In the previous article, I mentioned that blockchain is a trustless system and that nodes don’t trust each other. The word trustless often has a negative connotation to it, when it is a positive feature of blockchains. In essence, the code of blockchain allows real and true transactions to be permanently recorded without the involved parties knowing or trusting each other. Trust is transferred from the people to the technology.
Think about the last time you tipped a waiter. The waiter didn’t need to know your last three months of income in order to deliver your food. Neither did you need to know the waiter’s home address or medical history. You probably can’t even say for certain if the nametag the waiter wore truthfully reflected his given name. The waiter provided a service, and you tipped him based on the quality of service you feel you received. Trust wasn’t part of the equation.
Cryptocurrencies were born out of the recession of 2008. The creators of cryptocurrency applied cryptography to currency so people could to protect their own money and not have to trust it with the banks that had just been proven fallible. Cryptocurrency aims to take out the middlemen present in monetary transactions. Let’s take for example me sending you a payment via Venmo. To enact the transaction, the money would go from me to Venmo to my bank to your bank to Venmo to you. Venmo, my bank, and your bank would all be privy not only to our transaction, but also to both sets of our personal information. For that transaction to take place, both of us must trust in two banks, a corporation, and their employees. That’s far more complicated, and possibly damaging, than dropping a tip on a table for a waiter, especially when you consider that every single government and large corporation has been hacked, exposing the personal data of their clients.
Through the lessons in this course, you’ll learn how cryptography works, and hopefully see how people can put their trust in the technology and not have to trust governments, banks, institutions, or people.
In the next lesson, we’ll discuss how public and private keys can protect your identity and still allow you to transact on the network.