Distrust is a major problem in transactions.
For centuries, man has always distrusted man. In our personal and public life, we don't trust easily. Between kingdoms and fiefdoms, tribes and clans. Between slave merchants and slave agents. Between the church and the state. Between nations. Between the state and its citizens. Between Big Tech like Amazon, Facebook, Google, and their users. Distrust reigns, even between a husband and a wife who each needs a marriage contract to trust the other to keep his or her vows; yet just about anything could still happen to that marriage. Anything. And today, there is increasing distrust between man and robots. Distrust is virtually everywhere. There is a problem of trust.
Trust is invaluable, and it is scarce. If trust were a commodity, people would chase it with lots of money. If trust were a currency, it would trump any other currency in the world. But trust is neither a commodity like gold nor a currency like the Naira or Dollar. Trust is an intangible, priceless value. It is so highly-demanded in the society—and increasingly so—that the business of trust today is a trillion-dollar industry. From accountants to lawyers, bankers to brokers, insurers to agents, the business of trust has become the innovation of middlemen or trusted third parties whose innovative solutions have continued to help parties essentially manage distrust. A simple scenario: For Party A to do business with Party B, it goes through party C. This is a typical contract between two parties, such as for example, a Chinese manufacturer and a Nigerian distributor who each consults a lawyer to safely complete a transaction for delivery of goods to Lagos. In a variant scenario, for Party A to enjoy access to object C, it must go through Party B. For example, a bank customer and his or her bank for the purpose of accessing financial services, including savings. What the bank, a central authority, does with the bank customer's savings is beyond his or her control.
Commercial and investment banks, trusted third parties, typically use people's hard-earned savings to offer loans and invest in mortgage securities. Where these loans and investments are high-risk, sooner or later, things go south. The banks declare bankruptcy. There is massive job loss. The economy becomes unstable. Panic. Dreading an impending contraction of the economy, the government deeps hands into the people's money—taxpayer's money—to bail out the eligible banks. The same government, for economic stimulus, then instructs the central bank to print more money. In economic matters such as this, political considerations must be factored in too. So, quantitative easing is preferred to tighter regulation. The side effects? Crisis. Economic stimulus soon stimulates inflation, consequently making the hard-earned money of the people lose value. Significant value. A familiar scenario? Indeed.
That was the Financial Crisis of 2008 in the United States. The crisis led to the global financial squeeze that left many people negatively affected. Seeing how financial institutions lost customers' money and the government simply printed more money, distrust set in. Dissatisfied, many people started demanding a currency that was not under the control of any central authority. Not the banks; not the government. Neutral money. Enter a cryptocurrency in 2009. Decentralized and limited, this cryptocurrency was the opposite of fiat currency. Enter the people's money. Money without a central bank. Money without a government. Money without borders. Enter bitcoin ('b' in lower case, denoting the cryptocurrency, not the network, Bitcoin, with 'B' in upper case).
Decentralization, the key to trust.
Satoshi Nakamoto. This man, woman, or group believed, in 2008, that it was high time the problem of trust was solved. This time, not by trusting man, but by removing the need for trust in the first place.
The underlying technology behind the invention of bitcoin has been described as a distributed ledger technology that will change the way information is stored, managed, and transferred; a third-generation internet that will make exchange of anything of value possible; a trustless technology that will make for a peer-to-peer, secure, and transparent transaction without any trusted third parties. That underlying technology is blockchain.
Because blockchain is like that hardworking technical person in the team always working behind the scenes, the concept is not often easy to grab compared to other emerging technologies. PwC hit this point squarely in 'Blockchain is here. What's your next move?', when it observed that "[b]lockchain's role as a dual-pronged change agent—as a new form of infrastructure and as a new way to digitise assets through tokens, including cryptocurrency—is not easy to explain. Think about other new technologies: users can try on virtual reality goggles or watch a drone take flight. But blockchain is abstract, technical and happening behind the scenes."
Originally published 5 June, 2020
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