Bitcoin and The Trust Problem: How bitcoin plays a role in fixing our world of trust

By Karo Zagorus

"Bitcoin and the Trust Problem" by Karo Zagorus is an exploration of the interplay between the revolutionary digital currency, Bitcoin, and the pervasive issue of trust in our society. The book delves into the complexities of Bitcoin, going beyond its common perception as a mere digital currency. It educates readers about its role as a robust store of value, particularly in scenarios of economic instability and under authoritative regimes, thereby offering a nuanced understanding of its technological and economic underpinnings. This aspect is particularly enlightening for readers seeking a deeper comprehension of Bitcoin's potential beyond the surface-level hype often associated with it.

The author skillfully addresses the current crisis of trust in modern institutions, positioning Bitcoin as a potential remedy to this growing skepticism. By examining the rise and adoption of Bitcoin, Zagorus suggests how the technology can provide solutions to this erosion of trust, reshaping our traditional notions and practices in the process. This exploration is crucial for readers interested in how emerging technologies like Bitcoin can influence societal structures and address longstanding issues of trust in various domains.

Furthermore, the book presents a historical perspective on the concept of trust, tracing its evolution from the dawn of civilization to its current state. This historical context provides readers with a deeper understanding of the significance of trust in human progress and how technologies like Bitcoin are becoming increasingly relevant as solutions to contemporary challenges. In essence, "Bitcoin and the Trust Problem" is not just a book about a cryptocurrency; it's an examination of how a digital innovation can potentially transform fundamental aspects of society, increasing liberty and financial autonomy in a world grappling with exploitation and injustice.

• Language: Eesti keel
• Publisher: Konsensus Network
• Release date: Nov 28, 2023
• ISBN: 9789916723579

Book preview

Disclaimer

The content of this thesis is purely academic and research-based and should not be construed as financial advice. The insights, views, and conclusions expressed are those of the author and do not in any way serve as investment recommendations. Cryptocurrencies, including Bitcoin and other related technologies, are inherently volatile and carry substantial risks, which can lead to a complete loss of investment. Prior to making any investment decisions, one should seek guidance from qualified professionals.

The author and consultants associated with this thesis shall not be held accountable for any financial repercussions or damages arising from decisions influenced by or based on the content of this thesis.

Any public and private keys or addresses presented are for illustrative purposes only.

BY CHOOSING TO CONTINUE READING THIS THESIS, YOU ACKNOWLEDGE AND AGREE THAT YOU WILL NOT HOLD THE AUTHOR AND ANY ASSOCIATED CONSULTANTS LIABLE FOR ANY OUTCOMES OF YOUR INVESTMENT DECISIONS. YOU ALSO WAIVE ANY RIGHT TO CLAIMS, ARBITRATIONS, OR DAMAGES, WHETHER THEY RELATE TO PAST, PRESENT, OR FUTURE ACTIONS, BASED ON THE CONTENT HEREIN.

Letter of Acknowledgement

First and foremost, I want to thank my family: my mother, father, grandmother, and grandfather. Your support over the past 10 years has been instrumental in my academic journey.

Next, I owe a debt of gratitude to Satoshi Nakamoto for creating Bitcoin—an innovation that has changed the perspective of millions globally—and for showing us that alternatives are possible when we work hard enough to create them.

To Professor Miklos N.: Your decision to take the red pill and follow me down the bitcoin rabbit hole in search of its origins and secrets has been crucial. Im grateful for your continued support, your patience in entertaining my unconventional ideas, and your openness in our discussions.

Martin Habovštiak, your introduction to Paralelná Polis and coordination of my stay in Bratislava was transformative. The experience gave me a firsthand look at the essence of freedom and liberty. I also want to extend my gratitude to those who accompanied me and enriched my weeklong stay at Paralelná Polis with their perspectives. Special thanks to Modus Operandi, Giacomo, BitcoinOldGuy, Andrej, Erik, Simon, Richard, Palo, Dusky, Juraj, and his mother Zuzka.

I want to also thank the organizers of the 6th Annual Hacker’s Congress Paralelní Polis 2019 and all the Bitcoin enthusiasts I met there.

Thanks to Balint Harmat, David Molnar, and the Wasabi Wallet team for participating in my research and welcoming me to their office in Budapest.

