Presented by SBU Radio

as Published in The SBU DAO


By Karim Valimohamed

Karim Valimohamed

“Money is based on two universal principles: … convertibility … and trust …” (Yuval Harari, 2014)


In the financial crisis of 2008, taxpayers experienced a breach of their trust as banks operated with moral hazard. Furthermore, the government’s response, where little or no recourse was available to the victims, demonstrated how extant systems of trust had failed its clients and citizens. In the wake of the crisis, blockchain or digital ledger technology (DLT), introduced a mechanism of transacting that obviates the need for intermediaries.

The subsequent advent of smart contracts offers a transparent, immutable, and inclusive approach with the promise of liberation from the centralized platforms and institutions that have exploited the user-base to date.

The salient features of using smart contracts to transact efficiently and effectively in a Web3 economy include transactions that may involve cryptocurrencies, DeFi, NFTs, and DAOs. So, does operating on the foundation of a “trustless protocol” imply that there is no need for trust as we innovate and collaborate in a Web3 economy?


This article, the first of two parts, draws on the work of Yuval Harari, Kevin Werbach, to explore notions of money and trust. Noting that:

  1. Money and credit are psychological constructs that have given rise to economic development and cooperation — founded on trust in various currency systems of the day.
  2. Trust is described as a confident vulnerability, incorporating elements of “calculated-ness” (rational confidence) and a loss of power (vulnerability) that is ceded to the entity that is trusted.
  3. Blockchain technology’s salient feature is the ability to engage in transactions including the use of code to reliably and efficiently transfer digital assets across borders, without the use of intermediaries. As such it is a new architecture of trust, and hence the aphorism In Code We Trust.

This article concludes with some thought-provoking questions for consideration. In particular, how does trust manifest in a Web3 economy? The response to that will be explored in part two, in the context of DAOs and governance.

From shells and beads, to paper and metal — it’s all in your head.

In the chapter entitled The Scent of Money, Yuval offers a comprehensive explanation about the history of money, exploring the roots of trust and money as a system. He notes that the challenges of a barter system during the agricultural revolution, where “favours and obligations” in a peer-to-peer system, were not scalable as communities grew and interacted with each other. [1]

While beads, shells and eventually coins would facilitate transactions, Yuval concludes that the notion of money is more than metal tokens and promissory notes, rather, it is a systemic approach to determining value for the purpose of exchanging goods and services. This is demonstrated as today we can exchange pieces of colored paper for services rendered. [1]

Yuval further explains that “money isn’t a material reality — it is a psychological construct. It works by converting matter into mind”, further arguing that “money is the most universal and most efficient system of mutual trust ever devised”, citing that US dollars may be exchanged between persons that subscribe to radically different belief, cultural and political systems. Nonetheless, this mutual trust is inextricably linked with the networks of political, social and economic relations. [1]

Taking this a step further, we observe that the U.S. decision in 1971 to go off the gold standard meant that there was officially nothing backing the purchasing power of the dollar, other than the full faith and credit of the government. [3]

Hence, money and its variation credit, are essentially technologies rooted in trust, that have facilitated socio-economic growth of societies. As such, the underlying mechanisms and systems that enable the ability to collaborate and innovate are inherently based in trust.

… but what exactly is Trust?

The following points are drawn from “The Blockchain and the New Architecture of Trust” by Kevin Werbach.

A simple definition of trust is rooted in rational and cognitive risk assessment. Consider the choice of boarding a transcontinental flight instead of driving cross-county, where the decision is informed by statistics concerning the inherent safety of flying compared to driving on the highway.

There are however, no guarantees of performance. Consequently trust is more than rational reliance or the mere notion of “calculativeness”. Trusting implies a vulnerability to those trusted. [2]

Hence, we are trusting the airline (pilots, mechanics, …), the weather forecast, air traffic controllers etc. And, should that sense of trust fail, it may be characterized in three ways, through: direct violation (ignoring a regulation intended to protect the consumer), opportunistic behavior (taking advantage of the context), or systemic collapse (a combination of elements that results in “the perfect storm”).

In short, trust is confident vulnerability, reflecting the combination of a belief, rooted in some combination of rational and emotional factors, and the acceptance of uncontrolled risk. [2]

Essentially, vulnerability is an element of trust, and this implies yielding power to others, whether it is the bank or the con man (Werbach, 2018).

