The Conundrum of Bitcoin and Trust
You may have heard the name Stefan Thomas recently. Thomas is a Silicon Valley programmer, who could be at risk of losing access to his $220 million fortune in Bitcoins, as he doesn't remember the password to his digital wallet. The digital wallet is a small device, that looks much like a small USB flash drive. He is two password guesses away from exhausting his 10 password attempts and losing those $220 million forever. I would not want to be in his shoes, and I feel for him, but I would also like to use this story to analyze this situation from a trust perspective. For starters, what is trust? My definition, as I described it in The Book of Trust is:
Trust is my your willingness to accept the potential negative consequences of giving control over something you have to someone (or something) else.
In essence, the potential negative consequences are losing access to your money, and the control you are giving is either to a financial institution or, as in Thomas' case, to yourself. Bitcoin, and its underlying technology, Blockchain, were created to overcome the declining trust in financial institutions. Personally, I don't think that the main reason to use it was to avoid the 2.9% (or other) transaction fee that financial institutions may charge, but rather to avoid the risk of them losing the other 97.1%. Instead of letting financial institutions keep our money, we prefer to keep in ourselves. Since physical money cannot be used to trade online, where most goods are traded these days, Bitcoin was created. Blockchain uses a concept of distributed trust. The trust in "the system" is distributed among all the users. So, who do we trust now?
We trust in god, in ourselves, and in other people
The trust we had in "other people" (specifically, financial institutions) was therefore replaced with the trust we had in ourselves, and more specifically, in our ability to keep our money safe. Or remember the passwords that would give us access to that money. Because now, you can't click "forgot password" and expect the financial institution to help you recover it anymore. If you don't remember your password, you can't recover your money.
And in Stefan Thomas' case, this transfer of trust didn't pay off.
We face the same dilemma when, for example, we must decide if we trust Google or Microsoft with backing up our data "in the cloud", or prefer to keep it on a local drive.
Whenever you must decide whether to trust someone else, you must first determine if that other person is more trustworthy than the current one you trust.
And as far as Stefan Thomas is concerned, I hope that he finds a way to recover his password. I really do.