What Is Trustless?

In traditional finance, a person transferring money has to trust that the bank will keep accurate records. On open blockchains such as Bitcoin, by contrast, every node verifies transactions and blocks itself using the same rules; a transaction with an invalid signature, or one that spends an output that has already been spent, is not accepted by the network. By running their own node, a user can check the validity of the chain without trusting any party.

The same principle applies to smart contracts. For example, a swap on a decentralized exchange (DEX) takes place according to the rules defined in code, and the risk of the counterparty failing to pay is eliminated. Methods such as atomic swaps aim to remove counterparty risk even between different blockchains.

The concept of trustless is not absolute; trust does not disappear entirely, it shifts. Users trust cryptographic assumptions, the correctness of open-source code, smart contract audits and the honest behavior of the majority in the network. Bridges, oracles and contracts with an admin key, on the other hand, often require trust in specific people or institutions. For this reason, the extent to which a system is trustless should be evaluated separately for each component.