Economy of (mis)trust: The case of bitcoin

Advocates of bitcoin typically claim two things: that by introducing certainty into the monetary system, it overcomes the problem of trust and its failure; and that by removing hierarchies between users, the system becomes democratic. Both claims are problematic, argues Lea Kuhar.

‘There are three eras of currency: commodity based, politically based, and now math-based,’ stated internet businessman and investor Chris Dixon in one of his motivational speeches,1 and in one sentence summarized what in the modern world of cryptocurrency is regarded as a kind of history of the monetary system.

The idea behind this division into eras is very simple: whereas the commodity and politically based currencies of the past were linked to something outside themselves – the first on commodity production, whose value was tied to the amount of gold possessed; and the second on multilateral agreements and the coordination of power relations among central banks – in 2008 we transitioned to an era within which an external justification is no longer necessary, since every currency in the final instance is based on the infallibility of mathematical algorithms, i.e. on itself.

The year 2008 represented a turning point, since it was at that time that we acquired the first cryptocurrency, based on the hitherto unknown technology of blockchain. Right at the onset of the last financial crisis, it seemed that we had come up with a technology that would enable a decentralized and directly democratic and transparent mode of operation for financial institutions. However, a reality check soon showed that this has not been the case. If we take a look at what has actually been happening with cryptocurrencies over the past decade, we see that, in addition to users of the online black market Silk Road, they were primarily being used by financial speculators, who saw them as an opportunity to get rich quick, launder money, and evade taxes.2

Through an analysis of two principal slogans of bitcoin, ‘In cryptography we trust’ and ‘Technology is free from politics’, this article will show that decentralization and direct democracy are not yet in themselves sufficient reason for fundamental change in financial institutions within the capitalist mode of production. As the case of bitcoin well illustrates, power relations within new technologies are not eliminated but merely transformed. As Brett Scott notes,3 in place of the centralized Leviathan there is a new version, a decentralized Techno-Leviathan. We will show that the concept of trust is crucial for both the formation and the legitimization of the thesis on the progressivism of new technologies, since it serves to complement and enhance the idea of their allegedly apolitical nature.

Mr. Robot Wallpaper by NextSource on Deviant Art

‘In cryptography we trust’

Just as the second currency era took shape in response to criticism of the first – the primary reason for abolishing the gold standard was rigid legislation that did not allow sufficient flexibility in monetary policies – the third currency is understood to have arisen as a solution to the problems and inadequacies of the second. The main criticisms of existing financial systems are the following: 1) their centralization, which makes them more susceptible to attack; 2) millions of people are excluded from the global economy – for example, people who cannot afford to open a bank account; 3) some (primarily international) monetary transactions are still extremely slow; and 4) as intermediaries, they unnecessarily increase the costs of individual transactions.4 The desire to go beyond the current arrangement is thus based on criticism of the practicality of its operation. However, that is not all. There is an additional criticism that serves as an assumption and connects all those noted above: that the current system relies on trust that individual actors and institutions will in fact operate as they ought to.

The concept of trust is central to the discourse of cryptrocurrencies and the technology of blockchain, as can already be seen in the example of the pioneering article Bitcoin: A Peer-to-Peer Electronic Cash System,5 in which the word trust is repeated twelve times in eight-pages. Electronic payments, writes Satoshi, are today entirely dependent on financial institutions that operate as third parties, through which electronic payments are made. Even though the bulk of the transaction system operates adequately, it still needs someone to guarantee that transactions made will in fact be performed. This sort of need, says Satoshi, can to some extent be avoided when payments are made in cash, but at a time of accelerated digitalization and increasingly widespread use of electronically processed transactions, reliance on paper money is less and less likely.

Let’s look more closely at the criticism of untrustworthiness. As Costas Lapavitsas argues in Marxist Monetary Theory, money takes on two main forms in advanced capitalism: the first form is ‘fiat money’, which is printed by individual governments in order to pay their own expenses and establish their own tax system. Fiat money is the result of a two-hundred-year-old and increasingly complicated capitalist process of exchange, and has no intrinsic value – it serves merely as a symbolization of commodity money. The second form is credit money, which is issued by private financial institutions (usually banks) when they approve loans. Credit money is not a symbol of commodity money but rather functions as a private promise that repayment of the loan will indeed occur. In the event of payment, credit money is materialized in the form of ‘fiat money’, which is supported through central banks. Claims of untrustworthiness are tied mainly to credit money, which today is the prevailing form of money in developed capitalist countries.6

