Failing Crypto Products & Trust

Last Updated on November 24, 2022

Excerpts from a Marty Bent article:

Soon after releasing bitcoin version 0.1 in 2009, Satoshi Nakamoto wrote in an email:

(Bulleted by the author for easier digestion)

“The root problem with conventional currency is all the trust that’s required to make it work.

  • The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.
  • Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.
  • We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

Their massive overhead costs make micropayments impossible.”

I (Marty Bent) believe the winners who come out the other end are those who have heeded the warning that “trusted third parties are security holes” and implement trustless-ness into their product stack.

Particularly those who would like to offer financial services and products with bitcoin. The winning companies will be those who learn to leverage Bitcoin’s native properties, particularly the ability to construct multisig wallets.

The era of giving your bitcoin to a company providing you bitcoin-centric financial services without multisig solutions should be coming to an end.

The future of financial products on a bitcoin standard is multisig quorums that distribute risk among stakeholders who control different keys.

Companies already exist that have provided the market with the standard for secure and responsible products that leverage multisig quorums. Bitcoiners need to have certainty that if they are using their bitcoin as collateral to receive dollar liquidity via a loan product, they are actually going to get their bitcoin back when they pay off their loan.

Multisig quorums that allow the person taking out the loan to hold a key in the quorum provide this certainty. Since the borrower holds a key in the 2-of-3 multisig quorum, they have visibility into the wallet that is escrowing their collateral.

They can know for sure that their sats are not being rehypothecated and that they will be there at the end of the loan when everything is paid off and their collateral is set to be released back into their custody. This is a beautiful thing. More than that, it’s revolutionary.