The term “trustless” gets thrown around a lot in the digital currency world. I have used it myself quite a bit. When explaining Bitcoin to new people I often describe it as a “trustless peer-to-peer digital cash system that allows you to send money to anyone in the world instantly and cheaply.” 7+ years in though I’ve come to realize that the term trustless in digital currency is a misnomer. The Ethereum hard fork yesterday reinforced that to me and effective immediately, I’m removing it from my crypto-vocabulary. Here’s why:
Trust in digital currency platforms is distributed, not eliminated
Bitcoin, Ethereum and other permissionless blockchain platforms are distributed trust systems rather than trustless systems. When you hold BTC, or ETH in a user-controlled wallet (where you control the private keys), you’re actually trusting several parties: the miners to secure the network and validate transactions, the developers to maintain and improve the code, and the users to use the platform. You’re not trusting any one party — all three of these parties are decentralized and that’s important — the miners act independently to validate transactions and secure the network, developers independently review code and make pull requests and users are distributed around the world. While you’re not trusting one party with concentrated power in this scenario, at the end of the day when you use BTC, ETH or STEEM you are trusting the entire community. There must be a level of trust across all three parties or else the whole thing doesn’t work.
Distributing trust has a major advantage — it minimizes so that no one party can make a decision in their own interest at the expense of the users. This is in stark contrast to the traditional banking system, where central bankers have a monopoly on money and individual banks can act in their own self-interest at the expense of users. Distributing trust puts the power back in the hands of the people and offers people choice in a world where incumbents have been given power blindly with few checks and balances.
A Hard fork at Block 1,920,000
Yesterday, the Ethereum community hard forked, effectively changing the history of the Ethereum blockchain to prevent a hacker from stealing ~$60M worth of ETH from unsuspecting victims. This was a controversial decision, as some believe that one of the core characteristics of a blockchain is its ability to create an irrefutable ledger. The Ethereum blockchain is no longer irrefutable — the hard fork demonstrated that it can be changed. While I’ll reserve judgement on whether or not the hard fork should have occurred, the fact remains that it did and the Ethereum community is pushing forward.
I strongly agree with Coinbase CEO Brian Armstrong that hard forks are one of the most important innovations in digital currencies and the developers behind Ethereum showed an impressive ability to utilize this innovation under significant pressure. They didn’t do it alone — the community voted on the change, which couldn’t have happened without a level of trust existing between the developer, miners and users. The ecosystem will emerge stronger from it.
We’ll see what the takeways are from the hard fork for Bitcoin, Ethereum and others. If anything at all, I hope that more developers, miners and users realize that while trust in digital currencies is not given blindly nor should it ever be concentrated, it’s still very important.