The Cost of Trust

A Note from Ben: I’m currently attending a closed-door meeting with the Brownstone Research analyst team. And to say it’s been exciting would be an understatement. I can’t get into too many details right now, but we’re coordinating a final push for several projects that should benefit readers immensely. Some of these projects have been more than a decade in the making. I hope to share more soon. In the meantime, I hope you enjoy today’s issue of Chain of Thought.

I remember the first time I heard somebody refer to public blockchains as “trust machines.” My eyes glazed over.

It sounded ideological, philosophical. It sounded like the sort of thing that made for good conversation among crypto enthusiasts, but not something that anybody would ever actually use.

That is until a close relative asked me a simple question about Bitcoin.

“How could I be sure there isn’t an infinite amount of Bitcoin in the world?”

The question shined a light on the core breakthrough of public blockchains.

Consider what we view as normal in our financial system today…

On our mobile phones, we can open our checking account and see digital units displayed on the screen that represent dollars we own.

We trust that number to be true. We also trust that those dollars can be used whenever we need them.

But that’s all it really is—trust.

The reality is this trust was built through tradition and government guarantees. Our deposit is insured by the FDIC. Regulators require frequent disclosures and audits. And our central bank has stepped in when the very foundation of our monetary system needed help.

But something most don’t consider…

The cost. It’s massive.

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Trust is Expensive

These costs can consume roughly 5%-15% of a bank’s gross revenue. For a large or global bank, that would be somewhere between $200 million and $1 billion. 10%-15% of the workforce is tied to compliance. Globally, we’re talking about $270 billion.

It’s a figure that accounts for only one part of the equation. The other is what’s incurred by taxpayers for the government to police these same institutions.

The Competitive Enterprise Institute pegged that cost at more than $2.1 trillion annually back in April 2025. Or said differently, approximately 7% of GDP.

Trust can be very expensive.

The good news is that the cost of that trust can be slashed, and not just in the financial system.

To help facilitate trust among nations, there are institutions like the United Nations, World Trade Organization, various regional and bilateral agreements, G20 summits, and more.

But, again, building that trust is expensive.

To simply host a G20 summit, India was said to have spent roughly $500 million. It’s a cost that doesn’t even consider the salaries of all the diplomats, travel costs, staff, and other expenses.

Investing across borders is also expensive. You purchase a bond from a foreign government. You’re trusting that your broker and custodian purchased the asset and held it. You’re trusting the bond is authentic. And you’re trusting the yield payments are done accurately, converted at a fair rate, and held by the institution we trust.

Then there’s manufacturing, which requires contracts, consistent face-to-face meetings, verifying product authenticity, trusting bank intermediaries, and more. Once again, the cost of trust is everywhere.

But what if the cost of that trust could be near zero?

What if public blockchains really are “trust machines”?

Trusting the Trust Machines

By their nature, public blockchains will show you who owns what, how much, and where it came from. When people refer to these blockchains as a “public ledger,” they really mean it.

It’s a way to ensure everybody holds or owns whatever they claim to at any given moment. No trust needed. Just verify.

If I’m looking to open a loan on a protocol by using a tokenized bond, the protocol can simply verify on the chain that I own the asset that I claim to own. It’s also able to ensure no other blockchain-based protocol, entity, or individual may hold a claim on that same asset, which might prevent the collateral from being called upon.

It’s all logic- and code-based solutions.

There is no accounting, regulatory disclosure, or periodic meeting required.

The chain is the source of trust.

And the closer the financial system gets to issuing assets natively onchain, the better these systems will operate.

Each trust assumption in our current financial system comes with a cost. Those costs may be small. But, taken together, they add up.

Permissionless setups that operate on public blockchains represent the lowest friction point of finance. All innovation will iterate until it eventually arrives at this destination.

If I can give you one piece of advice after more than a decade in this industry, it’s this: As finance moves onchain, the most-used protocols will be permissionless by default.

Don’t get fooled into thinking permissioned, offchain guarantees and institutional trust will win. That isn’t a moat that holds when these friction points get iterated out of existence.

The story of finance coming onchain is a story of trusting our money. And a story of productivity growth for our world.

This is the financial infrastructure upgrade paving the way for GDP to accelerate.

We should be excited about the move and accelerate forward.

Your Pulse on Crypto,

Ben Lilly

Editor, Chain of Thought