Erik Jacobi and Frankie, thank you for your warm invitation to Hamburg. The weekend tour of the city, coupled with our discussions on the challenges faced by modern society, provided invaluable insights. Your feedback on my thesis progression was beneficial and much appreciated.

CandleLover deserves a special mention for our day in Berlin, where our discussions revolved around all things Bitcoin. I also appreciate the company of his friends whom I met during my time there.

Im grateful to the team at Paralelná Polis Kosice. Their guided tour around the center of Kosice and the sharing of their cryptoanarchist journey, especially the challenges of initiating a Parallel Polis, was enlightening.

Jimbo, thank you for your late-stage feedback and for showing me that my undertaking was not for nothing.

Kalle Rosenbaum, your critique on the Bitcoin section of this thesis added depth and clarity to the content.

I also want to thank my friend Silent Lamb who made it possible for me to attend Guns n’ Bitcoin 2020 Switzerland in January this year. We survived the shootout at Lungern Bruning Indoor, the Luzern Coop Scare, and beat Wuhan to it before it got there.

I cant forget my steadfast friends, Duck and Leffe. Your support and companionship as I navigated the complexities of this thesis during my university years were invaluable.

And lastly, I want to thank the Bitcoin community. To every Bitcoin Pleb, O.G. Bitcoiner, and Bitcoin Maximalist, your insights and shared experiences, both online and offline, have been the backbone of my research. A special shoutout to Hodlonaut, Psychedelic El Barto, FF2K, Fabio Krauss, Vlad Costesa BTChap, Max Hillerband, BitcoinMemeHub, andhans, Dvor Ka, Dave Bradley, Francis Poulliot, MVDEX, Steph B., Bitko Yinowsky, Martin Fischer, Sebastian G., Rory, CanEx, Awyee, Chaz, Saint Bitcoin, Coinicarus, Tanuki, Nunya Bidness, Grubles, Jingles, bavarianledger, Melik Manukyan, goodc0re, ovib0s, Travin Keith, Dr. Maxim Orlovsky, Olga Ukolova, Dafar, Bas Peters, WhiteRabbit, bitcoinpasada, Nopara73 and Eric Sirion. If anyones name has been inadvertently left out, please know that every interaction was significant and cherished.

Thank you for being there every day and staying awesome, making every day unique and eventful with your presence and contribution to the community.

Foreword

Bitcoin. The mention of this single word, even as part of a question, can elicit varied and unpredictable responses from our interlocutors. Most of the individuals we interact with have limited knowledge of what Bitcoin truly entails. Only a few have had the opportunity to hear about it, and an even smaller fraction really understands its purpose, functionality, creation process, or the fundamental principles that underpin the entire Bitcoin system.

We may occasionally encounter individuals who view Bitcoin primarily as a speculative asset; they swiftly dismiss it, comparing it to the infamous tulip mania, believing that it is nothing more than a piece of vaporware destined to crash to zero. Interestingly, these responses often come from well-educated individuals with experience in speculation and trading. Bitcoin’s absence of government backing or reliance on scarce natural resources leads these people to quickly disregard it. Their lack of understanding regarding Bitcoin’s inner workings, and their perception of it as being nothing more than magical internet money, hinder their ability to recognize any inherent value proposition that could be associated with it.

However, if we delve deeper, we may fortunately come across a select few among the more than 30 million early adopters who, as of today, partially or actively engage with Bitcoin in various ways in their personal lives. These individuals are the biggest question mark in human history, leaving us to ponder why they have chosen to embrace Bitcoin on a personal level. Their motivations encompass a wide range, including viewing it as an investment opportunity, speculating on its price, using it as a store of value, protecting personal assets against hyperinflation, and seeking independence from authoritative governments.

While some may dismiss it, there is clear evidence of Bitcoins rapid proliferation among the general public, as highlighted by research conducted by Blockchain Capital. Yet, to this day, we have not fully grasped the reasons behind this phenomenon nor the underlying factors driving its increasing adoption.

In todays world, there is an underlying problem related to the generalization of distrust towards various aspects of modern institutions, such as banks, money, and politics. This issue is not confined to Western democracies but is experienced across various regions all around the world. The established order of trust, or our perception of it, is constantly being challenged by external forces from within our societies, prompting individuals to seek alternative solutions to address their daily problems.

