Let’s face it, as humans, we can’t trust each other. Whether it’s that kid that told you they’d give you that Pokemon card back at the end of the day, or your ex-wife that always promised it wasn’t about the money.
We can, however, trust maths and code to do what its told.
Banks these days take a lot of flack and for good reason. For a bank transaction to take place one must first of all hold funds with a bank, send said funds through clearing and processing centres, in addition to the use of a payment system.
This all involves an interconnected system of third parties who take their share of the transaction — increasing transaction costs. And as the funds move the verification via each party takes time, thereby increasing the time taken to process it.
Not to mention the disastrous effects of the fat-cat mismanagement that took place by “trusted” institutions in the lead up to 2008.
In essence we place trust in said institutions since we cannot always rely on the party with which we engage in a transaction to do the morally right thing to do: e.g. I pay you up front for a certain good and you don’t deliver and disappear.
There must be another way, I here you ask? Well, I wouldn’t be writing this article otherwise.
In today’s modern (post-modern?) world we have distributed ledger technology where “trustless” transfers are able to take place: trustless in the sense that we no longer have to rely on a “trusted” third part to mediate asset transfers.
In place of third parties we now have computer code which facilitates the direct signing over of the asset from the consigner to the consignee. This is a completely binary process. Either you have the assets under your control or not. Here the only trust involved is that placed in the software, but lines of code are more than unlikely to renege on an agreement out of self interest.
On the blockchain transactions are open and can be monitored in the ledger. Here you can check whether a transaction has taken place and confirm it even where the recipient denies they received the asset. You can also review the open-source software to check whether it is malignant.
In short, we’re talking about disintermediation and a massive reduction or even elimination of counterparty risk.
We can trust maths and code to do what its told so let’s hand responsibility over to the code and give the finger to the intermediaries.
Adam Y. Crypto and blockchain enthusiast, writer and market analyst says:
I work in content for an exciting and promising fintech blockchain startup: CyberTrust.
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