The case for a trust-based system

Since money is an area that is highly dependent on trust, we instinctively seek to store our economic value in the money with the best reputation.

In the article Why Trust and Truth will be the currencies of 2022 and beyond, the author makes it clear trust is the foundation of reputation:

I like how Dr. Leslie Gaines-Ross, a chief reputation strategist put it, “the bedrock of corporate reputation is trust. Trust is the oxygen that allows reputation to exist. Without it, reputations would suffer.”

Beyond corporate trust, this is a concept that the world - communicators, media, businesses, CEOs, governments and officials - needs to understand and relate on that basis. Trust is the foundation on which every boulder or platform on reputation building or management is laid.

If the money with the best reputation is the most used, and trust is the foundation of reputation, this implies that the most trusted money is thus the most used.

Prof. Jordan Peterson confirms this correlation:

Fundamentally you could ask: What is money? Money is a promise. So it’s based on trust. [...] It’s all dependent on interpersonal trust. [...] But because it’s dependent on trust you would think the most trustworthy currency [...] would be the one that rises to the top.

This short video from the Bank of England also establishes a clear connection between promise and trust, with the associated article further explaining why money is dependent on trust.

This leads us to the conclusion that, if a money system wants to have as many users as possible, we should not lower trust in it, but rather increase it.

But, in a decentralised money system, why do we even want as many users as possible? What advantages do we obtain from this?

For the following three reasons:

1. Solution to the problem
   Only if acceptance of a decentralised system with sound money is high among the population can the problems of fiat currencies be effectively solved (remediation of human rights, poverty reduction & wealth increase, assistance and appropriate compensation for developing countries, environmental protection, etc.)

2. Usefulness
   The network effect is as important in decentralised money systems as it is in other types of social networks, which implies that more users attract more users. The more users in a system, the more useful it is for its members. The internet for example is useful because everyone is on it.

3. Value
   The value of a social network is directly dependent on the number of participants. This is why Metcalfe’s law comes to the following conclusion: In social networks, the greater the number of users with the service, the more valuable the service becomes to the community. And value appreciation (just like value depreciation) will always be reflected in the price of money in the long run.

In summary, for a money system to be used by as many people as possible, it must be the system with the best reputation - the most trustworthy system. Therefore a future-proof money system must be designed in a way that maximises interpersonal trust.

Reflecting on the first part of this article (Part 1: The Problem) and the analysis to this point, we can state that:

• The root problem with fiat currencies is all the institutional trust that’s required to make them work (blind trust dependency).
• The problem with this demanded trust in financial institutions is that it has been abused many times.
• Central banking and the fiat financial system are the origin of most socio-economic problems we have today.
• People all around the world are suffering every day under the repercussions of the current financial system.
• We urgently need an alternative.
• Trust can neither be eliminated nor replaced by technology.
• Trust is the most important factor for the success of a digital money system.
• Bitcoin’s mission is still to fix the broken fiat financial system.
• Bitcoin is still by far the most trusted decentralised digital money system.
• Unfortunately, from a technical point of view, Bitcoin is unlikely to be able to replace the dominant fiat monetary systems.

So what improvements could be made to a decentralised money system like Bitcoin?

In particular:

• more secure (against possible attacks but also against the risk of losing funds due to unintentional misconduct)
• more decentralised (so that it is even more incorruptible and censorship-resistant)
• more scalable (in a way that all the transactions of all people in the world could be easily processed)
• faster (instant and final transactions)
• cheaper (for operators, the hosting costs of a node; and for end users, the transaction fees)
• fairer (so that wealthy operators have virtually no competitive advantage in terms of financial reward for participating in the operation of the network)
• better privacy (more difficult to track transaction flows and wallet balances)
• more energy efficient (by ensuring the security of the network with something else than solving cryptographic puzzles)
• more user-friendly (considerably better user experience for operators and end-users; high abstraction of technical details)
• more features (e.g. decentralised exchange, smart contracts, decentralised data storage, decentralised identity, etc.)

But is it really possible to achieve all of these improvements in a single system?

Yes, it certainly is!

Furthermore, a trust-based system can make all other features such as decentralised applications, smart contracts, decentralised data storage, and so on many times more efficient than all current DLT solutions.

So how can this be achieved?

It’s actually quite simple: if a lack of trust is the problem, we can fix the problem by just rebuilding this trust. That is, we must ensure that the foundation of a DLT system is built on trust. As stated in The main driver of scalability, the foundation of a DLT system is made up of two layers: the policy layer and the integrity layer. Since Bitcoin’s policy layer already maximises trust, the integrity layer is all that remains.

As the integrity layer is primarily made up of the consensus mechanism, the solution is a consensus mechanism based on trust.

And since the foundation upon which the whole system is built is critical to its success and adoption, a trust-based money system has only advantages. Not only does it tackle all problems at once, but it also accelerates the progress of our economy and society.

Trustworthy Technology acts as a superconductor for scaling economic velocity and societal acceleration as a whole.

To return to our analogy with team sports (as instanced in Requirements for a future-proof money system): Nowadays, the foundation of football pitches has become a science in itself.). We are not suggesting that this is also necessary for decentralised money systems, but rather that we first need a reasonably playable foundation to enable a sensible game. But DLT systems without a trust-based consensus mechanism lack a suitable foundation and can be compared with uneven or muddy sports fields.

In conclusion, Satoshi correctly identified the breaches of trust in the financial sector as the core problem. However, contrary to Satoshi’s understanding, the need for trust in a money system can’t be eliminated, only behaviour that isn’t trustworthy can be. And the only way to achieve this is with a trust-based consensus mechanism. This is the only way to solve the problem of trust completely.

But how can we attract trust into a system and ban non-trustworthy behaviour?