Bitcoin, as the pioneer of blockchain technology, presents a vision of a future that offers increased liberty and financial autonomy in a world plagued by exploitation and injustice. However, embracing this potential transformation would require a complete reformation of every aspect of civilized life.

Given the urgency of the matter, it is imperative that we promptly initiate research on this highly disruptive technology, which holds the potential to spark a significant evolutionary shift for humanity. It is unfortunate to note that as of today, very few academics are actively considering the sociological and anthropological consequences that may arise from the limited available research focused on this subject.

Drawing parallels, we can observe the rapid proliferation of the Internet and the critical role it plays in our lives today. We can indeed assert that technologies built on top of the Internet follow a comparable trajectory. For instance, although it took over a decade for social media to reach its current level of active user engagement, these days, certain countries whose citizens have access to social media via their mobile devices essentially perceive Facebook as being synonymous with The Internet.

If we were to introduce a new technology like Bitcoin—operating on the internet and encompassing all the monetary aspects of a currency—while society upholds its value through social consensus, the occurrence of hyperbitcoinization (a hyperinflationary demonetization event wherein fiat currencies cease to be used due to decisions made by the free market) might not be a matter of decades but merely a few years away. Since Bitcoin is an antifragile system that generates adverse outcomes for its competitors, it becomes imperative to conduct further studies on the effects that may arise from its adoption.

We are about to embark on a journey into a hidden world that only a few can truly claim to be a part of so far. Our exploration aims to uncover the reasons behind Bitcoin’s existence and delve into the mechanisms that sustain it, ultimately revealing its revolutionary nature.

Introduction to the Dissolution of Trust

Throughout history, trust has played a vital role in the advancement of humankind. From the earliest stages of civilization to the present day, trust has been an indispensable tool in forming friendships, forging alliances, and facilitating human progress. In our modern society, trust serves as the cornerstone for the functioning of various essential services. Without trust, these services would cease to exist or operate effectively. Monarchs would not have been able to govern their realms, and chaos would have raged rampant worldwide, with each individual solely focused on their own interests. The establishment of trust has been crucial in driving significant leaps in human development over the last two millennia.

Trust serves as a fundamental element in the formation of groups. It is the key that allows individuals with shared interests to come together, survive, and build alliances and empires. In order for an individual to extend their relationships beyond the confines of their immediate family, the establishment of trust becomes crucial. It is through this bond of trust that connections can be forged, bridging the gap between insiders and outsiders, and enabling the integration of individuals into a collective unit.

The ability to cultivate trust is an essential human characteristic that enables us to form connections and establish relationships with both entities and fellow individuals. Frequently, this proves challenging, as trust is fairly rigid and unchanging in nature—something that is built or earned gradually. However, there are also instances where blind trust can come into play. Cultural, religious, and political factors exert a substantial influence in shaping an individuals predisposition and innate capacity to trust.

In today’s world, trust governs many layers of society. For example, when we make choices regarding our preferred political parties, we do so based on personal principles or beliefs in candidates whom we trust to a certain extent, expecting them to be more capable of governing than ourselves. We anticipate that they will not betray our trust by engaging in embezzlement, curtailing our rights and freedoms, or manipulating a democracy into an oligarchy.

When we reach out to the ambulance, police, or fire service, we hold the belief and trust that they will promptly respond and provide assistance during times of need, as they serve the community independently of any affiliation or citizenship. Under first-world democratic governance, a functional system of public emergency services will assist humans in need. We believe that the paramedics in the ambulance will possess adequate training, that the police will maintain impartiality and integrity, and that the firefighters will bravely risk their lives to rescue those in imminent danger. Furthermore, we trust that a nations security service agents work tirelessly to address threats, prevent terrorism, and counteract espionage without infringing upon the rights, liberties, and privacy of its citizens.

When we deposit our money into a bank, we place our trust in that institution to responsibly manage our funds and refrain from spending it, engaging in reckless lending, imposing exorbitant fees, or participating in dubious investments and loans. We expect contracts to function as they are written. In situations where trust-building is crucial, such as when signing up for a mobile service or car insurance, we anticipate that the service provider will uphold the terms of the contract, avoiding extortionate charges or failing to fulfill insurance claims.

Similarly, we trust central banks to maintain a sound monetary policy. We trust that they will not abuse their ability to excessively print fiat money, thereby overinflating