• Trust in cryptocurrency is not just due to scams.
• To facilitate decentralized transactions such as crypto interaction, human interaction is required.
• Blockchain is not able to resolve trust issues in institutions, traditional groups.

It has been proven that blockchain is not immune to illegal activities. Many people question the notion that cryptocurrency has been used to facilitate illegal activity on the darknet. The market continues to be ambivalent despite Bitcoin and cryptocurrency becoming mainstream and being bullishly viewed.

Blockchain Trust Destroyed

The blockchain space has a fragile ideal of trust. Even though digital interactions via the blockchain are not trustworthy, trust must be built at a higher degree. Individuals can create software that indirectly facilitates blockchain transactions. Blockchain users can thus indirectly select their projects based upon the trust level communicated by each protocol/company.

Trust can easily be broken when financial remunerations are at stake. When asked about the threat level associated with crypto investing, Aisha Johnson, director of media relations at the SEC, pointed to Gensler Aspens’ speech which referred to crypto as a ‘wild west’ due to the new asset class being “rife with fraud and scams.” Trust thus involves a human dynamic when negotiating through technological implementations.

Crypto’s Bad Apples

The crypto industry’s mishaps, such as hacks, fraud, and scams, are emphasized despite the unregulated space. In a Medium article, Utrum notes that “trust within cryptocurrency is the most valuable currency of all,” because, without trust, the public’s perception at large will become tainted. In many instances, cryptocurrency has failed to remove its negative apples.

As financially inept investors blindly put their money into new projects that promise high returns, scammers and other bad actors can be incentivised by blockchain’s economic mirage. A 2021 survey found that 16.9% of investors do not fully comprehend the technology. This raises concerns about irrational investment motivated by emotional incentives like FOMO and greed.

Bitcoin Magazine published an article about how cryptocurrency promotes financial literacy. On a similar note, a “Technology in Society” paper argues that blockchain reconfigures trust paradigms in society; however, it does not emphasize the costs needed for blockchain to achieve this societal potential. While crypto is setting the stage for financial inclusion and excluding those exposed to hacks and scams using cryptocurrency, it also serves as a deterrent.

To The Flipside

• Investors are not regulated so bad actors have the freedom to interact with them.
• Because FOMO is human behavior, it makes rationalization difficult.
• When making investment decisions, crowd wisdom may be more important than any red flags.

What’s Left to Trust?

The ideological application of any blockchain project is a trustless network. But, it is not possible to trust the concept of trust because human intervention is needed in order for those networks to be developed. Investors face additional risks due to the fact crypto can be entangled with humans.

The majority of blockchain projects are built with the same organization structure as other tech projects. They also rely on the exact same principles for development. Thus, marketing is an essential aspect of a project’s success, overshadowing the true value of the network.

BitConnect highlighted the importance of trust. This can be achieved by high financial returns and being charismatic. Investors lost substantial amounts of money despite numerous red flags. A hacker stole over $600,000,000 from Poly Network, illustrating how marketing can weaken software security.

Insider trading can also be a trust-breaking scenario. OpenSea (the largest NFT market) was brought to the forefront after an employee was charged with insider trading. OpenSea (NYSE): ZuwuTV account showed evidence of fraud wallet activities. This led OpenSea eventually to adopt new policies in order to combat such acts.

Why you should care

Some projects do not seek investors funds for profit and only a few products are delivered. However, it is important to do your research before investing in cryptocurrency and blockchain. This is just like with any investment where financial assets are at risk. Although the underlying network can be trusted, the users must also trust the individuals behind it.

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