Trust in a Trustless System
Why trust is still a necessity in most crypto, and why Skycoin deserves the benefit of the doubt.
We live in a low-trust society. People tend to be deeply skeptical and cynical when it comes to claims made by products and services. In a recent article for Wired.com, Zeynep Tufekci defined what a low-trust society looks like:
You expect to be cheated, often without recourse. You expect things not to be what they seem and for promises to be broken, and you don’t expect a reasonable and transparent process for recourse. It’s harder for markets to function and economies to develop in low-trust societies. It’s harder to find or extend credit, and it’s risky to pay in advance.
The internet is increasingly a low-trust society — one where an assumption of pervasive fraud is simply built into the way many things function.
This is one of the reasons why some people have been reluctant to invest in blockchain technology, and quick to believe deceptive stories about certain projects in particular. To decide to invest in a given cryptocurrency project, therefore, constitutes a triumph of trust.
This distrust of blockchain technology is ironic, considering that one of the great promises of the blockchain itself is that it creates a highly reliable system of trust without the need for a neutral third-party intermediary. Blockchain is believed by some to obviate the need for trust altogether. The reality falls somewhat short of the ideal in certain respects however, and frequently a measure of trust is nevertheless still required with projects that make use of blockchain technology.
At its most basic level, a blockchain is simply a distributed public ledger, with all transactions visible and transparent. This level of transparency when transacting with cryptocurrency often catches the uninitiated by surprise, even if wallet addresses aren’t typically associated with real-world identities.
Unless one is using a so-called privacy coin, like Monero or Z-Cash, or an anonymizing protocol like CoinJoin (with which Skycoin was designed to natively integrate), the details of every transaction is available for everyone to see, forever.
It’s this transparency that allows people the confidence to imbue blockchain with a level of trust formerly reserved for banks, lawyers, or other third-party trust entities. In a cashless fiat transaction, when you pay someone money, the bank needs to confirm that the money you spend is no longer in your account or otherwise spendable by you, and that the person whom you are paying successfully receives the money in question. This is necessary to prevent a person from spending the same dollar multiple times. The blockchain works the same way, but is generally faster, cheaper, and easier, and there are many who hope the power of the blockchain will lead to the rapid obsolescence of the banking system as the sole arbiter of financial trust.
But even in the realm of blockchains and cryptocurrency, where cold, hard, and inviolate math rules supreme, there are a number of ways in which trust is still crucial. And wherever trust is required, there is always risk that trust will be broken.
In the case of banks, customers trust that the bank will keep their funds secure, and will make them available when called upon to do so. When people keep cryptocurrency on an exchange, they are putting a great deal of trust in that exchanges’s ability to prevent hackers from accessing and stealing those funds. Both banks and crypto exchanges get robbed, and people who had funds stolen from Mt. Gox (or a number of other exchanges) know the pain of placing one’s trust in the wrong place.
The CEO of Canadian crypto exchange QuadrigacX died suddenly, and was allegedly the only person at the company in possession of the private keys to the exchange’s cold wallet. As a result, hundreds of millions of dollars worth of cryptocurrency is now locked away forever, and the people to whom it belonged have little recourse. Stories like these are why many people in cryptocurrency repeat the pithy aphorism “not your keys, not your coins”, meaning that if you choose to keep your cryptocurrency on an exchange, you must understand that there are serious risks involved, and a great deal of trust (and luck) required.
Trust Factor #1: The Grim Spectre of an Exit Scam
There are other levels of trust required when investing in cryptocurrency. One must trust that a given project will be able to accomplish the goals it sets out to accomplish, and that those goals are laid out in good faith. Cryptocurrency is a risky asset class precisely because the level of volatility requires one to accept risk (or extend trust) in exchange for high potential financial reward.
The road of post-Bitcoin cryptocurrency is laden with the corpses of defunct projects undone by the hubris, incompetence, or perfidious corruption of its leaders. Many high-profile and lucrative scams have come and gone, and they have made most savvy crypto investors skittish and apprehensive, leading some to abandon projects wholesale at the merest whiff of possible duplicity.
When ICOs, or Initial Coin Offerings, were pulling in millions of dollars a few years ago, many scammers saw a way to get a quick payday, leaving would-be investors with bags full of worthless digital currency.
One must also trust that the founders and developers of a project will not become bored or complacent, or decide to cash out and abandon the project, taking their profit with them. Trust is necessary whenever a human element is involved, even if the code they create is pristine. Projects languish and wither away, or key personnel leave for other opportunities, and projects never recover. When someone invests in a cryptocurrency, they are trusting that the people who are building it are committed enough, and talented enough, to see it through.
