CryptoURANUS Economics: TRUSTED VS TRUSTLESS: Defined in CryptoCurrency


Saturday, August 11, 2018

TRUSTED VS TRUSTLESS: Defined in CryptoCurrency

TRUSTED VS TRUSTLESS:  Defined in CryptoCurrency

Truth in the means of stock-exhange and cryptocurrency operations

It means you don’t need a trusted party to settle transactions.
When you send funds you trust the banks to send it for you.
Settling a financial agreement between two parties involves both the bank of the sender as well as the bank of the receiver.

Cryptocurrencies like Bitcoin cut out the need of this middle man role.
It has nothing to do with trusting the seller. Neither does a bank if you pay upfront and the seller refuses to send the goods. Then it’s become a civil case.
Just like with bank statements you can prove on the blockchain that you transferred funds to the address the seller gave to you.

‘Trustless’ has become a rallying cry for Bitcoin evangelists, focusing public attention on the fact that Bitcoin enables P2P transactions without the participation of a trusted third party acting as an intermediary.

Before Bitcoin, to use digital money, we needed a trusted third-party to keep a ledger of who owned how much.  Examples of this trusted third-party are MasterCard, VISA, your bank or your MNO if you use mobile money. So if Alice sent Bob $100, this trusted third-party would debit Alice's account and credit Bob's account - they would update their ledger and we all had to trust this 'trusted' third-party to do the right thing and be good stewards of our money.

Now with Bitcoin, everyone has a copy of this ledger so we mo longer need to trust a single entity/organisation/third-party because there is no need to trust when you can just verify against this ledger because you have a copy of it. This decentralised ledger is called the Blockchain BTW.

And the other thing is that everyone using is following the same rules we are so we don't even need to trust them because we know that Bitcoin was built to make it impossible to break the rules.

Bitcoin makes it possible to conduct money transfers without intermediaries. Intermediaries who could otherwise gain control over funds in a transaction, censor transactions or act as points of failure. 

Does this give grounds to assert that Bitcoin and other cryptocurrencies are a form of money that does not require trust? Is it possible to completely eliminate trust from monetary relations, and is there even a need to? This article is devoted to the study of the role of trust in monetary transactions (including cryptocurrencies), and its main conclusion is that this role is hard to overestimate.

The article is divided into four sections. First, we analyze the role of trust in monetary relations, including the role of trust in Bitcoin’s functioning, and show that trust is necessary for any money. Next, we proceed to justify the need for credit and credit money, which cannot exist without trust. 

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