Crypto Concepts 101 - Trustlessness

Crypto Concepts 101 - Trustlessness

Matthew Nash

Matthew Nash

MELD Ambassador

January 4, 2022

For the uninitiated in the crypto space, defining something as “trustless” would raise suspicion. However, a closer look at what this term intimates when discussing blockchain protocols lends itself to the opposite sentiment. In the abstract, “trust” can be conceived of as a commodity that one entity grants to another to allow themselves to be exposed to the actions of others either via proactive behaviour or, conversely, withholding malicious or deceptive action.

We trust our train to run on time, we trust our neighbours not to steal our morning paper, and we trust our custodial wallets to maintain a sufficient level of security. When trading crypto assets, a third party is always prone to some level of uncertainty because, ultimately, an exchange is still run by human beings, no matter how much our interaction with them is automated. In these instances, you delegate a portion of your crypto asset security to third-party and hope they’ll act in good faith with your assets, or at the very least, be non-negligent with their custodianship.

When we use the term “trustless” in the crypto space, it’s not about how much or how little we have to confer a level of trust; it’s about its abrogation as a requirement between actors in a crypto asset exchange. A decentralized, trustless network removes the third-party intermediary and swaps it with the determinism of code. In the simplest terms, determinism is the idea that if we present the same inputs in the same order, the outcome should be the same every time. The immutability of the logic behind the code means that we don’t have to “trust” an intermediary to execute every trade or exchange faithfully; the code will always do so. Another way of conceptualizing this would be auto-escrow; the code acts as the quasi-third party actor and does not execute transfers until a digital key signs transactions. The rest of the nodes or validators on a protocol then check this transaction and then signal to the rest of the participants on the blockchain that this transaction is valid.

The concerted action of thousands or millions of economic actors brings into view a correlational aspect of a trustless system of decentralized actors: the notion of incentivization. Blockchains are designed so that they don’t require as much trust between actors - as opposed to a more traditional transactional model - because blockchains are engineered so that cooperation has less friction and is more lucrative than in a system of self-interested adversaries. For example, the number of resources needed to marshal a 51% attack is enormous, and any new nodes entering the network can offset this control over a blockchain. What’s more, because a blockchain can’t pre-mint a series of blocks, the likelihood of a malfeasant chain’s ability to stay “the truth” becomes increasingly hard as it falls behind the main chain in being awarded blocks to mint. This sort of digital economic mutualism is built in such a way that each participant has an investment in the system itself and its benefits.

Astute readers will contend with the assertion that trust is entirely done away with when having no active third party between actors. In a trustless, decentralized system, we still confer a level of trust on the protocol(s) we’re using to facilitate our transactions. Therefore, a more accurate way to describe it is a “minimization” of trust. In a cryptocurrency, we implicitly grant a level of trust to a protocol we use to operate efficiently and without vulnerabilities. There have been examples in the past where some blockchains have broken down or have had users lose funds due to vulnerabilities. Still, the fact that Bitcoin, Ethereum, Cardano, and all the thousands of other cryptocurrencies make up close to a 2.6 trillion market cap with hundreds of millions of users is a testament to the fact that the crypto space can, and has worked through a lot of these issues.


The opinions shared within this article are those solely of the MELD Ambassador. Note that the content within should not be considered financial, legal, or tax advice. Neither the author nor MELD Labs PTE Ltd. are financial, legal or tax advisors. None of this content should be used to make any form of financial, tax, or legal decisions. Do your own research and consult professionals as needed for official policies, restrictions, and requirements in your jurisdiction.

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