Can people trust Cardano's blockchain?
The adoption of cryptocurrencies will be generally difficult and one of the reasons is that it requires a change of people mindset. Surprisingly, adoption is about trust. Are we able to stop trusting people and start trusting blockchain technology more?
Is it easy to replace fiat money?
There are two major obstacles that prevent cryptocurrency adoption. These are insufficient technological maturity and people’s interest in alternatives. We are able to overcome technological difficulties and Cardano is backed by a really strong team. We believe that Cardano blockchain will be ready for mass adoption. Having the best-class technology does not necessarily mean that it will be heavily used by people. Let’s explore this topic a bit more.
Banks and states stand behind fiat money and there is a strong social contract between them and people. People are used to using fiat money and know that the legal system can help to resolve any issue. The system works for many decades and people understand it and know how to use it. Well, not everybody knows how the economy really works, what the inflation means for their wealth, or that economic bubbles and crises are inevitable parts of the modern economy. People usually do not give much attention to these topics or blindly trust financial advisors. What is worse, they take it as a mandatory matter of things. They believe that banks and states have a strong mandate and their control ensures that any potential problem will be solved. In other words, people consider banks and states are responsible for fiat money so they can care only about earning them.
Fiat money is used by nearly all people in a given country and it is mandatory to accept fiat money as a means of payment. Financial infrastructure mostly works well. Fiat payment is an easy process taking just a few seconds and it is reliable. The majority of people do not bother with topics like privacy and have no problems with censorship when sending a higher amount of money. Fiat money, including, laws, regulations, and processes, all that looks like a smoothly working well-oiled machine. It might be very difficult for cryptocurrencies to fight with this machine.
We can conclude that people mostly trust the current financial system. It works quite well in most western countries. Everybody knows that it is not perfect but it has survived many decades. We talk about it from the perspective of the majority. Adoption is not about minorities that have adopted crypto many years ago and have many reasons to criticize fiat money. The majority, maybe partly hand in hand with authorities, will decide about the project that will succeed. We have to change the opinion of the group that still fully trusts the current financial system and does not care about cryptocurrencies at the moment.
So far, we had not any viable alternative so nobody talked about it. It has changed. The status of the cryptocurrencies today could be described as a promising new technology that has not been adopted yet. Blockchain technology can be used by many projects to solve a bunch of problems that are related to trust. Thus, blockchain can be used as a competitor of fiat money or a store of value. At least it is the most promising area and the original mission of cryptocurrencies is to become a competitor to the current financial system.
To disrupt the traditional financial system is a huge challenge. If cryptocurrencies are to succeed then it needs to replace the traditional financial system at least to some extent. Let’s have a look at a few important points that must be addressed from the trust perspective.
- People know the current financial system but it cannot be said about cryptocurrencies. It might be a difficult task for people to start using cryptocurrency since they have to take over responsibility for their wealth. To do so safely, they have to learn the basics of cryptography and start using new tools. Education takes time and we need more strong influencers that would promote the adoption and lead the revolution. People must be positively motivated to change their minds. Cryptocurrencies must be perceived as a viable alternative. Not as a get-rich-quick scheme. If your neighbors trust the blockchain then you will probably start to trust as well.
- Banks and states will protect their dominant position and wealth. From this point of view, cryptocurrencies are competitors. Notice that blockchain technology is not the enemy. Banks have been testing the technology and they like it. However, they do not like the idea that people could adopt cryptocurrency that is decentralized and controlled by people themselves. Once people adopt cryptocurrencies the banks and states technically lose part of their control. It can be expected that we will see strict regulations or even a ban on crypto if people begin to use it on a daily basis. We can expect a battle for trust between authorities and technology.
- Probably the most difficult task is to persuade people to begin to trust the technology instead of authorities. People usually trust authorities and know what to do when something goes wrong. They can directly or indirectly choose representatives in democratic elections. They like seeing the representatives of authorities on TV, they like speaking with them, etc. They need to know the representatives’ opinions and elections are often based on emotions. The advantage is that the majority of people regularly decide who will represent them. It does not matter now whether authorities or representatives do their job well or not. Here, we are talking about the complete reorganization of society and changing people’s mindsets regarding trust. People are used to social interactions and it can be difficult for them to start to trust blockchain.
As you can see the replacement of fiat money is not an easy task at all. People trust fiat money and to all institutions behind it. Moreover, there is a big interest in protecting the status quo.
What does it really mean to replace fiat money?
Trust is a reliance on the character, ability, strength of someone, or something. Trust is our expectation that something happens in the future and we believe in it due to the historical experience. It is difficult to achieve trust but easy to lose it. The longer we have positive historical experience the more we trust. Trust often works well when there are more entities that have a common goal and all will benefit from trying to achieve it. Trust never sustains forever in the physical world. For example, an entity can change priorities and the goal cannot be the common one any longer. Loss of trust can often result in harm.
