A trustless system means that the participants involved do not need to know or trust each other or a third party for the system to function. In a trustless environment, there is no single entity that has authority over the system, and consensus is achieved without participants having to know or trust anything but the system itself.
Trust exists in the vast majority of transactions and is a vital part of the economy. However, trustless systems have the potential to redefine economic interactions by allowing people to place trust in abstract concepts rather than institutions or other third parties.
It’s important to consider that trustless systems do not completely eliminate trust, but rather distribute it in a type of economy that incentivizes certain behaviors. In such cases, trust is minimized but not eliminated.
In a centralized system, as long as the trusted third party can be trusted, the system will function as intended. However, serious issues can emerge if the trusted entity isn’t to be trusted. Centralized systems are subject to system failures, attacks, or hacks. Data can also be altered or manipulated by the central authority without any public authorization.
When it comes to money, centralized systems arguably have more widespread appeal than decentralized, trustless systems since people tend to be happier to direct trust towards organizations than systems. However, while organizations are made up of people who are easily corruptible, trustless systems can be governed entirely by computer code.