What is Trust?By Feb 04, 2020 2 Min Read
What Is Trust? Trust, Credit and Reliance
Trust, in merriam webster, is defined as "1. assured reliance on the character, ability, strength, or truth of someone or something; one in which confidence is placed. 2. dependence on something future or contingent;reliance on future payment for property (such as merchandise) delivered." Trust is a type of relationship between two entities, be it person, institution or services. Trust is everywhere and we take "trust" for granted. Our current society is trust based.
In a transaction, it is natural to exchange ownerships of product and money simultaneously. But it is rarely the case in modern society, in most cases one could do payment in the future, we we trust that the party will pay on time as agreed."
In financial industry, trust and credit is even more important. We can pay product with credit card. We can borrow money from bank. With trust and credit, our banks don't need full reserve. In other other words, they are fractional reserve banking. It means that bank can lend more much than the money it deposited on central bank, thus creating more "credit money" and money liquidity. Even our money is from credit. Currently money issuances of all countries are based on trust, the trust in the national credit.
But trust brings trouble as well, the "credit money" could inflate asset price, and trust and credit are not trustworthy, even for national credit. "a conscientious look over the last few centuries would reveal that the nation’s brief history is riddled with national credit defaults"
Bitcoin And Trust
Trust and trusted third parties are key concepts in bitcoin. The key role of bitcoin is to reduce trust and trusted third parties. Our social structure is trust based which we have to rely on. Typical trusted third parties are government, bank,etc. The problems are that (1) trust and trusted third parties are not trustworthy if look back at their history. (2) Reliance. Where there is a reliance, there is a risk of being enslaved.
Actually trusted third parties tend to abuse and expand their powers in nature, leading to dictatorship and monopoly. System and law matter. "The power of US government is constrained by the separation of powers and checks and balances between branches." But it is not perfect. One of a hidden cases is "money issuance" power. The absolute power of money issuance is in hands of central banks. A famous quote goes "absolute power corrupts absolutely".
In 2008, Satoshi Nakamoto invented bitcoin, a peer-to-peer electronic cash system and described block chain(blockchain) as the underpinning technology. Since then, bitcoin and blockchain have taken the world by storm and is hailed to be the answer for a perfect currency and financial systemin the future.
Read list of Satoshi Nakamoto’ s quotes on trust to gain more insights.