The Mechanics of Trust

Every passage, on the record.

1. 00:00Claim

   The vast majority of individuals who think that they understand what trust is could not give you a definition, or at least the individuals that I interact with, could not give me a definition of what trust actually is. People think they understand what it is, and they think they can recognize the conditions necessary for trust to grow and for trust to flourish, but that simply isn't the case.

2. 00:39Claim

   There's vertical trust versus horizontal trust, there's political trust, there's interpersonal versus task-related trust. And in the Bitcoin world, we specifically talk about trust for a reason. It's very important, and it plays an integral role in whether or not the system is going to be successful.

3. 00:39Reference

   And there's the classic "don't trust, verify" line that is so important, in which you can do with your own node, and you can do because of the way the system is built and the properties that emerge from the code.

4. 01:10Claim

   Trust is extremely important because it impacts performance. Trust levels impact the effectiveness of a group.

5. 01:41Claim

   More trust equals more resources devoted to the end goal, and less trust equals more resources devoted to surveillance. Or another way you can say this, that trust fuels economic development, and a lack of trust slows it.

6. 01:41Reference

   With the concept of trust, there wasn't really much before an individual named Morton Deutsch in 1962 came up with his definition and sort of locked down what trust actually is, that we have something that we can go forward with and try and examine and try and poke holes in to see whether or not Bitcoin actually lays the foundation from which trust can spring.

7. 02:21Claim

   The big breakthrough there was that trust, it involves risk, and risk has consequences that are either harmful or beneficial, and consequences are dependent on the action of the other party. You trust when you are confident that the other party will behave so that beneficial consequences result.

8. 02:53Quote

   So said another way, the harm must be greater than the reward for trust to exist.

9. 03:26Claim

   Trust happens then when an individual acts as if something will happen even when the consequences are stacked against them.

10. 03:26Analogy

    An example would be the chair that I'm currently sitting in. I sat down in this chair, as I have sat down in this chair many times. I didn't verify that all of the chair is in perfect operating condition. I didn't check the build quality or the material structure. I didn't shake each leg and go over every single screw. I simply sat down. And I sat down because I trust that the chair will keep me from falling when I go to sit.

11. 04:27Analogy

    The same goes for the trust game, which I'm sure many of you are familiar with, this is where you trust someone behind you to catch you as you fall back with your arms crossed. The positive is you are caught and you are in the same physical condition as before the exercise. Again, not much to gain there. The negative is that you could be seriously injured if the partner does not catch you.

12. 04:58Quote

    Small wane if trust is confirmed, big loss if the event doesn't go as expected.

13. 05:30Claim

    Anything we can do to minimize trust is going to lead to better results. So trust emerges from a series of verification processes that we then wish to bypass due to their high energy costs relative to the desired end state. So the less complex, the fewer the variables, the less energy is required to verify in the first place and then rely upon when trust does emerge.

14. 06:00Claim

    It might help to examine the opposite of trust, and that is gambling or risk taking. When we gamble, the positive consequences exceed the negative ones. So the interesting thing with that is that you can gamble on Bitcoin and trust in it at the same time. The risk taking is short term volatility in the form of exchange value with the current measuring stick for energy, which is the US dollar.

15. 06:38Prediction

    If Bitcoin can credibly maintain its fixed supply of 21 million, then the positive consequences of holding a portion of the TASOE, of the total accessible supply of energy available to the extended order that Bitcoin represents, are vastly larger than the negative consequences of it going to zero or not holding any in the first place.

16. 06:38Idea

    The positive consequences of holding a portion of the TASOE, of the total accessible supply of energy available to the extended order that Bitcoin represents, are vastly larger than the negative consequences of it going to zero or not holding any in the first place.

17. 07:19Claim

    Trust implies some degree of uncertainty as to the outcome. Without uncertainty there is no trust.

18. 08:29Reference

    This reminds me of one of my favorite pieces on Bitcoin, which is Gigi's Bitcoin is Time, where he lays out how Bitcoin is essentially a clock hiding in plain sight. And one of the key insights in that piece is that the tick of the clock is more important than the frequency of the tick.

19. 08:29Analogy

    The tick separates unpredictability or uncertainty and causality. We can't know what will happen after the tick, but before the tick, we have a causal chain that we can determine, that we can use to determine exactly what happened before the tick. So we're separating past from present.