To put it simply: if today we transfer money, we are not physically moving money from one account to another, but rather the bank where our money is held merely changes a data entry to our account and to the account of the person to whom we want the money sent. A monetary transfer therefore cannot take place in the absence of an intermediary – if the transaction is not mediated by a bank, then it must be done by some other Internet payment service, such as PayPal, Mastercard, Western Union, Visa, etc. The intermediary is the one who, in the final instance, guarantees that our money really does exist, that it really is where it is supposed to be and will ensure that the transaction is properly executed. The intermediary thus has a certain autonomy, since it can also modify or block the transaction if necessary.

The inherent weakness that Satoshi talks about refers to the lack of complete assurance that banks and other financial institutions will truly act in accordance with our expectations. This concern was justified by, among other things, the collapse of financial markets just a few months before Satoshi’s discovery. The increasing deregulation of financial markets in the past decades has enabled the formulation of ever more complex financial instruments, and these, along with unchecked bank investments, caused the latest major financial crisis in 2008. Instead of operating as trustworthy intermediaries, banks began to behave unpredictably – among other things, they began to issue more and more risky loans (the famous NINJA loans), and then they resold the possibility of their repayment through trading of financial derivatives, which means that they literally traded in loans. Financial innovations were intended to ensure the diversification of risk that arose from irresponsible lending, but eventually they led to the insolvency of all the major banks, and in the end they had to be rescued using taxpayer money.7

The concept of trust is thus tied to a calculation of behaviour, to some kind of estimation of the likelihood that the person or institution in which we place our trust will really do what they say they will do. If we wish to avoid similar situations in the future, we need a comprehensive restructuring of financial organizations – a restructuring that will enable people to vouch for themselves that their money truly exists and has value; that will ensure that they themselves possess a guarantee that the money is truly where it is written to be (and only there); and that, when transactions are made, they will provide a means of recording the changes in its position for themselves. In other words: we need a decentralized, democratic and transparent financial system that does not need any third parties in order to function. Or as Satoshi put it: ‘an electronic payment system based on cryptographic proof instead of trust’.8 And this is precisely what we supposedly gain with the emergence of bitcoin and blockchain.9

Bitcoin does not exist because some third party vouches for its existence. Rather, it is a ‘chain of digital signatures’.10 Anyone with access to a computer can join the bitcoin community. Once inside, they can help create cryptographic proof, which consists of a series of the transactions executed up to that point. If we want to send our bitcoins to someone else, we can do that directly. Transactions are not recorded in a centralized location but rather leave blocks of data that are enabled by a peer-to-peer network to become the common property of all participants. Moreover, transactions are carried out through a combination of a public and private key, which means that they are simultaneously transparent and non-transparent. They are transparent because all participants can view the entire transaction history at any moment, and they are non-transparent since no one can know for certain who did business with whom or when, due to the cryptographic process. An individual transaction is performed when the last additional link is ‘fastened’ to a long chain of already existing transactions.

Bitcoin does not require an external third party since its existence and its operation are completely inseparable. Each digital coin exists merely as a confirmation of past operations. This setup prevents risky operations such as double-spending or speculation with other people’s money. This is because transactions are loaded one after another in chronological sequence, which prevents the same transaction from being repeated several times over. It is clear at every moment where the chain is and what happened in it prior to that time. Whoever verifies the entire chain of previous transactions the fastest, or verifies whether a cryptographic proof was done correctly, and at the same time solves the mathematical problem (the famous ‘SHA-256’, which become progressively difficult to solve and in so doing consume more and more energy) is rewarded for their work with a certain number of bitcoins. This process is called mining.11

When we say that cryptocurrencies do not require trust, the concept of trust refers not so much to the value of the cryptocurrency as to its activity. Cryptocurrencies to a certain extent are still a fiat money, since they serve merely as symbols for some value that is (most often) determined by the market mechanism of supply and demand.12 To say that cryptocurrencies do not require trust therefore does not mean that they actually possess some value. Trust here refers above all to certainty and reliability in the system’s operation. What we supposedly gain using the technology of blockchain is a new version of Hobbes’s social contract. Individuals no longer have to renounce a part of their rights in exchange for security, and turn over these rights to a central party, since the network of peers enables them to implement common agreements at a completely horizontal level. Financial transactions are now based purely on the activity of participating actors, which supposedly makes it more democratic, more transparent, more predictable and above all more trustworthy. We will gain a world such as that envisioned by John Perry Barlow in A Declaration of the Independence of Cyberspace (1996),13 i.e. a global social order without tyranny, a world without rulers, a community that takes shape with respect to completely different social laws.14

