What does trustless mean in cryptocurrency?
When you make a transaction using a fiat currency, say INR, a third party is responsible for verifying and recording the details of that transaction. This third party could be a bank or other transaction facilitator such as Visa, and Mastercard, among others. We know and trust these entities to store our money and maintain records of our transactions.
The entire finance industry is based on trust. You invest in the stock market, trusting your money will not disappear overnight. If you were not to trust the system, you could never invest anything in the market. Also, in this system, we have some idea of the person or entity managing our finances.
That, however, is not the case with blockchain. This is because most blockchains employ a trustless mechanism wherein no parties know or trust one another. This trustless system was first introduced in 2010 when Bitcoin came into existence. Since then, it has become the foundation of the cryptocurrency industry.
But what does trustless mean?
In general parlance, we all know that trustless means someone or something that is not worthy of trust or is unreliable. However, in blockchain terminology, trustless refers to a system wherein we do not have to depend on one stranger, institution, or third party for a network or payment system to function.