus can be maintained at all times using solely nodes, knowing nothing but the rules of the protocol itself. Subjective systems, on the other hand, require more additional k... See more

“Trustless trust”, as an expression, conveys a trait of blockchain being inimical to trust, when in fact it is the contrary. Not only does blockchain thrive on trust, it is able to “generate” trust in circumstances where there is none, such as impersonal cases brought about by the scale of a network typically found in collaborative transactions don... See more

We are at the start of the third, biggest trust revolution in the history of humankind. A trust shift does not mean that the previous forms will completely be superseded, only that the new form will become more dominant. The first phase was local trust, where it was based on one-to-one interactions and personal reputation. Next came institutional t... See more

Technology, however, is creating trust between the unlikeliest of characters, even in the nefarious world of the “Darknet” – an encrypted network of secret websites that allows the exchange of illegal assets such as drugs, stolen financial data, and firearms (Reiff, 2020). The great oxymoron is that it is populated by hundreds of thousands of vendo... See more

On a blockchain network, nothing is assumed to be trustworthy except the output of the network itself (Werbach, 2018). On any transaction, there are three elements that may be trusted: the counterparty, the intermediary, and the dispute resolution mechanism (Botsman, 2017). Simply put, blockchain tries to replace all three elements with software co... See more

Objective systems seem desirable, relying entirely on machines and not fallible and opportunistic humans. There is, however, a catch – machines may be running the code, but humans are acting on it. A subjective system might be able to differentiate between legitimate and illegitimate transactions in a way that an objective one could not. Concepts l... See more

Political scientist Russel Hardin (2002) argues that trust is really about encapsulated interest, i.e., a kind of closed loop of each party’s self-interests. Like the real estate agent who sells a house at a reasonable price not because she cares about the client but because her commission is directly tied to the sale price, the drug dealer also ea... See more

Centralized trust creates negative externalities even when those at the center remain trustworthy. As the market expands, a purely person-to-person approach breaks down and would necessitate the presence of intermediaries. Intermediation, on the other hand, serves many roles, but also imposes costs, especially when the intermediary is a private com... See more