“Trustless” Consensus Through A Distributed Ledger?
Tawanda Kembo, an early bitcoin investor and founder of Golix crypto-exchange, in response to a Quora question, explained in simple terms how Bitcoin is trustless. Kembo’s words from 2014 are still relevant today, because they accurately convey how Bitcoin can be used to conduct transactions without having to trust and intermediary:
“Before Bitcoin, …we needed a trusted third-party to keep a ledger of who owned how much [money]. Examples of this trusted third-party are MasterCard, VISA, your bank…So if Alice sent Bob £100, this trusted third-party would debit Alice’s account and credit Bob’s account – they would update their ledger and we all had to trust this ‘trusted’ third-party to do the right thing…with Bitcoin, everyone has a a copy of this ledger so we no longer need to trust a single entity/organisation/third-party.”
The thousands of Bitcoin nodes make this possible, according to Kembo. He further explains that each node keeping a ledger of all transactions on the Bitcoin blockchain means a trusted centralized entity is not needed to verify transactions and keep the ledger updated.
There Is Some Element of Trust Involved, After All
A software engineer, blockchainist, and enterpreneur known as Haseeb Qureshi counters this generally held view in this fairly recent article. According to Qureshi, cryptocurrencies are not trustless but rather a form of decentralized trust. It does away with a centralized trusted third party but relies on decentralized nodes instead. A number of scenarios in which one would have to trust an entity or group of individuals in cryptocurrency dealings are noted by Qureshi.
He points out that crypto-exchanges are trusted to not steal funds or get hacked. Miners are trusted not to collude and developers are trusted to write bug-free code for software. 51% attacks are possible, but at the moment, it appears everyone only hopes that it does not actually happen.
Can Decentralized Exchanges Offer A Trustless System?
Both Kembo and Qureshi seem to have made some thought-provoking arguments. Moreover, it might be the case that cryptocurrencies like Bitcoin decentralize trust and are not trustless in the true sense of the word. So, can we eliminate the trust factor currently required in cryptocurrency dealings?
Before addressing this question, it’s worth noting that we should strive to seek more knowledge and useful skills in the cryptocurrency space. Following this, action can be taken towards attempting to avoid scenarios that require trust, as well as the building of a better system that would increasingly require less and less trust.
For instance, decentralized exchanges like Bisq, BarterDEX, IDEX, EasyDex, waves, open ledger and cryptobridge, amongst others, exist and aim to remove the need to trust centralized exchanges with funds, and personal information. Decentralized exchanges attempt to eliminate the need for trust by allowing direct trades between users automatically. The trust issue with centralized exchanges could potentially be lessened by using, building or supporting decentralized exchanges so they can succeed.
Notably, decentralized exchanges attempt to facilitate trustless authentication of cryptocurrency transactions via smart contracts and various blockchain protocols. Their architecture is such that they’re considered to be difficult to hack. That’s because funds, and access to them, is not controlled by a centralized entity’s servers. Instead, decentralized (peer-to-peer) exchanges allow for the funds to be controlled by the users of the platform.
Problems With Decentralized Exchanges
However, there are quite a few downsides to peer-to-peer exchanges. For example, the decentralized nature of these exchanges makes them difficult to use. The reason for this is that users have to deal with too many smart contracts just to process simple transactions, which requires a fair amount of technical expertise. In fact, this can even become cumbersome for even the more crypto-savvy people.
Furthermore, most of the current decentralized exchanges have a confusing interface. They’re far from intuitive, which is unlike the more user-friendly interfaces of centralized exchanges. However, its possible, that with time, improvements can be made to address these issues.
Some of the other potentially serious problems decentralized exchanges face is that since they have an anonymous nature, there’s a chance of them being exploited to conduct scams. Additionally, because they are not regulated, should the exchange go down or funds are somehow stolen or lost, then there’s not really a good way yet to hold anyone accountable. Therefore, given the current state of development of decentralized exchanges, it can be argued that they do not offer an effective and legitimate trustless solution.
Learning More About Crypto-Technology
Although it appears that there’s currently no trustless way to conduct cryptocurrency transactions, there is a way to become more confident about the decisions one makes when using crypto-technology. This can be achieved by learning more about how crypto-platforms are created. So, instead of simply trusting developers to build good software, we can participate in tests by using the software they build, give feedback and make reviews so improvements can be made. Nothing stops us from learning to code and reviewing the work of developers for ourselves either.
Okay, I accept that not everyone can be a developer. Another way of achieving the same goal is creating or supporting projects aimed at training and funding developers to improve their skills. Platypus Labs, created by Bitcoin developer Jimmy Song, is one such initiative which could eventually lead to better software being built for blockchain technologies. Platypus Labs, which is funded by Blockchain capital, has the goal of training developers to work on bitcoin core and possibly other altcoins.
The Conclusion…For Now
While becoming more knowledgeable about cryptocurrencies can help one avoid some of the potential risks involved, it cannot make crypto dealings trustless. In conclusion, the short answer to the question of whether Bitcoin, or cryptocurrency transactions in general, are truly trustless is “no”. We can blame this on the fact that crypto-technology is still in its experimental and exploratory stages. Even if many of the major issues not necessarily related to trust, like scalability of crypto blockchains and networks can be resolved, it’s hard to envision a truly trustless system for digital currency transactions.
That’s because almost every aspect of our existence involves some level of trust. Even logging into Facebook, which billions of people do now, requires trust. You trust Facebook’s team with keeping your password safe. However, hackers are hard at work and are quite skilled at accessing private information. As most people are aware, Facebook even hires hackers to help keep track of all the vulnerabilities in its system. These issues can be generalized to all types of man-made systems created on the internet.
Therefore, if we cannot eliminate trust in the most basic of things, then how can we do it in more complex situations like digital currency transactions? Also, another thing to think about is that humans are far from perfect, so how can they create something that has certain attributes of perfection, like a trustless transaction system?