Kevin Denman's Blog

The Economy of Trust: How Bitcoin will lead to a thriving global economy

Published by Kevin Denman on: September 10, 2024

Bitcoin’s core value proposition is much more nuanced than headlines suggest. It’s not just a better currency, an alternative to gold, or a more distributed immutable database. These are just applications of a far more valuable concept: platforming the Economy of Trust.

The Economy of Trust can be thought of as the value derived from a system’s ability to provision, maintain and verify information in a way that can be fully trusted. Today, the Economy of Trust is maintained by an ecosystem of trusted intermediaries, such as banks, auditors and credit agencies. In the future, I believe that Bitcoin will increasingly serve the role as a more efficient and resilient ‘trusted intermediary’- one that does not rely on centralized authority or suffer from the same vulnerabilities it’s predecessors do. This is the core value of Bitcoin as a platform.

In order to simplify our understanding of the Economy of Trust and Bitcoin’s role within it, I will refer to Bitcoin as a trusted intermediary instead of a ‘trustless protocol’. Just as we trusted Arthur Anderson to audit Enron’s ledger of accounts, we will also need to trust Bitcoin to maintain an accurate and immutable ledger of accounts. Once you see the Bitcoin protocol as a trusted intermediary (whether you trust it or not) - you begin to see the Economy of Trust take shape and the critical role Bitcoin can play in it over time.

The Economy of Trust is a free and competitive market whereby the trusted intermediary is selected by consumers based on the price and quality of trust. In the Economy of Trust, it does not matter if the trusted intermediary is a Big 4 audit firm or an open source protocol, so long as the needed trust-layer services are rendered. The quality is defined by the trusted intermediaries ability to be trustworthy over time with minimal breaches. The price is discovered over time as different use cases are fulfilled by competing trusted intermediary. Over the long run in a competitive market, the most cost competitive solution that does not sacrifice quality takes the market.

In studying the history of the Economy of Trust over a long enough timeframe, we observe that trust is both critical and ephemeral. We trust our bank to keep our money safe for many years and then we learn that excessive fractional reserve banking has left it exposed. We trust our government to protect our private savings and then we learn inflation-funded government spending has eroded it. We trust Big Tech with our identity and then we learn their network efforts lead to them implicitly owning our data. In this way, the Economy of Trust is a paradox: at the same time trusted intermediaries create immense value for users, over time these same trusted intermediaries breach trust, destroying value and leading us to question the systems these intermediaries developed on our behalf.

How much would it be worth if there was a trusted intermediary architected such that it could serve as a single platform for the provisioning and maintaining of trust such that this paradox were sustainably solved? What if the entropy of trust was slowed down for humanity by an order of magnitude? What would be possible in a civilization with access to high quality and relatively cheap trust over thousands of years? In my view, like the internet before it, its value is incalculable—perhaps even infinite.

Though incalculable, let's explore the Economy of Trust through a macroeconomic lens to demonstrate that the Economy of Trust is large, critical to the global economy and its digital disruption could lead to positive change for human civilization.

In 2022, Global Trade hit a record of $32 trillion. Of this $32 trillion, some reasonable percentage, perhaps somewhere between 1% and 4%, is spent on architecting, provisioning, and maintaining trusted intermediaries that facilitate Global Trade. 1 to 4% may not seem like a lot, but these costs indirectly contribute to debanking 25% of humans and 10% of micro, small, and medium-size enterprises.

The core issue is not that these trusted intermediaries exist. Global Trade was built on the rails of trusted intermediaries which enabled new marketplaces around the world and for this we can be grateful. However, these systems are costly, inefficient and anachronistic and we should not be satisfied by them. They were designed in a different era. Today, the modern internet-native economy needs to move at the speed of information and be provided with a solution that can resist the erosion of trust.

Bitcoin and the applications built on top of it provide us with a plausible path forward. By reducing the unit costs within the Economy of Trust by orders or magnitude, the unbanked can have access to financial services, underrepresented entrepreneurs can have lower startups costs, and the entire Global Economy could experience basis point level efficiency gains across all trade.

In conclusion, Bitcoin’s core value, as highlighted in the 2008 white paper, lies in its ability to offer a better alternative to existing trusted intermediaries at internet scale, and at a relatively low cost. In other words, Bitcoin provides an internet-accessible technology that allows us to disrupt the Economy of Trust by provisioning the ability to trust the state of information as reliably as we trust the laws of physics. This is what has never existing before and is the novel value proposition of Bitcoin.

I hope this essay helps others to view Bitcoin in the context of a platform for the Economy of Trust as opposed to purely in financial terms such as ‘digital gold’ or a ‘store of value’. Bitcoin is a disruptive, digital-native, trusted intermediary that will redefine the Economy of Trust, bank the unbanked, and provide a new and more efficient platform for the global economy to thrive on.

If you are interested in diving deeper on these topics, please find my list of sources and inspirations below.

Sources:

1. Casey, M. J., & Vigna, P. The Truth Machine. https://x.com/mikejcasey, https://x.com/paulvigna.
2. Thompson, A. A., Jr. (1984). Strategies for Staying Cost Competitive. Harvard Business Review. https://hbr.org/1984/01/strategies-for-staying-cost-competitive.
3. Ali, M. Co-Founder of Stacks and Trust Machines. https://muneeb.com/, https://www.stacks.co/, https://trustmachines.co/, https://twitter.com/muneeb.
4. UNCTAD. (2022). Global trade set to hit record $32 trillion in 2022, but outlook increasingly gloomy for 2023. https://unctad.org/news/global-trade-set-hit-record-32-trillion-2022-outlook-increasingly-gloomy-2023.
5. Fast Company. (2023). Our world isn’t designed for the growing number of ‘unbanked’ people. https://www.fastcompany.com/91014699/our-world-isnt-designed-for-the-growing-number-of-unbanked-people.
6. McKinsey & Company. (2023). Reconceiving the global trade finance ecosystem. McKinsey & Company. https://www.mckinsey.com/industries/financial-services/our-insights/reconceiving-the-global-trade-finance-ecosystem.
7. Wikipedia. (2023). Enron scandal. https://en.wikipedia.org/wiki/Enron_scandal.
8. Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. http://bitcoin.org/bitcoin.pdf.
9. Mallers, J. (2024). Gold was demonetized because it required trust. https://x.com/jackmallers/status/1833218060255109397, https://twitter.com/jackmallers.
10. Denman, K. (2024). Original work. https://www.kevindenman.xyz.

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