Throughout history, a series of developments have changed the way we obtain food, the way we move around and the way we communicate. However, the values that make us human, like trust, compassion, respect, and love, have largely remained unchanged. Until now – enter blockchain technology.
Trust as a building block.
Humans are hardwired to connect and trust each other. Without trust, prehistoric humans would have never formed tribes, Romans would have not established their empire, trade routes would have never come to place and today’s economy would simply not exist as we know it. Like any other human value too, trust comes in many different forms and levels. Sometimes we trust without any formal agreement, and others we make use of intermediaries to ensure that trust is not broken; this is usually in the form of contracts, or laws, which are enforced by trusted third parties, like a Government.
Trust is the very foundation of all human history up to this point, mainly due to a lack of viable alternatives. Nonetheless, just like every other human value too, trust is not a perfect science. Humans constantly trust people they shouldn’t and make financial or emotional losses as a consequence.
In the mid-2000s, hundreds of billions of dollars worth of mortgages were given to individuals with poor credit ratings. Investment banks bundled these mortgages into Collateralized Debt Obligations (CDOs) and sold them as low-risk assets to investors, who trusted these institutions. As house prices started to fall, homeowners could no longer refinance and remortgage their houses for cash and started to default, which triggered the 2008 economic recession.
Interestingly, Bitcoin was born out of this economic recession and is often seen as a hedge against the trustworthiness of Governments and Banks.
Especially younger generations often feel close to the blind trust we put into organizations like Google, Facebook, and Amazon. These platforms actively accumulate, store and monetize as much of our data as they possibly can, often by making use of dubious methods.
Storing anything in a central location has always been a bad idea; ask a pirate why he didn’t hide his whole treasure in the same spot. Despite that, we have reached a point were centralized data-oriented organizations know more about us than even our closest friends do. Is it really a good idea to trust profit machines with what essentially makes up our entire identity?
Unfortunately, the above two examples are just the tip of the iceberg.
We trust the Federal Reserve to control the value of our money, we trust politicians to make decisions that are in our best interest, we trust the claims manufacturers make about their products (Remember our beloved German car manufacturer?), we trust the headlines of media corporations, and the list goes on, and on, and on.
In a trustless future.
Blockchain technology raises an interesting question: is trust really necessary?
That entirely depends on who the trust is directed towards.
There is a big difference between how we trust strangers, and how we trust our family and friends. Trust issues between people that are close to us may occasionally cause small problems, like when a child doesn’t brush his teeth even though he was told to by his parents. On the other hand, trust issues with “strangers” like Banks, Governments and other distant individuals, have the potential to cause problems on a much more regular basis, due to misaligned interests, and with a much stronger negative impact, often due to the massive scale of these trust-schemes.
Although Bitcoin’s astonishing success since its inception in 2009 has proven that it is indeed possible to reach consensus in a completely distributed manner, we are still far from the peak of what Blockchain has to offer. In 2017, we have observed the meteoric rise in popularity of “Smart Contracts”. Smart Contracts are applications that help in exchanging money, property, information, shares, or anything of value in a transparent, and trustless way. These programs reflect the quote “Code is Law” in its purest essence.
Blockchain smart contract platform Ethereum currently has +19,000 verified smart contracts on Etherscan. The total number including non-verified ones is obviously magnitudes higher, which shows the growing interest in this technology.
While it’s true that a big portion of these smart contracts is currently being used for “non-productive” means, like raising funds through initial coin offerings (ICOs), many legitimate smart contract based applications are also starting to gain traction. Decentralized exchanges may completely reshape global equity markets by enabling peer-to-peer trading without any central authority or trusted party. Blockchain-based collectible games put in question the pure definition of ownership itself and may be the catalyst of a new economic dimension that exists exclusively in virtual worlds. Decentralized stablecoins address the stability problem in cryptocurrencies like Bitcoin and point a gun to the head of centralized fiat currencies.
As more brilliant minds continue pouring into the Blockchain space, the progress towards a transparent, incorruptible and distributed future keeps accelerating.
But until that day eventually arrives: don’t trust anyone.
CoinDiligent Staff Writer