In exploring how trust is manifest, Werbach identifies three extant architectures [2]:

  1. Peer-to-Peer (P2P) — the trust between you and a family member or friend as in the case of a loan to a family friend with or without a formal agreement;
  2. Leviathan — where the state or a powerful central authority can make things right; think of the law being applied to the fraudulent sale of a house; and,
  3. Intermediary — relying on the reputation of intermediaries, where transactions are facilitated through local rules (often substituted for the social norms and government-issued laws) i.e. think of the using your local bank app to pay for your bills.

There is an inherent trade-off between trust that is gained for the freedom that is given up. For the three cases noted above: the norms of community must heeded in P2P trust; subservience to the state is demanded in the Leviathan case; and, control (and personal data) is ceded to organizations and platforms that serve as intermediaries — think of the data managed by Google, Facebook and your local bank.

Trust functions as social capital and thereby reduces expense of obtaining and corroborating data and monitoring others with whom we transact with. So how has it worked out?

Credit makes the world go round

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning” Henry Ford

To facilitate growth of humankind, credit — a new kind of money — became the economic manifestation of trust in an imaginary future. As such, it allows us to “build the present at the expense of the future.” [1]

To this end, enter the banks, that facilitated modern socio-economic progress, by lending money they don’t have. The banking systems we have created, that enable our economy to survive and flourish, are based on our sense of trust. [2]

Werbach argues that this trust and confidence in institutions and the state crumbled in the wake of the 2008 financial crisis. Through greed that manifested in the form of exotic collateralized mortgage obligations. It was not just that some banks and bankers were untrustworthy — that came as little surprise — but that the very essence of modern finance could no longer be trusted. The financial world was not as decentralized as it seemed. And if money could not be trusted, what could? [2]

Adding insult to injury, regulators contributed to a condition of moral hazard by propping up banks that caused the crisis, and not the homeowners and others who suffered its consequences. Bankers enjoyed all the gains from risky behavior yet experienced only some of the losses. [2]

The private intermediaries could not be trusted despite the laws and regulations established to ensure otherwise. Leaving the victims with limited options, ultimately paying the cost. Thus, demonstrating that in cases of fraud, monopoly, corruption and censorship, the system doesn’t work. [2]

In the wake of the financial crisis — we encounter the Bitcoin Network, developed on a “trustless” protocol called blockchain or digital ledger technology — and thus the birth of a new trust architecture.

Hello Blockchain!

This section offers an overview of blockchain technology and the variations between Bitcoin and Ethereum. A thorough treatment of blockchain technology can be found in a variety of sources including Werbach[2], Hanna Halaburda et al [5], and videos by Shermin Voshmgir (TEDx-CERN)Art of the Problem, and CollabifyNFT that offer succinct explanations on blockchain and Web3 concepts.

Blockchain-enabled decentralized applications (dApps) allow you to trust in a process or transaction without having to trust the entity with which you are transacting (Gemini Cryptopedia).

A blockchain is a shared ledger of transactional data, distributed across a peer-to-peer (P2P) network of users (nodes). Transactions are “signed” with public and private keys, verified and and batched into blocks using a sophisticated encryption technique, and, a consensus mechanism (protocol).

Subsequently, each block has its own unique signature that is linked or chained to the next block of transaction. Participants (miners) are rewarded with the native currency for contributing to maintaining the performance of the network, i.e. verifying, validation and organizing the transactions into blocks.

As such, transactions e.g., transferring a digital asset from one address to another in the network, are undertaken without the need for intermediaries nor a centralized administrator/authority. Furthermore, the use of a public permission-less network (i.e. where anyone can participate), and the data in the ledger is publicly available (i.e. “owned” by every node rather than a central authority), adds a dimension of transparency. Lastly, the inherent nature of the security protocols of the blockchain ensure that the records are immutable.

Because bitcoin is both the output and input of the system, one could equally well describe the Bitcoin network as a trust infrastructure designed to support a digital currency and as a digital currency designed to support a trust infrastructure. (Werbach, 2018)

Whereas the Bitcoin network has limited functionality, Ethereum is somewhat more versatile. At the time of this writing, both use a proof-of-work consensus mechanism, but they are different animals.