20. 09:03Claim

    So many people new to Bitcoin report on how the exposure to the system ripples through other areas of their life. There will be a number of different podcasts where things will start to branch off into other areas, whether it's nutrition, whether it's lifestyle, whatever it is. It is high probability that this experience is due to the confidence that is necessary for trust to be built and to be maintained.

21. 09:37Claim

    If you're new to Bitcoin and haven't experienced this shift, you can now track your level of trust in the system as your knowledge grows, to see how much your optimism in other areas increases as your understanding of Bitcoin grows deeper. These things are going to happen simultaneously.

22. 10:13Claim

    Bitcoin is a tool and the tool is built with code. It doesn't know the outside world. It only knows the code that it runs. So to build trust, there must be code with as much uncertainty removed as possible. That's what's going to form this foundation that will create an environment from which trust can then easily build on top of. The code is the foundation.

23. 10:13Idea

    Uncertainty in code comes in the form of randomness, complexity and obscurity. It's either difficult to predict, or it's difficult to fully realize, to think about all at once, or it's difficult to read or to understand the code itself. Well, how can we eliminate uncertainty in the code? You can isolate randomness, you can prune complexity and you can clarify obscurity.

24. 10:45Open question

    I could probably do an entire episode on how this actually manifests itself in the code itself of Bitcoin. But for time's sake, let me just say that you can verify all of the code yourself.

25. 11:20Reference

    Adam Back, the inventor of Hashcash, is famous for saying that he spent months trying to improve the code but could not. There seems to be no excess.

26. 11:20Quote

    There is no fat in the tool to trim.

27. 11:55Idea

    We want energy, life wants energy in as orderly a state as possible. The more reserves, the better. Any tool that allows us to transform more energy and store it with less decay will win.

28. 11:55Claim

    High trust in the extended order equals high exchange. The more you trust, the more you will exchange. And in every single exchange, the extended order takes advantage of specialization and the leverage that affords, which means the more energy reserves we have access to.

29. 12:31Claim

    Low trust leads to less energy exchange, which leads to less energy reserves. Globalization requires trust. If you only make up one part of a larger system, then you must rely on others to do their part to transform the energy necessary to survive.

30. 13:08Prediction · condensed

    Low trust leads to inefficient use of already accessible energy. This is huge, and this is why Bitcoin is going to have such a large impact, one we've never even been able to fathom, because we haven't been able to fathom what decreasing that inefficiency is going to do for the extended order.

31. 13:40Analogy

    One example of this would be the 99 cents versus a dollar. Initially it was to cut down on theft. It was because of a lack of trust. If you have an item at 99 cents and someone is going to pay with a dollar, you have to open up the till, which means you have to create a receipt. Think about all of the excess work, all of the energy that goes into that work to create the coins, to do the pricing, to go into the till every single time across every single exchange across the entire world. That ends up to be a tremendous amount of energy over time.

32. 15:18Claim

    If we can increase trust in the extended order, what that means is we can remove those inefficiencies from the system.

33. 15:51Analogy

    You can almost think of it like the hash output of a Merkle tree in Bitcoin, the Merkle root. With trust, we can think of it like the Merkle root in the sense that it is due to a combination of experiences and information that allows us to trust or not trust. Each of those experiences and pieces of information was once verified. The whole of that decision tree is trust. Trust is the output from the sum of all of those interactions, all of those transactions.

34. 16:53Claim

    In the real world, to save on resources, we don't check each hash of each transaction, we just check the hash of the Merkle root. We save resources by eliminating the need to check every single input into a decision, and we want to boil trust down to a question of whether or not any new variables have entered the picture. If not, we assume the outcome will be the same as previous interactions until proven otherwise.

35. 17:27Quote

    We want to verify, not trust. But in the physical world, verification takes energy. And to save energy, we trust.

36. 18:00Claim

    In the extended order, trust is a public good, and Bitcoin solves for the public goods game.

37. 18:00Reference

    It's much like the Prisoner's Dilemma, which you've probably heard of before in terms of game theory. The public goods game has not been solved until Bitcoin.

38. 18:00Reference

    It's much like the Prisoner's Dilemma, which you've probably heard of before in terms of game theory.

39. 18:31Analogy

    Let's say you have 10 people and each morning every person gets $10. They can either keep the money themselves or they can put it into a central pot. This community pot has a magical effect that at the end of the day, its contents are going to 5X, and then be split evenly amongst all of the players. So 10 people, $10, that's $100. $100 goes into the pot and out comes $500, split by 10, and everybody gets $50. They started the day with $10, then they end up with $50, and this goes on forever.