To suggest someone to start using cryptocurrencies instead of fiat money basically means to stop believing what he or she has been using for many years and to start using something completely new. It is not generally so easy to give up a trust without any particular reason. Moreover, it is difficult to make a change if trust to alternatives has not been built yet. The transition usually takes a longer time. First, the cryptocurrency must be trusted, then fiat money can be avoided. There must be a period when people will use both fiat money and cryptocurrency.
So there are two major prerequisites to replace fiat money.
- There must be an understandable reason to stop using fiat money.
- The cryptocurrency must work smoothly and reliably in order for trust to be built.
Banks and states will protect the status quo. So if the transition to cryptocurrencies is to happen then people must explain to other people why to do so. Notice that it is also about trust. Both groups will be expressing their truth. Banks and states have a stronger say and power to fight against crypto either via media or via regulations and bans. It is not about the fact that it might be technologically difficult to stop a distributed network. It is about public opinion and perception. People are not willing to risk using prohibited services if they can be persecuted. Let’s be honest here. If centralized exchanges are closed and merchants are not allowed to accept crypto as a means of payment then it could be difficult with the mass adoption of crypto.
Let’s assume that crypto will find a way to co-exist with the traditional financial system. If it is possible then people must clearly see the advantages of using crypto. There must be a bunch of useful functionalities and options that will be able to compete with the traditional system. People must start using it and gradually build trust. Only the positive perception of early-adopters can attract other people to cryptocurrencies.
Cardano and trust
Blockchain is technology. It can be used by people that rely on it and gradually build trust. The technology works as it is designed and implemented and software reliability is dependent on the quality of the source code. The source code is written by people that can make a mistake. No source code can ever be 100% perfect. It is always about the critical number of bugs. Even if the software has been working fine for many years a vulnerability can be found and exploited one day. The risk is always present. Moreover, the software is never complete and thus it must be maintained and improved. There are new requirements of people, cryptographic tools must be updated, the internet improves every year, external conditions might change. People do not realize it but if they trust the technology they indirectly trust the team. People can review the source code but not more than 1% of users are able to do so.
There is a strong team behind the Cardano project. IOHK consists of many scientists, researchers, and experienced developers. It is not easy to build a blockchain if it is developed as a mission-critical project. It is necessary to put together experts in cryptography, software security, distributed networking, threat modeling, protocol design, game theory, operating systems, economy, etc. In the case of Cardano, the team works also on smart contracts so experts for designing programming languages are needed. The methodology of development is also important and IOHK is far ahead of the competitors.
By adopting a technology people often also accept the ideology of the project. Cardano is built to bank the unbanked and unbank the banked. It is not just a marketing phrase. IOHK cooperates with many developing countries to help them utilize blockchain. Africa is probably the country that will utilize the full potential of blockchain. When we talked about the replacement it was related to the western countries. Developing countries often do not have built financial and social infrastructure. It is a big potential for innovative technologies like blockchain. It is not about replacement but about building everything from scratch. It takes a long time but once it happens it can show up that these countries are better prepared for the future than developed western countries.
There is a difference between a store of value and the financial system. The store of value cannot solve the issues of people in developing countries. They need financial systems that are interconnected to social systems. The financial system is not only about money transfer but also about contracts, debt, insurance, identity, open markets, etc. Cardano will be ready to be used as a backbone for a new financial system. Adoption will be very easy since states cooperate with IOHK and Cardano Foundation and want to start using blockchain. Many people in developing countries will start relying on Cardano thus they will build trust quickly. If one big country utilizes Cardano successfully then others will probably join. Success in one country can influence the speed of adoption dramatically.
So far, we talked about the social aspect of trust. There is also a technology aspect. Trust in a decentralized network is basically about the level of decentralization. It is a mistake saying that when a blockchain is used then there is no need to trust anybody. Trust is always present. People using blockchain trust the people that operate validation nodes. Trust is basically maintained by the honest majority of nodes. What is important here is the number of people that operate validation nodes. In the case of decentralization, there is a simple rule. The more is the decision power distributed the better. Cardano is designed to have 1000 independent entities with the right to create a new block. Moreover, all stakeholders can decide to whom they will delegate the right. Regarding decentralization, Cardano will have no competitor and it will not probably change for some time.
The whole topic is more complex and we touch only a few things. Nevertheless, trust is a very important aspect of cryptocurrency adoption since there is a shift of trust from the hands of authorities to the hands of people. And it is a big change. At the moment, we have the technology that we can adopt. In the next years, it will be about changing people's mindsets. It will be a slow but gradual process and everybody who joins us can speed it up.