We hear the term “trustless” a lot in crypto, and many are confused by its implications. It is an ambiguous term with many possible meanings depending on the context. “Apathetic” means “without direction”, so “hopeless” must mean “without hope”, right? Surely lack of faith is bad?
It turns out that “trustless” is another term that the crypto ecosystem has appropriated with a changed definition to denote its scarcity. required For faith. In traditional finance, we trust our banks to make payments and protect our deposits, and we trust our brokers to process our buy/sell requests.
Noelle Acheson is the former head of research at CoinDesk and Genesis Trading. This article is taken from her Crypto is now macro newsletter, which focuses on the overlap between the shifting crypto and macro landscapes. These opinions are her own and nothing she writes should be taken as investment advice.
In crypto, in theory, we don’t have to trust any third party. We can perform peer to peer transactions directly, leaving the code to handle balance adjustments and verify that everything is in order.
It is not a lack of faith – an environment where faith is not needed.
In theory, anyway. Peeling back the layers, we still need to trust the blockchain and the interface we use; We also have to trust the miners and/or validators who maintain the network. Whether buying our crypto assets from a centralized exchange or storing them with a centralized custodian, we trust intermediaries to handle our funds fairly (unfortunately not always the case, as we’ve seen). If we use a decentralized application, we hope that the code is free of bugs (which is not always the case).
How to assess ‘trust’?
Like the air we breathe, our lives are fueled by faith, even in “faithless” settings. Our society cannot function without it, no matter how decentralized we become. Faith is why contracts work, empires fall and why people seek community.
And why the year”Edelman Trust Barometer,” published each January, makes such compelling reading. Since 2000 it has canvassed 32,000 people in 28 countries and has documented the decline in trust in our society by measuring attitudes toward the institutions that shape the fabric of our lives.
This year, growing polarization is a key theme, with respondents in the United States, Argentina, Spain and other countries overwhelmingly checking the “very divided and no solution in sight” box. One of the main factors behind this change is a decline in trust in government (Seen as “unethical and incompetent”) and the media (considered “unbiased and misleading”).
“Business” is the only reliable pillar of our society. This year’s report highlights the growing expectations the public has of CEOs. 89% of respondents expect to take more of a stand on employee treatment, 82% on climate change and 80% on discrimination.
Rather than providing relief that at least one core group still believes, it raises several concerns. What is the purpose of business – to make a profit for investors or to advocate for certain values? How should business become political, and to what extent can this affect its potential for growth?
This shift in expectations reiterates something I touched on earlier. The need for faith in our lives cannot be suppressed, and when it is damaged in one area we seek compensation in another. But expecting businesses to step into the role of social governance and spread the “truth” can distort markets.
A different belief model for crypto investing
Which brings us to crypto: the easy assumption is that crypto runs on cold code rather than hot people, and therefore provides a “pure” market experience. This may be so (corporate decisions that affect profit potential leave investors unfocused on design choices), but code – especially in crypto – embodies values.
Satoshi Bitcoin was not created to fill a void in the world’s trust map. He (or she or they; I’ll use “he” for convenience) created Bitcoin to fill the void. His A trust map expects other like-minded people to find it interesting. Bitcoin has no leaders to shape what its market wants, nor a marketing department to help it discover what it is. Bitcoin isn’t looking for users — its ecosystem has sprung up spontaneously among people who value what its code can do, and has grown as more people question established market and monetary conventions.
An often misunderstood premise of Bitcoin and similar crypto networks is that they are code written to perform a function. For example, Bitcoin may have been created with certain values in mind, but that does not preclude its use by those who do not share those values.
This is important for investors’ expectations. Investing in crypto is similar to investing in instruments, which makes crypto more like a commodity market driven by supply and demand than a stock market driven by corporate strategy and soft targets. However, unlike commodities, crypto assets embody certain characteristics that put them on the path to the “value investing” crowd, which, as the Edelman study showed, is larger than most of us realize. No one has ever accused copper of having values.
This is important in terms of regulatory assessment, taking up a heated debate familiar to many in crypto: Should you regulate an instrument or just restrict its uses? Knives make it easy to eat food, and they can kill, but no politician advocates regulating knife sales. However, Bitcoin (to choose an obvious example) was born with an embedded sense of anti-regulation. This is a concern for some who see their influence waning.
All of this highlights how new crypto concepts are, and how we’ve barely scratched the surface in terms of their impact on the way we view concepts like markets, regulation, and trust. It is more than understanding algorithms, data structures, securities law or economic incentives.
But it’s worth questioning our trust in the Statement of Trust, especially when a PR firm serving corporations claims that corporations are more trustworthy than other parts of our social fabric. Whether the report’s conclusion is biased or not, it’s a healthy exercise to scrutinize neatly curated narratives.
Perhaps this is the end use of the crypto ecosystem. It has given us more than a means to pave the way for a window into a new economic hierarchy around selected barriers as we continue to test use cases and expand into new market segments. It has also given us a lens through which to question established conventions.
As Edelman’s report suggests, “values” and “belief” are important – however, we don’t understand them as well as we thought, and new tools in the philosophical box can prompt us. Think about what they mean to us as individuals and as communities. This can lead to a deeper awareness of how these fundamental concepts can shape the next generation of markets and transactions, and what this means for our interactions with each other.
The views and opinions expressed herein are those of the author and those of Nasdaq, Inc.