40. 19:40Analogy

    What happens if someone decides one day to not put anything into the pot? Rather than having $100 going to the pot, you now have 90, because $10 is being withheld. That $90, at the end of the day, does a 5x, that becomes $450. $450 divided by 10, every player, including the player that withheld their money, gets $45. The trust breaker has $45 plus their original $10, so they now have $55, and everyone else has $45. The consequences of that decision is now everybody knows that someone has defected, and eventually everyone eventually stops playing.

41. 20:44Claim

    In the legacy fiat system, you cannot opt out of this community pot aspect of energy storage. It is not possible. Through inflation, you are forced to pay out energy to entities that are not putting energy in. This means those entities win in the long run. They have more for less. They don't spend the energy contributing to the community pot.

42. 21:53Claim

    I'm sure you're starting to draw parallels between this little game of 10 individuals in a community pot with the one defector, that might happen to be the government, might happen to be entities that are not contributing to the pot.

43. 22:25Claim

    With Bitcoin, only those that contribute to the pot are allowed to benefit. We can remove the person that withholds their $10 from the community pot without having to do anything. The code of Bitcoin removes that person. They can't be cheating the system and playing at the same time without any extra work, without any extra energy required from any of the other participants.

44. 22:56Quote

    This means that what results is the ultimate trust machine for the extended order to continue to cooperate and exchange. The system cannot be cheated.

45. 23:59Claim

    There are some common themes that continually come up for the elements of trust: reliability and consistency, competence, transparency, character, and intent. If we tick off all of these boxes with Bitcoin, we can see that it's the perfect foundation for trust to then build from.

46. 24:31Claim

    Downtime in Bitcoin is almost non-existent, I think it's been 2011 was the last one. It just continues to do exactly what it said it was going to do, that is the definition of reliability. Just like the time chain gets harder and harder to manipulate the more and more blocks are added to the system, trust builds with every single passing block.

47. 25:03Claim

    After reliability we look at competence: does the system do what it says it can do? That's all Bitcoin does. It proves it, all you have to do is test it for yourself. The more that you test it, the more you begin to realize that it's incredibly competent at doing exactly what it says it's going to do.

48. 25:34Claim

    After competence is transparency. There are no magic black boxes. There's nothing inside of Bitcoin that you can't open up and examine yourself. Bitcoin nails this. Everything is open source. If you want to expend the energy to verify this for yourself, you can do that. Anyone can do that. No one is hidden. And transparency increases trust.

49. 26:05Claim

    With character, you are happy to reveal your true intentions, vulnerable enough to share what you're actually doing. The question becomes, can Bitcoin overcome its own self-interested temptations, which it doesn't have any of because it's code. The character of Bitcoin is the code itself, which is not prone to changes as we humans are.

50. 26:41Reference

    This is the part where Satoshi, when he made the quote about the problem with fiat currencies, is that it relies on trust and that trust can constantly be broken. Well, it cannot be broken because it cannot be manipulated.

51. 26:41Claim

    The final one is intent, which is: are Bitcoin's interests aligned with the user's interest? Once you verify these elements, you then look to see how they might be compromised by bad actors.

52. 27:16Claim

    Once you realize they can't be compromised by any individual or minority group inside the network, that is when trust really begins to take off. Every passing use further strengthens trust, and you can think of trust building the same way as the time chain, it can't be cheated, so it can't break the trust of users. This means there is only one way traffic in terms of adoption.

53. 27:16Prediction

    When you couple that with the number go up technology and the fixed supply, you're in for a very interesting ride as a Bitcoin user.

54. 27:47Claim

    The result for the extended order is it's now free from the shackles of a lack of trust, and all of the trust mitigating behavior can now be removed from every single exchange. This means more energy going directly towards the transformation of additional energy.

55. 28:17Quote

    And this podcast would have been a whole lot shorter if we just stuck with the don't trust, verify line.

56. 28:17Claim

    The whole idea behind Bitcoin is that verification has become so cheap in an energy sense that you no longer have to trust in the first place. And you can do the verification of the system, but the verification of the system then builds trust on the uncertainty of the future.

57. 28:47Quote

    And as that trust grows, exchange grows, leverage over specialization grows, more energy for all. This is the way forward.