Bitcoin - a Reminder of the Importance of Trust

(draft; work in progress)

The Danes tell about themselves that they do not have natural resources, but they have another resource that is very valuable and which explains part of their success: trust. I never understood this until i had to rent a car in Greece.

Sometimes in 2018 I think, with friends we went to a rental place. A very friendly man welcomed us, and quickly asked us whether we wanted coffee. We accepted to some espresso-based drinks and he quickly summoned a colleague and sent him for coffee. To our surprise, however, the colleague, instead of going in the kitchen for the coffee, went out in the street. After about 5 minutes he came back with large coffees that he had bought from a cafe down the street. Little did we know that large drinks were important: indeed, the process of renting that car was absolutely kafka-esque: it took probably more than one hour and required filling and signing a dozen forms, both by me and the lender himself.

I think then I realized a little bit the importance of trust: in a culture where you can trust people, you can rent a car in 10 minutes; in a culture where trust is low, you have to spend hours and fill a dozen forms to do the same thing.

But this little anecdote is nothing compared to living reminder of the importance of trust that Bitcoin represents.

Bitcoin and the blockchain-based algorithm that underpins it are a beautiful concept. A creative algorithm which ensures that a worldwide network of computers that do not know and do not trust each other will still agree on the set of bitcoin transactions in the network. It’s a delicate interplay of incentives and applied cryptography that enable a system in which everybody participates without anyone needing to trust anybody else.

However, there are two “little” problems with the protocol:

  1. The system does not scale. Some year ago, in average the Bitcoin network can process about 5 transactions per second. This would not be sufficient to handle all the transactions in my grandmother’s village at the fair on Sunday morning. And for sure it’s not sufficient to handle all the transactions in the world. It can never scale to be a global payment system, one of it’s goals.
  2. The system wastes a lot of energy. Some year ago estimations put the whole energy consumption of the network was comparable with the energy consumption of whole Ireland.

This is the price we have to pay for lack of trust*.

How much would we have to pay if we had somebody that we could trust? If we all agreed that there would be a unique ledger of all the transactions, and that we could install it in my basement and that I would not tamper with it, a transaction tracking system could be implemented on an average phone to be able to host a database that can do than 5 transactions per second.

Now, the real world is always more complicated and we will never be able to have a system with full trust just as a system with zero trust is also too expensive.

In the real world, we delegate the responsibility of tracking individual transactions between people to the banks. And we don’t even trust them that much, because we also have people auditing them.

And in the cryptocurrency world, people have proposed architectures that would increase the scalability of the system. Vitalik Buterin, the young genius who leads the Ethereum initiative was discussing at some point the possibility of splitting the main network in subnetworks that would talk to each other. They would need to trust each other. But there could be more scalability this way…

So we there it is: sometimes* the difference between a system built on trust and one that requires no trust is the difference the energy needs of Ireland and the energy needs of a mobile phone. I think it’s a beautiful metaphor for the importance of trust.


Further Notes