Any new technology based industry undergoes several ups and downs until the capabilities and limitations of the technology become well versed.
There are some illogical propositions which temporarily enjoy market exuberance, there are some malafide actors posing to be equipped with a little understood technology with lofty promises which eventually result in a rug-pull, there are some strong arm-twisting events in the thin markets which eventually erodes investor confidence or even there are model inadequacies in the business plan
Whatever is the reason for that market experience, the common investor confidence erodes heavily and a single word comes under heavy scrutiny: trust.
The market events, allegedly using leveraged capability to manipulate the algorithmic pegging of a stablecoin with huge volume of one-sided orders, leading to the de-pegging of a stablecoin UST (Luna) and its eventual fall to zero value and resulting market de-capitalization and investor exodus, once again raises questions about the “Trustworthiness” of the “Trustless” system.
The cryptographic proof of transaction as a source of “Trust” is the core element of the Distributed Ledger Technology (DLT). However, in order to innovate, certain fundamental principles laid down in the Bitcoin Whitepaper has been moderated to accommodate the present day business needs of achieving what we call as the Trilemma of Decentralization.
The Trilemma has three objective points for any such project – Safety & security of the protocol, Speed of transaction and Decentralization. The first blockchain, Bitcoin – was designed to solve the double spending problem on an electronic network – it used decentralization and security protocols to achieve that – but, in the process, deliberately gave up on speed of execution.
If you notice, the block difficulty mechanism of Bitcoin blockchain is auto-adjusting to a targeted block creation time of 10 minutes. Which means, about 2500-3000 transactions (bitcoin block capacity is just 2MB) transactions get recorded in the ledger and therefore achieve finality every 10 minutes or 600 seconds!
In order to achieve speed, yet keep things secure, the protocols started keeping closed / appointed group of validators – which means giving up on decentralization.
Now, one may ask what is the big deal of decentralization? It means that the rule/governance or transaction approving authority – if it rests on few hands then the fate of many may be controlled by the whims of few – decreasing the “Trust” on the system being unbiased. A conflict of interest may arise creating exodus of users from that particular protocol. Projects today are building in such compromises into the systems they are creating in order to survive in the competition of being “THE” blockchain for a particular thing – duplication of effort is observed, network resources are getting thinly spread and systemic risk increasing.
Somewhere, the project owners also need to build in the size of the market and the positioning of the project in the overall industry with an impact assessment of the project on the network resources – does the project achieve network resource enhancement or thinning.
The largest portion of the industry is focused on building Use cases – or users of the technology. A serious effort towards capacity building is needed in order to take the proliferation to the next stage with security and increased decentralization along with technology innovation supporting speed of execution. However, this industry needs the confidence to grow to that level.
Trust is critical factor in this process of growth, and in our honest opinion, the “trustless” ecosystem today does needs Credible “trusted agencies” to lead the ecosystem into its matured state. Once the “trustless system” gathers critical mass and enough decentralization, the agency should be able to embrace the open systems and not institutionalize the trust within any particular agency.
Ajoy Pathak is a Blockchain Evangelist with CryptoWire, a first port of call for entry into blockchain and cryptocurrencies. CryptoWire seeks to empower participants of the crypto universe with its super app and its research, training and information platforms like Crypto University, CryptoTV and CryptoWire.