Bitcoin’s architecture is designed and restricted to ensuring that transactions are reliable and secure. For example: Send asset x from A to B. Additional functionality must be built upon that architecture in a separate layer. For example, if condition C is met in layer 2, then use the Bitcoin network (layer 1) to send asset x from A to B.

The Ethereum Virtual Machine (EVM) and solidity programming language allows for the development of contracts — i.e. code objects that have functionality programmed into them. Hence, the transaction can incorporate an element of logic, all within a single layer of the architecture. For example: Send asset x from A to B subject to condition C.

Consider for example, a decentralized application that awards scholarships to students. Using smart contracts, payments for the tuition, fees, and books can be automated for those students in good standing as verified by educational institution i.e. by validating that the student is currently enrolled in a particular program and obtained acceptable grades in the previous semester.

Undertaking transactions effectively and efficiently through code, could result in: (a) significant savings compared to the time, money and energy required to follow complex administrative processes, (b) a reduction in costs that may be caused by human error and delayed payments, and © greater transparency and accountability through records maintained on-the-chain.

The concept of trustless-ness is a core element of blockchain, crypto payments, and smart contracts. “Trustless” means that you don’t have to trust a third party: a bank, a person, or any intermediary that could operate between you and your cryptocurrency transactions or holdings (Gemini Cryptopedia).

Closing remarks and food for thought

Money and credit are psychological constructs inextricably linked with socio-economic development and based on trust. Trust is described as calculated vulnerability as there is no guarantee of successful performance by those trusted.

The government’s response to the 2008 financial crisis has demonstrated how the citizens’ trust in banking and national governance was violated. In the wake of the crisis, blockchain technology, a new trust architecture has emerged, based on the notion of a trustless protocol.

This raises the following questions:

  1. How do currency and credit systems, relying on trust in the state and institutions, to facilitate the socio-economic growth of societies, differ from an international community’s digital currency and DeFi systems, developed on blockchain technology, to empower and create wealth for its’ members?
  2. Does trust in a government that can print an unlimited amount of national currency, differ from trust in a Decentralized Autonomous Organization (DAO) that is operating with a finite quantum of digital currency? To what extent are you confident and yet vulnerable, that favorable outcomes for the stakeholders can be realized by the Government? the DAO?
  3. Are systems developed on a trustless protocol, inherently trustless too?

Part two will explore key elements (tokens — fungible and non-fungible, smart contracts, DAOs) in a Web3 economy. Noting that the underlying code that engages these elements manifests in complex systems, albeit running on this new trust architecture.

Given that these systems, however, are designed by humans, we are in essence placing our trust to those who develop, audit, maintain, and govern such systems. Consequently, in taking the action of staking in a DeFi pool, minting an NFT, swapping a token, voting on a proposal, consideration should be given to the motives, ethos and behavior of those who created the system.


[1] Harari, Yuval N (2014) “Sapiens: a brief history of humankind” Canada: Random House. Chapter 10 “The Scent of Money” describes the evolution of money from a historical perspective, while chapter 16 “The Capitalist Greed” explores the role of credit in economic development.

Consider listening to Yuval’s Ted-X Talk (2016) or this lecture

[2] Werbach, K (2018) “The blockchain and the new architecture of trust” Cambridge, MA: MIT Press. Chapter 1 “The Trust Challenge” defines notions of trust and identifies the four types of trust architecture. Chapter 4 on “Why Blockchain” examines salient features of blockchain technology.

Consider listening to Kevin’s lecture at “Talks for Google” (May 2019)

[3] Federal Reserve History. “Nixon Ends Convertibility of US Dollars to Gold and Announces Wage/Price Controls.”

[4] Gemini’s Cryptopedia. Blockchain technology explained.

[5] Halaburda, H, Miklos, S and H. Guillaume, (2022) “Beyond Bitcoin Economies of Digital Currencies and Blockchain Technologies.” Second Edition. Switzerland: Palgrave Macmillan. Section 4.2 (pp 80–89) entitled “A Brief Overview of Bitcoin’s Design” describes salient features of the Bitcoin network. Section 6.1 (pp 136–149) entitled “The Rise of Ethereum” identifies the history and new dimensions introduced by the Ethereum Virtual Machine.