Why Should I Trust Bitcoin?

Nov 29, 2023

byNDAX Labs

The simple answer, friend, is, you shouldn’t. (A well-worn aphorism of the Bitcoin community is “Don’t trust, verify.”) Bitcoin was built to compete with a traditional financial system which requires that you trust one or more parties with your wealth and in all your (non-cash) transactions… Bitcoin introduced the concept of “trustlessness” to illustrate this very principle. Until Bitcoin, to save/invest/transact required that you trust your bank/broker, a Government Deposit Insurance Corporation, your card issuer(s) and many others… Jobs for which each gatekeeper took their little cut.

But what does trustlessness mean? Why does it solve the problem of ‘counterparty risk’, tangibly speaking? And how does the Bitcoin network guarantee this (almost utopian) ideal?

Trustlessness

"Trustlessness" in the context of Bitcoin refers to the system's ability (and mission!) to operate and facilitate transactions without the need for trust between parties (network actors and stakeholders). It's a key feature derived from the decentralized and transparent nature of Bitcoin's blockchain technology. Here's how the protocol goes about ensuring this:

Decentralization

Bitcoin operates on a decentralized network of nodes*, each maintaining a copy of the blockchain. No single entity or authority controls the entire network; instead that control is distributed across (as of writing) 49713 nodes, spread across 132 countries**. This decentralized structure eliminates the need to trust a central authority (such as a bank, government, or service like Paypal) for transactions to be valid.

Transparent and Immutable Ledger

Every transaction in the Bitcoin network is recorded on a public ledger known as the blockchain. This ledger is transparent and accessible to anyone, allowing participants to verify and audit transactions independently (either by consulting a public web-based ‘block explorer’ (like Blockchain.com/explorer), or by running their own Bitcoin full–or light, or mining–node). Once a block is added to the blockchain, it is impossible to alter or erase, creating an immutable record (chain) of transactions (blocks).

Smart Contracts and Programmability

Bitcoin also introduced the concept of simple smart contracts (if X, then Y). These are self-executing contracts with the terms of the agreement directly written into code, a code adopted by the entire network.

While not as nimble as those on some other blockchain platforms–platforms far less decentralized and ‘trustless’, mind you–Bitcoin's smart contracts enable trustless execution of predefined conditions without the need for a rent-seeking intermediary.

Game Theory

Part of the Bitcoin protocol’s genius lies in the aspect of its design which punishes bad actors who attempt to cheat the system while rewarding actors who enforce the consensus rules agreed upon by each network participant.

Cheating (in money) means “double spending”; I buy a TV and use that same money to buy a nice watch. Due to Bitcoin’s Proof of Work consensus mechanism (tremendous levels of energy must be exerted to confirm transactions–a process known as ‘mining’) not only would a thief most likely fail, they’d be stuck with a very costly electricity bill to boot… While honest network participants are awarded Block Rewards (a predetermined amount of freshly minted bitcoins).

Cryptographic Security

Bitcoin transactions rely on cryptographic algorithms for security. (Elliptic curve cryptography, ‘ECC’, and the Secure Hash Algorithm 256, ‘SHA-256’). Private keys, which are essentially cryptographically protected signatures, provide proof of ownership and authorization for transactions. Only individuals whose private keys are secure have control over their funds. No trusted third party.

Wrap

The concept of "trustlessness" in Bitcoin is a fundamental pillar of its design, ensuring a decentralized, transparent, and secure financial ecosystem. By operating on a decentralized network and recording transactions on an immutable blockchain, Bitcoin eliminates the need for trust in centralized authorities. The transparency of the ledger and the cryptographic security of transactions assure users that they can independently verify and control their financial interactions. This trustless nature not only aligns with the core principles of decentralization and security but also empowers individuals with financial sovereignty, making Bitcoin a unique and compelling savings technology for those seeking transparency, autonomy, and resilience in their financial endeavours.

In 2023, anyone can save or transact without having to trust any central authority–including Bitcoin. One shouldn’t trust the Bitcoin network, and also, one needn’t.