When we use the word trust in crypto investing, we're talking about the often‐unconscious assumptions that underlie our economic activity. Technology continues to challenge and revise those assumptions, and crypto is no different. Consider how AI and the Internet of  Things continue to shift the duties of the auto mechanic in diagnosing and fixing newer cars. While we still need mechanics, we no longer need to trust them as much to check our car's fluids or diagnose auto systems because sensors do that. Economically and socially, the role of the local mechanic we trusted with our family car is slowly shifting. At some point, perhaps soon, states will have to scrap the current certification process for driving instructors as cars with self‐driving features become more common. There is a world that has just begun to open up to us.

So the auto parts and auto repair landscape shifts, as does as the auto industry at a macroeconomic level, because the nature of trust has evolved. If you would invest in the sustainable energy or electric vehicle industry sectors, we urge you to also consider how crypto is taking money in a similar direction.

The consciousness of consumer trust is always shifting. You trust the bank to honor its agreements with you. You trust that the store's bank and payment systems will operate as expected. And so on. This is why brands are so valuable: they are marks of trust. We see it even among the most sophisticated financial and corporate entities, when they've asked people to “trust our public statements, trust our brand, trust our history,” but they have often failed to live up to that trust, and have not allowed the transparency needed for us all to be able to verify their trustworthiness.

Stock trading app Robinhood faced dozens of lawsuits after it froze trading on a handful of booming “meme stocks” the app itself had facilitated. These included GameStop ($GME) as well as AMC ($AMC), BlackBerry ($BB), Bed Bath & Beyond ($BBBY), and Nokia ($NOK).  Lawsuits alleged that Robinhood users lost millions of dollars because they could not buy or sell stock during the freeze and that the company chose to “manipulate the market” to help other financial institutions. Robinhood settled a class action lawsuit in May 2022.

Zelle, the instant payment system owned by seven U.S. banks, experienced rising fraud rates, revealed little about itself, didn't reimburse customers, and misled Congress. Similarly, revered brand Volkswagen (VW) rigged emissions technology to meet emissions standards only during testing, in a way that could not be achieved in the real world, then covered it up. This resulted in cars that met emissions standards in the laboratory or testing station but emitted nitrogen oxides at levels up to 40 times the standard during normal driving. This “defeat device” broke federal law, and the EPA exposed the fraud. VW's malfeasance devastated consumer trust and cast a cloud over the entire auto industry.

We're not saying that crypto is immune to fraud. Far from it, as, clearly, there is fraud in the crypto industry as well, but the point here is that the examples just mentioned are supposedly “superstar,” credible brands that never offered transparency into their processes and technology. These megabrands violated our trust.

“Trust‐based systems are baked into our society,” wrote Cynthia Martin of Bankless DAO. “But they're fallible… . For anyone living in the developing world or a country with an unstable currency, trusting their finances and their lives to the whims of government officials and corrupt politicians has proved faulty again and again.”

Lest this sound like a manifesto, we will simply reiterate the point. Any time one can operate peer‐to‐peer without requiring the validation of an overlord (even a benevolent one like Volkswagen), we're simply much better off.

The Trust‐Minimized Advantage

Trust, but verify, goes the Ronald Reagan line, which is about transparency. Blockchains possess the fundamental quality of being transparent. That means that everyone knows what everyone else is doing. There is no opacity or obfuscation.

In the crypto economy, trust is less important, because you don't need a third party to facilitate and settle transactions. When you deposit money into your cryptocurrency wallet, you're assured that the blockchain keeps track of everything. Interested in a work of art? On the blockchain, you can see its provenance (history of ownership and origin). No third parties needed. No need for trust. Instead, everything is authenticated cryptographically.

Trust is an essential part of any transaction. In traditional systems, a central entity validates that a transaction has happened. In the blockchain world, you might hear the word trustless. Blockchains are often described as trustless, but this is really a misnomer and, at first glance, gives the impression that there is no trust at all. It really means that business can be conducted on the network without requiring the “trust” or validation of a central entity to keep things running smoothly. It is also about our cultural expectations and mores, as noted earlier.

We prefer the term trust‐minimized. Trust minimization is the concept that we can conduct business and do a transaction without needing to trust in a single third party who may have motives and biases different from ours. It's these motives and biases that we want to minimize, which prevents deceit, fraud, and abuse. This would stem the tsunami of misinformation crippling our private sector and civil society.

In the blockchain world, we have minimized the need to trust any specific organization or institution because there is no specific central entity. Instead, we rely on the overall community to validate transactions. Obviously, we still need to trust the miner who validates the block; however, we can do so when we consider that thousands of other miners validate their work, and, because all the code of the network is open source, all parties can see exactly how the network is running at all times and exactly how transactions are processed. Bad actors get flushed out, community prevails, and we can do business with minimal reliance on any single party. The need for trust is indeed minimized.

Open‐source software is a powerful model and metaphor for permissionless trust, where transparency is radical and universal. We've only begun to explore the power of this transformation.

Open‐Source Software

I know this is getting a little deep but hang with us. We want you to really wrap your head around this because these distinctions will change everything. Public blockchains are open source, meaning anyone can read them. Anyone can also copy them to create their own network via a fork. This huge breakthrough flies in the face of everything we've been taught about proprietary software, that is, that it must be kept secret, must be controlled, and, if it is copied, legal and business consequences must follow.

Open‐source code turned the software costs and benefits conversation on its ear. It minimizes shenanigans and opacity in the software but also impels all miners (the ones who are running the network) to work together for the success of all. Anyone can audit the software. Any third party can look at the network at any time and determine whether it's operating as expected. In the world of proprietary software and consumer tech more generally, third parties have no idea how a system is performing its tasks and whether to trust those tasks. As a result, trust is broken, such as in the cases of Microsoft's virus protection software, Apple's battery technology, or Zelle's fraud protection.

Open‐source software is the purest expression of a benign open market. Let the best product win and let the consumers decide without regulators putting their thumb on the scale.

More importantly, open‐source software reduces risk since it requires all actors in the system to work for the benefit of all in the network and only allows survival if value is produced. “People can cooperate with more peace of mind and security when a system is in place that allows users to have a range of motivations and morals, while the contract still executes the transaction,” writes Cynthia Martin.

Software doesn't have bias or change its position. It does what it's been programmed to do, and there is an elegance to that which we rarely find when dealing with entities in power. Before the twenty‐first century, it was impossible to imagine a world without trusted systems. But with blockchain technology, that is all changing.