On this point Skycoin excels. It has been in development since 2012, and has persevered in the face of remarkable opposition, with a dedicated and high-performing development team spread across the globe.
The Skycoin team are frugal with their funds, careful and deliberate with marketing efforts, and conscious of the risks and pitfalls that have cratered other projects. There is little financial incentive for the project team to cash out, since most of the founders were early Bitcoin and Ethereum developers and are largely independently wealthy already. They are continually developing and refining Skycoin because they sincerely believe in it, and that determination may be of some use in helping investors trust them as well.
The fact that Skycoin is consistently ranked among the top cryptocurrency projects in terms of GitHub commits is a testament to both its resiliency and the dedication of its developers. And bear in mind, too, that the commits being tallied are only in public GitHub repos, and that Skycoin not only has many private repos under active development, but dozens of hardware projects that are not included in standard measures of development activity. Were those also taken into consideration, Skycoin would doubtless rank even higher by development metrics than it currently does.
The sheer scope of the Skycoin ecosystem and the number of projects under active development, along with the staggering number of actual bona fide releases is more than enough for most people to trust that Skycoin will be able to continue to deliver on its promises, provided those people have done enough research to verify that this is indeed the case.
There is nothing to indicate that Skycoin won’t continue to deliver because they have delivered, consistently, including during the long “crypto winter” bear market of 2018. During this time, Skycoin developed hardware wallets, a completely new fully-featured blockchain application programming language called CX, and made tremendous headway on numerous other hardware and software projects, like Skywire antennas that will connect Skyminers into a mesh network in cities around the world, and a proprietary SoC (system-on-a-chip) for use on a sleek second-generation Skyminer.
Trust Factor #2: Sifting Truth From FUD
Skycoin has weathered setbacks and controversies that would have devastated lesser projects. Unscrupulous competitors launched paid disinformation campaigns against Skycoin, the results of which continue to plague the project to this day, as people encounter (and believe) long-discredited remnants of coordinated FUD campaigns.
The problem of FUD is bad in the crypto world generally, in part because it is often so effective when deployed against a demographic already conditioned to be suspicious. The ambition and reach of the many projects in Skycoin’s ecosystem is such that a number of other crypto projects perceive Skycoin as a competitor, or a threat, and have endeavoured to undermine Skycoin using underhanded and occasionally illegal techniques. The problem is bad enough that a member of the community created SkyFUD.com as a clearing house for rumours surrounding the project, and as a way to contextualize and dismantle FUD as it materialized.
One exchange that formerly listed Skycoin illegally stole millions of dollars worth of Skycoin from account holders, and sold them over the course of many months, which had a devastating effect on Skycoin’s price.
The effect of all this is a price for Skycoin far below its value, representing a tremendous bargain for savvy investors, but only those who are willing to trust that the FUD they encounter is indeed fallacious, and that Skycoin can continue to deliver on its ambitious goals.
Trust Factor #3: Consensus Shenanigans
A variety of consensus protocols across cryptocurrencies all perform the same basic function. To establish “the truth” about blockchain transactions in a manner such that everyone on the network can agree to trust. That “truth” is then cryptographically added as a block to the chain, inextricably linked to the block before it as well as every subsequently posted block.
There are threats to this system of trust. Depending on the consensus protocol that has been implemented, the risk and severity of a given threat can vary wildly. One example is the 51% attack, which would allow perpetrators to stop or reverse transactions, or perform a double-spend of the same coins. A successful 51% attack would literally trick all other consensus nodes into trusting a fraudulent version of the blockchain.
Naturally, the 51% attack becomes more difficult or expensive depending on the size of the blockchain and the hashing power of its existing consensus network. By this measure, a 51% attack on Bitcoin, though theoretically feasible, is virtually impossible at this point. As the website Crypto51 demonstrates, other smaller coins are not so immune.
The 51% attack and the spectre of a double-spend is only one of the risks with many consensus protocols. But other consensus protocols have issues that compromise their integrity, including centralization of power, where a small number of people have overwhelming influence on the consensus.
These shortcomings erode trust, but they have not prevented many people from investing in cryptocurrency.
Skycoin offers a compelling alternative to popular consensus protocols like proof-of-work and proof-of-stake. It’s called Obelisk, and it is a web-of-trust consensus algorithm that Skycoin will implement at a future date.
The whitepaper describing Obelisk was written by Houwu Chen, one of the first developers of Ethereum. It describes how ‘bad actors’ can be detected and eliminated automatically by the algorithm, while trustworthy nodes will be prioritized. Obelisk will make 51% attacks impossible, and is much more efficient and environmentally friendly than proof-of-work, which requires dedicated miners using copious amounts of electricity, solving increasingly complex cryptographic puzzles in order to verify a transaction. Skycoin’s consensus solution will be truly decentralized and distributed with Obelisk, which is fitting for a technology like blockchain. This is especially significant as Bitcoin’s mining pools consolidate into smaller and increasingly centralized hubs.
