Bitcoin, Trustless Environments And How They Work
Man has always had the need for trust in business and personal relationships. From trusting banks to keep your money safe, to lawyers to have your back and defend you, to business partners coming through on their own end of the agreement. It is a key part of traditional business processes and practices.
Unfortunately, there are far too many examples of incidents where trust has been broken and the trusting parties have been badly affected by the actions of the entities they trusted.
From parties that have been duped by their business partners to financial misappropriation by financial and government institutions, there are too many examples and scenarios to cite.
Which begs the question: what if there was no need to trust anyone or entity to do their job and keep their end of the deal? What if you could do all your business transactions on a platform without the need to trust anyone or anything?
What if you could completely eliminate third parties like banks and insurance companies and still be in control of your monies and insurance policies for instance? Would that be something you would be interested in?
We ask these question because cryptocurrencies, particularly bitcoin, are setting out to do just that: create a trustless platform where you can do business with ease of mind and guaranteed fulfilment.
Bitcoin’s trustless platform and technology is powered by a combination of cryptography, Proof of Work consensus, peer to peer networks and merkle chains, all of which result in an independently verified decentralized distributed ledger whose transparent process completely eliminates the need for trust in transactions.
This, among many other things, is what has made bitcoin such a disruptive and popular cryptocurrency with tech that still has incredible potential for growth and massive adoption. So, how is bitcoin able to do this? Through something known as a distributed trustless consensus.
What Is Bitcoin’s Distributed Trustless Consensus?
Traditional financial transactions are often handled by a central authority and a few other third parties. This is in a bid to check and verify amounts sent, received, ensure there’s no double billing or spending among so many other things.
This system relies on that central authority to do so. As a result, transactions can be monitored, while users lose their privacy. This often requires bank users to trust the system and hope they do their best to keep their money safe.
Bitcoin’s distributed ledger on the other hand, provides a means through which there’s no central authority –it’s decentralized-, customer details are private, transactions are recorded on a distributed ledger system that’s powered by a secure p2p network, and verified on the network through a specific set of rules incorporated into the algorithm. This completely eliminates the need for trust, making it a trustless system.
Proving and verifying transactions often involves the use of a highly complex consensus mechanism known as Proof-of-Work (PoW).
This consensus is determined by the number of honest nodes that come together in agreement to determine the validity of a transaction (it actually sounds more complex than it is).
It does this by examining cryptographic signatures and verifying transactions through a computational model that miners often have to solve. The higher the number of correctly solved problems relating to the transaction, the better the result and approval rate of the transaction.
Trustless systems are excellent for the reduction of fraudulent practices that’s rife in the traditional financial sector.
Difference Between Proof-of-Work And Other Consensus
Bitcoin’s PoW is currently considered the best proven and safe consensus among cryptocurrencies. The other consensus that comes close is the Proof-of-Stake which is currently unproven, even if it sounds laudable.
Many cryptocurrencies boast of a trustless system, yet they really aren’t trustless because they lack a solid consensus. Many of these use permissioned systems which are quite different from a trustless system, as they aren’t mined and are often centralized.
So, even though they look like trustless systems, they aren’t. Truly trustless platforms are made so because of their consensus mechanisms, nodes participation, and mining. Without these three elements, you cannot have a trustless system.
Conclusion On Blockchains
In the final analysis, trustless systems as great as they are, may be a lot for many people to take right now. The majority of people are entrenched in their trust based ways of doing business, and will probably continue to do so for a while, before the trustless system kicks in.
Bitcoin’s trustless system is bound to be world changing and will truly disrupt the financial sector as well as change the way the world does business, once its adoption becomes popular.