Vigna & Casey: Bitcoin and trust

Vigna and Casey make much of the claim that bitcoin is trustless. If I buy a cup of coffee using bitcoins, the café doesn’t need to trust me, or a bank. The blockchain ensures that I own the bitcoin I send. Under the current system, one must trust banks; and if a bank doesn’t trust you, then you can’t use a credit card and are shut out of the system.

But there are many reasons to be skeptical of this account, and also of its import. First, one cannot access the network and store coins without using an intermediary. People can download wallets, but ordinary people—as opposed to experts—will worry that the wallets cannot be trusted, indeed, may not know where to go on the Internet to find safe and reliable wallets. Thus, as V&C describe, intermediaries have been developed so that ordinary people can use bitcoins. These intermediaries are just companies with websites that offer bitcoin-related services. But people need to trust these intermediaries, and intermediaries will charge them one way or another. So it turns out that bitcoin is a version of our payment system that cuts out some intermediaries but by no means all.

Second, as V&C describe, bitcoin itself relies on trust. One must trust that the code has been well-designed, and that the five guys with access to it will use their access wisely to tweak the code when it falls short (as it already has). One must trust that these guys and others like them, their chosen successors, will continue to develop the bitcoin to address new, unpredictable challenges as they arise. One must trust that they can ensure that no one ultimately corners the bitcoin supply. Trust is not eliminated; it is just displaced to a new set of people, who will supposedly act in our interest. If bitcoin ever becomes a currency, these five guys will be seen as the J.P. Morgan of bitcoin—a private individual who everyone depends on to save the system. This situation will not be tolerated any more than Morgan was; the code will be entrusted to the government.

Third, trust is not, in fact, a big issue currently. People trust banks except during financial crises, and (as I will discuss) a bitcoin economy would be subject to financial crises as well. Trust returned to our financial system quickly after the financial crisis, thanks to government intervention.

So it’s not true that bitcoin does away with trust. And if bitcoin reduces reliance on trust a bit, there is little reason to think that matters.

Part I here.