*https://www.gemini.com/cryptopedia/trustless-meaning-blockchain-non-custodial-smart-contracts*
Cryptopedia, June 2022
Expecting no one to eat the cake you stored in the fridge isn’t an exercise in trustlessness. “Trust” and “trustless” are related — yet different — concepts.
While trustless is defined by Merriam Webster as “not deserving of trust,” in the blockchain space it means something entirely different. Trustlessness in the blockchain industry simply means you do not need to place your sole trust in any one stranger, institution, or other third party in order for a network or payment system to function. Trustless systems work and achieve consensus mainly through the code, asymmetric cryptography, and protocols of the blockchain network itself. The trustless environments that blockchains have created enable the peer-to-peer (P2P) sending and receiving of transactions, smart contract agreements, and more.
One important area of your life where trust plays a crucial role is your personal finances. Most people in the U.S. feel comfortable trusting a third party to store their savings. Likewise, while some worry about the fluctuations in their stock portfolio, they usually aren’t worried about their assets disappearing from their account. This is because there’s a widespread baseline of trust in the banking and financial technology (FinTech) sector.
However, the advent of blockchain tech and cryptocurrencies has brought about a new understanding of trust. 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. This simple, yet revolutionary concept has major implications on our relationship with our personal finances, and far beyond into our everyday lives.
The concept of trustlessness 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. Depending on how you choose to store, move, and trade your assets, you may have a trustless set-up or a set-up that requires the trust of a third party.
“Don’t trust; verify!” and “In Bitcoin we trust” are trustlessness-related phrases you may come across as you explore the cryptocurrency space. If you are new to crypto, you may ask yourself: “How can I trust code?” If you’re familiar with Bitcoin, you likely already know the answer. Essentially, these networks are censorship-resistant and decentralized, featuring enhanced security protocols. When you send a transaction, it’s permanent, and the sender can’t reverse the payment. If you’ve ever been on the receiving end of a bounced check, reverted credit card payment, or reversed Paypal transaction, you can likely see how revolutionary this is.
The implications for global commerce are significant. Furthermore, the trustless component of blockchains goes far beyond payments and includes implications for crypto self-custody, smart contracts, and asset trading solutions.
A trustless crypto wallet is a non-custodial crypto wallet. This means your crypto wallet contains the private keys that control the crypto funds associated with them. Since only you control these funds, it’s generally considered trustless.
On the other hand, a custodial wallet isn’t generally considered trustless. You are trusting the “custodian” to hold your assets on your behalf. When you buy crypto on a centralized exchange (CEX) like Gemini, Huobi, or Kraken, your purchases are automatically stored and secured in your exchange wallet.