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The Killer Feature of Blockchains

2nd post in a series on the rationale behind Themelio

We cannot build a better blockchain without understanding what exactly makes blockchains unique. Despite their popularity, many of blockchains’ widely-touted features are also found in other systems. For example, decentralization is often proclaimed as a key asset of blockchains, but many existing systems have decentralized governance without a central trusted party. This includes DHTs, email, the PGP web of trust, and even the Internet itself. Transparency is another commonly-cited advantage of blockchains, yet many non-blockchain protocols like Certificate Transparency and Keybase also use transparency as a key part of their security. Thus, neither decentralization nor transparency constitute the essence of blockchains.

Instead, the crucial feature that distinguishes blockchains from all preexisting protocols is endogenous trust. That is, we can trust that a blockchain protocol will behave in a certain way with minimal assumptions about who runs it. In blockchains, trust emerges from within the protocol, not from preexisting trust in the parties that run the protocol. Crucial to endogenous trust is cryptoeconomics, the intersection of game theory and cryptography that enables the formal design of self-incentivizing mechanisms so that given enough participants, we can trust the group’s overall behavior without trusting any individual participant.

Endogenous trust is the single most precious property of blockchains that enables secure applications with properties elusive to pre-blockchain systems. For example, someone using a bank must trust the bank no matter what form of communication protocol is used, yet a Bitcoin user does not need to even know which miner ends up processing their transaction, let alone establish some sort of trust with that miner. Instead, the cryptoeconomics of Bitcoin mining internally incentivize miners to cooperate in such a way that makes the Bitcoin protocol as a whole trustworthy.

Many blockchain failures can, in fact, be analyzed as failures in endogenous trust. Contentious governance problems like the Bitcoin block-size controversy of 2017 or the “DAO fork” that split Ethereum into Ethereum and Ethereum Classic arise when external factors incentivize users to override a blockchain’s endogenous trust mechanism. Poor internal incentives cause out-of-band coordination to become necessary to prevent game-theoretical issues like “SPV mining” in Bitcoin. Even volatile cryptocurrency prices can be analyzed as a lack of an endogenously trustworthy store of value, forcing users to reach for fiat-pegged stablecoins like Tether that altogether forgo endogenous trust.

Regretfully, the frequency of failure reveals that, in reality, endogenous trust in blockchains is very fragile and often subverted, despite it being the soul of blockchains. Why is that so?

In the following three posts, we inspect the state of the art in blockchains to investigate how endogenous trust fails to fully materialize in them. First, we look at Bitcoin as an example of an application blockchain designed for a particular use case (here, money). Then, we examine Ethereum as a prototypical platform blockchain. Finally, we assess recent blockchains like EOS and Tezos that aim to solve common problems in blockchains.




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Eric Tung

Eric Tung

Founder of Themelio ( & Geph (

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