The concept of Stellar trustlines is ambiguous—even more so in the crypto world where it represents a paradox (hence the chosen title and quote). This article is a brief attempt, both practical and conceptual, to shed some lights on this puzzling topic.
The Virtuous Circle of Trust
The way to make people trust-worthy is to trust them – Ernest Hemingway (1899 –1961)
In 1953, Ernest Hemingway wrote the above quote in a letter to Dorothy Connable to warn her about abuses he received from people he used to trust—they had exposed his private life. He reflected on the fact that we can only be deceived by people we decided to rely on.
And that’s an important point, trust is always reinforced through a self-feeding loop.
For example, when ordering a cell phone online, we make a payment and trust that the requested phone will be delivered at our door. To assess the trustworthiness of the online electronics store, we may look for brand reputation, reviews, ratings, market size, time in business and so on—reinforcement via consensus. If we deem the seller to be trustable enough, we engage in business and contribute to reinforce that consensus.
The same process applies to our creditworthiness (from Latin Credo, belief) which is built over time from our lending and transaction history.
Because that self-feeding loop requires time and repeat business, trust is hard to establish when participants and activities are transient.
Defeating Transiency with Anchors
Let’s imagine that an individual needed to sell only one mobile phone online (e.g. secondhand cell phone), setting up a random page with a Buy button for $100 and an address form for delivery is unlikely to work. In the best of all possible worlds many potential buyers would pass on the opportunity due to the lack of seller trustworthiness.
Then, a solution for the individual seller is to join a marketplace service used by other buyers and sellers. Such marketplaces are business entities that took time to build a recognizable name and established mainstream reputation through best practices, implemented appropriate consumer protection and payment protocols.
In the Stellar world, these marketplaces are represented by Anchors.
Like marketplaces, top anchors on Stellar usually associate their service to a legal business entity, work on their brand name and reputation, provide customer guarantees, implement best practices and so on.
So, like the phone seller above, instead of issuing our own USD token and creating a lonely sell order on the Decentralized Exchange—unlikely to be executed—we could join a specialized anchor service that issues USD tokens. We would then deposit our USD to the anchor and in turn, the anchor would give us a token that has built enough reputation through time and repeat business.
As with marketplaces, not all anchors are equal.
Don’t Trust, Verify
To the purists out there, trustline may come as a bit of a misnomer—indeed in the blockchain world, there is a well-known mantra “Don’t trust, verify”.
A French astrophysicist, A. Barrau, used to say that the difference between scientific theories and beliefs is that theories are falsifiable. We assume theories till refuted by new observations.
For example, the computational complexity of the Elliptic Curve Discrete Logarithm Problem (ECDLP) has never been proven however we still decided to build all blockchain addresses on that assumption. It doesn’t mean we believe ECDLP to be unbreakable—important nuance.
In fact, the same process applies to trustlines. Trustlines are more about consensus and assumptions than blind trust or belief. This is an important point; due diligence should be applied constantly to anchors against which you have established a trustline.
Ideally, any incident and default should be reported publicly, such entities should be constantly scrutinized and questioned, like scientific theories—not trusted.
Trustlines are a needed component in the process of tokenizing assets. However, it is very important to always verify them. Like in science, there should be no such thing as trust in crypto.
This week, I received a support request from a user asking how to withdraw some tokens he bought on the DEX from Litemint. The amount was quite important so, as I told him that he should contact the anchor, I also checked their website to double check the user did not fall into some scam. Luckily the anchor looked legit. A reminder however that, as wallet and tool providers on Stellar, we should focus on more communication about anchors and trustlines.
Some websites like stellar.expert provide a great entry point and useful tools to discover assets and pre-evaluate them. It is also advised to check the issuer website, the company operating it, the management team and the community.
Much like Ernest Hemingway reminding Dorothy Connable that she should be “a little bit careful” in dealing with people, don’t trust your trustlines, verify them.
Thanks for reading.
Prev. Developer and Technical Lead for BGC Partners, Crédit Lyonnais Bank (trading systems) and British Government National Program for IT (smart card technology in healthcare). Indie game developer, co-founder of Israeli-based video game company Massive Games (pie.ai) and winner of the Honorable Mention Prize at the 2014 Linux Foundation & Samsung Tizen App Challenge.