While most people think banks are stable and trusted, they actually operate based on a zero-trust assumption (or simply trust no one).
But, running a zero-trust organization is costly and inefficient, and internet banking doesn’t solve this crucial and fundamental problem. This sets the backdrop for my second post on why blockchain matters.
The problem blockchain is trying to solve is how to run a trusted system with trustless people.
However, immutability alone does not produce a trusted system; it has to decouple from the operating team.
Blockchain and DLT ( Distributed Ledger Technology) together eliminate the vulnerability of human interference, as a system built with both technologies can operate without having to trust system administrators.
There is also no hierarchy of users in a DLT system, no super-administrators or privileged accounts that can delete transactions in the system. Each transaction must be endorsed by other users.
But how can hundreds of trustless people achieve self-governance and build a trusted system together.?
When bank transactions run a blockchain and DLT system, the three lines of defense described at the beginning of this article are no longer necessary.
Blockchain creates record immutability (past records are safe) and DLT protects immutability from human interference. Game theory enforces the DLT rules by appealing to the self-interest of each individual user (future records are highly likely to be safe).
With these together, we can build a trusted system with decentralized cryptography without relying on third-party auditing. (Trust is moved from the auditors to the software infrastructures).
This is an excerpt from an article published on Tech in Asia. You can read the full article here.