As mentioned above, Obelisk is yet to be implemented. In the meantime, Skycoin is using a masternode to verify transactions. This is not unusual in the crypto space, but it does raise some issues of trust. Dash, Monero, and Ripple all use a masternode or masternode-like system, for example.
Some are concerned that a masternode would allow the people running it to freeze wallet addresses, or reverse transactions at will. While technically possible, it is exceptionally unlikely for a number of reasons. (In two alleged cases where this occurred, both times a wallet address was suspended by an exchange, not Skycoin.) Bear in mind that any software team that has control over the source code can also theoretically freeze or steal coins.
In addition, there is no motive for Skycoin to use the masternode to steal coins or freeze addresses. Such action would be immediately obvious to the thousands of nodes that store a full copy of Skycoin’s distributed ledger, and doing so would effectively destroy any faith in the project and bring the entire enterprise crashing down.
Consider, too, that Tim Cook could theoretically choose to destroy Apple, but that is not a rational reason to not invest in that company. We are inclined to trust the head of a given organization to act in the best interest of that organization. The risk of internal attack and self-destruction is possible, but that risk is extremely low. The bar for one’s tolerance for risk varies by individual, but it ought to be influenced somewhat by rationality and common sense. That gap between trust and 100% assurance is what constitutes the risk that can, especially in the case of cryptocurrency, lead to reward.
Regardless, some consider a masternode to be too centralized a solution for their taste, and so they choose not to invest in Skycoin. If they value decentralization over all else, then this probably is a deal-breaker until Obelisk is released and has proven itself a reliable method of consensus. This is obviously a matter of personal perspective, though people ought to understand that Skycoin’s masternode has worked perfectly for years.
There are several reasons why Obelisk has yet to be deployed, despite development work on it being nearly complete:
- While Obelisk will be needed eventually, it is certainly not necessary right now, as the masternode continues to work flawlessly.
- Exchanges that list Skycoin were reluctant to do so with an untested consensus algorithm, and much prefer a masternode system for the time being. (This avoids the forks and suspended trading periods that could potentially affect a coin undergoing a consensus transition.)
- Obelisk will be groundbreaking when it is released, and is therefore being coded in private repos, and will stay under wraps until other parts of Skycoin’s ecosystem are released. This will protect the proprietary technology that Obelisk represents and ensures that even if other projects attempt to copy its functionality, Skycoin as an ecosystem and a platform will be too far along for anyone to catch up.
- Developer resources have largely been tasked on other more pressing aspects of the Skycoin ecosystem, which the team hopes to release and have established prior to the Obelisk roll-out.
The Bottom Line on Trust
Naturally, there are many who will refuse to invest in Skycoin because they do not trust a masternode consensus system. They will perhaps wish to first see Obelisk successfully deployed before they are willing to invest. Perhaps they are skeptical of the project because of the FUD they’ve read, and falsely assume that the manufactured smoke somehow leads to actual fire. Of course, this is perfectly reasonable. No one should invest in Skycoin if they do not trust the project, and everyone will have a different level of trust they are comfortable with.
However, if one trusts that Skycoin can deliver what they have set out to deliver, that investor stands to see spectacular growth in their investment. That is because there is simply no other project like Skycoin in the crypto space. The more one learns about its plans and the technology that underpins it, the more they see how it truly is one of the most ambitious projects in crypto.
There were very few people in the early days of crypto who trusted that Bitcoin would become a viable store of value, and that risky proposition was reflected in its absurdly low initial price. Only those who could see Bitcoin’s future potential, and trust that it would reach those heights, were able to accumulate them at such exceedingly reduced prices.
Likewise, the price of Skycoin will be much higher by the time Skywire networks come online in cities around the world, and Obelisk is deployed, efficiently generating consensus across Fiber blockchains, with a fully-functioning closed-loop economy running on Coin Hours. The high price then will be a reflection that less risk will be involved, and therefore less trust required.
But looking at what Skycoin has accomplished and delivered already, it does not constitute a great leap of faith to extrapolate that the same level of quality and developer output will continue into the foreseeable future. And that if it does, Skycoin will accomplish even its most ambitious goals.
Skycoin has amply demonstrated that it is worthy of the modicum of trust necessary to invest in it. Some people will disagree, and I wish them well. For those who are prepared to continue on this journey with Skycoin, your trust will be richly rewarded.
If you liked my writing and would like to contribute to me making more feel free to donate some Skycoin: GCB5KK9LmJzxxxh2hMoKm3HRXwaJe9vRfd
