Blockchain and Trust: The Advantages of Decentralized Systems

Blockchain has the potential to revolutionize the way we use trust, even trust, which is a good thing, and although it's hard to measure, it's critical to all meaningful interactions in society.

We tend to consider trust in business, banking, relationships, and finance because the need for trust in these areas is clear and undeniable. In fact, without trust, no transaction can be carried out. Even the simplest negotiations can be very difficult without trust. Unfortunately, according to the World Economic Forum, trust in government, banks, media and institutions is rapidly disappearing. Without trust, the law will become tyranny, and business will become stolen.

At present, it is necessary to establish trust in various domains through various means. There are various credit systems, checks and balances, laws and regulations, and various security measures. We must establish relationships or expand trust with trusted people and organizations. To achieve this goal, we rely on credibility, reliable history and other vague concepts.

This allows us to trade with people we may not necessarily know. However, our system still has loopholes, which can cause bad actors to commit fraud, theft, perjury, and so on. Although we have trust, it is easy to be broken.

• South Korea's largest bank KB Kookmin enters digital asset trust business
• imToken announcement | MGC wallet users please pay attention to security risks
• McKinsey: Retail banking brings new opportunities with blockchain technology

Relying on mathematics, we trust (In Math, We Trust)

Therefore, we need to adopt another different method of trust, based on mathematics. Blockchain is one such new approach that eliminates the need for trusted intermediaries because trusts are created using cryptography. Therefore, we do not need to trust third parties, but believe in mathematics.

Trust in decentralized systems is created through game theory motivation and cryptography. Therefore, blockchain technology has the potential to change the nature of trust, not only in digitally presented transactions, but also in everyday life.

Traditionally, trust and credit are relative synonyms. In particular, trust is critical in a global supply chain. Different companies with unique goals are working together to achieve a common goal: to move things from A to B. To make the supply chain work, partners must trust each other.

To this end, there are multiple checks and balances, and a wide range of documents and different checkpoints interact in the bureaucratic process network. Existing processes are time consuming and expensive, and they do not always prevent the growing problem of trust being compromised. Examples include counterfeit products, data fragmentation and tampering, lack of transparency, huge settlement times, and incorrect storage conditions.

Trust and identity

All of these checks and balances ensure flexibility, but it is still flawed in the supply chain or anywhere. After all, to trust each other, we must give up some privacy. Therefore, trust is closely related to your identity. If I believe in you, I need to know who you are; if many are at stake, I want to know you better.

However, since we can rely on zero-knowledge proof (ZKP, a method of using cryptography to prove the ownership of a particular knowledge without revealing the knowledge), there is no need to know you in a decentralized world. In this way, the user has complete control over the data he/she has provided in the transaction. Thanks to ZKP, no matter what data is provided, other stakeholders can determine that the data is correct and has not been tampered with.

Three examples of untrusted transactions

Because decentralized systems use mathematics to ensure trust, decentralized systems have many benefits over centralized systems that are intermediate, faster, more efficient, and cheaper, ensuring privacy for individuals and organizations, even Can bring higher sales. For example, the following three examples of untrusted transactions:

The most famous example of the world of financial trading blockchains is of course bitcoin. Traditionally, when exchanging monetary values ​​with each other, we use known intermediaries (banks) to ensure trust between the parties. Bitcoin allows peer-to-peer exchange of value transactions directly between people who do not know each other. After all, you only need a wallet address to send money to someone else, without the person's name and address. In addition, mathematics ensures that no one can "double spend" the same cryptocurrency, bringing trust to the system. In addition to encryption, we can use smart contracts or Ricardian contracts to ensure trust. Once the terms are met, these contracts are automatically executed. There is no dispute between the two parties as to whether the other party has fulfilled its obligations, otherwise the smart contract will not be executed. This is convenient, for example, when transporting perishable goods. The IoT sensor can measure the temperature, and if the temperature is lower or higher than the agreed temperature during transportation, the price paid by the buyer will be automatically adjusted. If the data is stored in a blockchain, it will not be tampered with, ensuring trust in the system and preventing malicious behavior on either side. The last example of selling government assets is related to the government. You can use a decentralized system related to land ownership registration or public land sales. In the Netherlands, there is a very good centralization system that can trust the government and is very effective. But in some developing countries, it is not always possible to trust the government, and corruption is easy to happen. They can take the land from your hands, or people who don't own the land can sell it. Therefore, countries are trying to use decentralized systems to prevent corruption, and Ukraine is a good example. Ukraine and other countries are exploring the use of blockchains to curb corruption, especially when selling government assets. In addition to the invariance of the public asset ledger, another major advantage of this blockchain-based system is that it eliminates the possibility of administrative intervention during tendering, thus providing trust and also reducing paperwork.

Final thought

 

In the past few decades, we have built trust by collecting information about the other party. Without the right information, trust cannot be established and governments, organizations or individuals can carry out various malicious activities. To prevent this, we started collecting large amounts of (personal) data, but it undermined our privacy.

Fortunately, in a decentralized world, this situation will no longer exist. With math, we can create untrusted and secure transactions while protecting our privacy. Thanks to technologies such as ZKP, we can prove ownership of the information without revealing our identity. Combined with a decentralized trusted mechanism, data is immutable, verifiable, and traceable, and we can build a system that we can trust.

Author: Larry, Dr. Rijmenam

We will continue to update Blocking; if you have any questions or suggestions, please contact us!