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You will often hear people in the bitcoin ecosystem calling for “trustless” systems like how Bitcoin and the Lightning Network were designed to operate. Many from the outside looking in might get confused as they mistakenly see bitcoiners as deranged anarchists calling for the removal of “trusted” institutions.
In fact, isn't “trust” a good thing for society ultimately? We trust service providers, utilities, banks, and doctors to provide critical services and infrastructure that keep modern society humming along. Therefore, wouldn’t a “trustless” system be a bad thing?
It’s important for those looking to understand this new frontier of finance to comprehend with precision that “trustless” does not mean devoid of trust, but more so it conveys that the system has the ability to operate without needing trust in others to function.
In a globally distributed and decentralized system like bitcoin, you can always choose to transact with someone you trust. But what if it's someone you don’t know that well? What if it's someone that doesn’t even speak your language or in the same legal paradigm? Wouldn’t it be nice to have a system in place that ensures you can’t be cheated? This is why bitcoin exists.
In today’s banking paradigm with traditional finance, you must put complete trust in the institution that ultimately controls your money. In 2008, we saw what happens when the banks violate their customers' trust. Luckily for those in the US, you can still pay hefty lawyer fees and also wait months for regulators and the courts to figure it all out. This all comes at significant costs and as mentioned before many outside the US don’t have this privilege.
A more recent example causing much confusion in the crypto space is the recent collapse of FTX and FTX US. FTX is a crypto exchange that in simple terms acted as a “trusted” bank for digital assets. FTX customers “trusted” FTX to be a safe and reliable custodian of their profits and savings. FTX violated its customers trust by mishandling clients funds and we will see what recourse those customers have in the chapter 11 bankruptcy proceedings. A painful lesson about custodial risk for those caught in the FTX fiasco.
With a proper understanding of trust-based vs trustless systems and the painful examples of trusted parties collapse throughout history demonstrate why bitcoiners are so adamant about trustless system design. It is clear from that point of view that trustless systems could be better optimized for reliability, scalability, and availability. With bitcoin specifically, it's important to understand the concept of a fairness protocol which is a path to achieve fair outcomes between its participants without a centralized authority or trust for the system to work. This is a major improvement over the traditional financial system design and is the critical linchpin that will ensure bitcoin is the digital native currency and payment rail for internet commerce.
At Lucent Labs, we believe that infrastructure enables innovation, and that bitcoin native infrastructure will provide the foundation for decentralized finance in a bitcoin-based economy. We are developing workflow based infrastructure solutions to enable bitcoin operators and customers to thrive in a bitcoinized world. We will have more announcements over the coming weeks about these topics and how we can enable customers to begin their journey into a trustless bitcoin economy.
We love the growing Bitcoin ecosystem and would love to chat.