Where Does The Trust Live?

The State’s core function, in both theory and practice, is to give those who control it a reliable mechanism for extracting wealth from society while presenting that extraction as public service, an extraordinary arrangement that seems too unbelievable to be true. The productive individual on the other hand must earn his income by persuading others to voluntarily surrender their money in exchange for something he has created. He must take risks, bear losses and live with the consequences of his decisions.

The State operates according to a different set of incentives because it can compel, tax, regulate, license, restrict, confiscate and borrow against the future. Since it also controls the fiat monetary system, it can alter the very unit in which economic obligations are denominated. The genius of the arrangement is that it institutionalizes coercion. For example, what would be called theft when committed by an individual becomes taxation when performed by the State and what would be called financial exclusion when imposed by a private actor becomes regulation or sanctions when imposed through government.

That said, there is something deeper behind the State’s ability to exercise this power. It isn't simply that a politician possesses authority, since a politico acting alone has very little capacity to control an entire society. Power becomes formidable when it can coordinate. The State is powerful because it is a coordination machine and information is the bloodstream of that machine. This is one of the more important insights in Julian Assange’s Conspiracy as Governance. He describes powerful political structures as networks of interconnected participants through which information flows, decisions are coordinated and collective action becomes possible. The network effectively becomes a cognitive machine through which information enters, the network processes it, and coordinated action emerges.

The more effectively information can move through a network, the more effectively that network can coordinate its actions. Assange's analysis makes precisely this point: the strength of a powerful network is related to the connections between its participants and the flow of important information through those connections.This is one of the reasons why modern technology has not necessarily weakened centralised power.

Technology does not inherently decentralise power because it’s also a double edged sword that can make centralised power dramatically more efficient, as evidenced by the fiat monetary system. Money is not simply what we use to buy things. It is the coordination mechanism through which economic claims are recorded, transferred and settled across society. Whoever controls the monetary rails possesses enormous influence over the movement of resources. This is why the separation of money and State matters.

When the same political system that possesses the legal authority to tax, regulate and punish also controls the infrastructure through which economic value moves, political power acquires a financial dimension that looks nothing like traditional confiscation. You don't necessarily need to seize someone's wealth if you can make it difficult for them to transact. When you control the financial payment rails, you inevitably acquire leverage over everyone who depends upon them.

The traditional financial system is powerful precisely because it is interconnected. Governments connect financial infrastructure to national policy, sanctions and political objectives. These connections not only produce enormous efficiency but they also produce chokepoints. The more dependent people become upon a particular network, the more consequential its gatekeepers become. This principle isn't confined to governments or traditional banking, but is applicable to any financial architecture.

The recent Liquid Network hacking incident is a clear example of this. Liquid is a Bitcoin sidechain designed to provide functionality that differs from Bitcoin's base layer, including faster settlement and confidential transactions. Its L-BTC is backed by BTC held by Liquid's functionaries through a two-way peg.

On September 6, 2026, a consensus bug in the Elements software underpinning Liquid allowed approximately 4,000 L-BTC to be created without a corresponding deposit. Those coins were sent to SideSwap's peg-out service, which processed them as a legitimate order. Approximately 3,996 BTC were subsequently released from the Liquid Federation's reserve and transferred to the attacker's Bitcoin address. The incident occurred in a system built around Bitcoin that introduced additional software, additional coordination mechanisms and additional trust assumptions.

The properties of a decentralised base layer do not automatically transfer to every system built on top of it. You can build sophisticated financial infrastructure on top of Bitcoin while simultaneously introducing new chokepoints. The question is therefore not simply whether something is “built on Bitcoin.” The question is: Where does the trust live?

SideSwap's own account states that its peg-out system used an online authorisation key and automatically forwarded payouts. It had no limit on the size of a peg-out, no velocity control and no cap relative to the total L-BTC supply. Those design choices were intended to reduce friction and make the system more efficient, but they also removed human checkpoints that might have stopped an anomalous order.

This is the paradox of sophisticated financial infrastructure; efficiency and concentration often arrive together. Automation allows a system to coordinate faster but when an upstream assumption fails, the same automation can propagate the failure faster. Thus, architecture determines where trust, power and failure reside. Every additional connection creates functionality, but every dependency also creates another place where the system can fail, be manipulated or become concentrated.

The more complex the network, the more important it becomes to understand its critical connections. This is true of governments, of banks, of payment processors and it is also true of Bitcoin-based financial infrastructure.

Which brings us to Bitcoin itself. Bitcoin's radical innovation was not simply creating a new value transfer network but it was designed to solve a much deeper problem; which is the transfer of value across a network without requiring a trusted intermediary to maintain the ledger and prevent double spending? The answer was not to create a better intermediary but rather to eliminate the need for one altogether. This is why Bitcoin should not merely be understood as another asset inside the existing financial system, but it’s an alternative monetary architecture. This architecture matters because the people who control the rails ultimately possess leverage over the people who depend upon them.The State ghouls understand this intuitively, as do the banksters and every institution whose power depends upon controlling a critical connection.

Bitcoin does not need to overthrow the State politically. It simply makes one of the State's most important coordination functions irrelevant. The State can still legislate but it no longer necessarily has to stand between two individuals and decide whether they may transfer value to one another. That is the deeper significance of separating money from the State and the removal of economic coordination from political permission.The recent Liquid incident illustrates why this distinction matters. Building on Bitcoin can provide extraordinary functionality, but every additional layer must be judged according to its own architecture, its own dependencies and its own trust assumptions. Bitcoin's decentralisation cannot simply be assumed to permeate everything that carries its name.