Ideal Money should be universally cognizable and a trustless guarantee of value that it represents.
In common parlance cognizable means perceptible or clearly identifiable, and in judicial context it implies “within the jurisdiction of a court.” Universal cognizability therefore implies “legally recognized” in every jurisdiction.
Trustless Guarantee is another foundational element of the "Ideal Money" of our definition that had no conceptual existence prior to the advent of blockchain. Let's see how the concept of guarantee that itself enshrines elements of trust can become trustless guarantee.
What is Guarantee?
Guarantee is a promise that something will be or will happen. In legal context it is either a personal transaction by means of which one person, to obtain some trust, confidence or credit for another, engages to be answerable for him; or it is a treaty through which claims, rights or possessions are secured. It thus produces an economic effect. In the context of currency, guarantee may be in the form of a bank’s promise such as in British Pound:
“I promise to pay the bearer on demand….”
Or as,
Government treasury affirmation as in the United States Dollar:
“This note is legal tender..”
A legal tender is any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation. While usually all denominations of the circulating paper money are legal tenders, the denomination and amount in coins acceptable as legal tender varies from country to country. Checks and postal orders are not legal tenders and are accepted only at the option of the creditor, lender, or seller.
In any case, all guarantees, in a way, are intricately associated with trust making us wonder if guarantees are at all possible in the absence of the trust element?
What is Trustless Guarantee?
Dictionary meaning of trustless is: not worthy of trust, faithless, unreliable, distrustful. Going by its dictionary meaning the terms apparently carries serious negative connotations and even paradoxical to what guarantee entails. But that’s not the case when we analyze the term in terms of its usage in a decentralized ledger technology (DLT) environment. In a trustless system like blockchain, the execution of a transaction does not depend on any intermediary or on the intentions of any particular party. So trust becomes irrelevant and unnecessary.
Guarantee generally warrants need of a wholly trustworthy intermediary as we see in the conventional fiscal transactions of legacy systems. However,
a trustless system allows you to trust in the system without needing to trust in the parties with which you are transacting.
In a DLT/Blockchain system, computers verify each transaction with sophisticated algorithms, and every transaction is recorded and verified in a transparent manner. Hence,
the system creates the trust by default, implying that you don’t have to know, like, or trust the person or entity you’re doing business with, or even need an intermediary. The trust is distributed among the network’s stakeholders, rather than concentrated in a single individual or entities like banks, institutions or governments.
For all the above reasons, a “trustless guarantee” ensures that a currency operates autonomously, independent of it’s issuing entity, bank or government, and holds its long term convertibility and parity independent of the issuer status.
Credits: This article was first published on Medium
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