As Rachel Botsman shows in her book Who Can You Trust? How Technology Brought Us Together and Why It Might Drive us Apart,15 it is not only enthusiasts of cryptocurrencies who desire greater reliability in doing business with one another: it is also the foundation for most new technologies, especially social media platforms. Botsman cites many examples that are chillingly similar to the scenarios of the series Black Mirror. To mention just one: China recently introduced a Social Credit System that acts as a mechanism for verifying the trustworthiness of its 1.3 billion citizens. It allows people to review and assess one another on a daily basis. The system monitors and assigns a value to all areas of an individual’s life – for example, it records who your friends are and how well you get along with them, what you bought in a shop and how good a customer you were, how much time you spend each day on social networks and how regularly you pay your bills.

The Chinese government wants to measure and encourage trust among its citizens by means of a ‘sincerity detector’. Someone who spends several hours a day playing computer games will have a lower score than someone who regularly buys nappies, since the behaviour of the latter is considered more mature and reliable. Beside a higher status symbol and cultural capital, a higher score also earns people economic advantages: from credit solvency, the type of neighbourhood you can move in and which kindergarten your children can attend, to such ‘banal’ things as the internet broadband you can buy. At this time the participation is voluntary, but in 2020 it will become mandatory for all.

It is difficult to overlook the similarities between the rationale of China’s Social Credit System and the logic that serves to justify cryptocurrencies: central institutions that evaluate the actions of individuals are no longer needed, since individuals can perform this function for themselves. We only need a well-written algorithm and a sufficiently powerful machine that will allow the free flow of information among individual users. This does not just mean that users can now evaluate themselves and directly exchange information. The crucial idea is that information obtained in this way is not fallible.

Trust is replaced by certainty. What exactly does this mean? Botsman defines trust as ‘a confident relationship with the unknown’.16 Trust is a subjective feeling that is not tied to the certainty of the activity, but to an unknown future. In order to trust someone, we need not know what that individual will do, nor anticipate their actions. We trust actions that we cannot determine in advance. This means that we must place our trust must in an individual or institution that operates in ways beyond those that we know. It has to be placed in the unconditional, into what cannot be explained on the basis of expectations that arise from normative and predictable behaviour. In other words, we can only trust the ‘other’ of another – the unknown and unpredictable behaviour of another.

Completely trusting someone would therefore mean being in complete ignorance regarding their actions. And conversely, eliminating trust would mean full certainty about what a person will do. Trust is therefore not based on knowledge about actions but rather on its lack. The more convinced we are that someone will truly act in accordance with our expectation the less we need to trust them. And conversely, the more a particular action is unpredictable, the more trust we need to invest in it. Certainty could thus be understood as a ‘relationship with the known’, as the capability to recognize actions that are determined and known in advance.

‘Because it is free from politics’

The new technologies are based on a cluster of paradoxes. They are supposed to optimize existing relationships, to patch the holes in the current operation of financial institutions based on trust. However, this optimization is supposed to have  transcended these same relationships. This paradox overlaps with a new paradox, which concerns the conceptualization of the transcendence itself – something new is supposed to be implemented into society but only because we are taking something old out of it. And what is it that we are supposed to be taking away? As Nigel Dodd shows in The Social Life of Bitcoin, the basis of the paradox is the idea that bitcoin and the technology of blockchain have eliminated politics from the production of money and its management.

Hierarchical forms of government are automatically equated with political rule, whereas horizontal organization of the people is assumed to be some sort of natural, apolitical state in which the masses can freely express their will.17 David Golumbia concludes that assumptions regarding the supposed apolitical nature of cryptocurrencies are quite often based on ideologies within which freedom means only a negative freedom, i.e. ‘freedom from’ state power.18 Thus, for example, groups such as cyberlibertarians, cryptoanarchists and cyberpunks each in their own version believe that the development of new technologies will make it possible for society to return to some sort of original state. It is not entirely clear what that original state is presumed to be, but it is certain that the path to it is paved with universal decentralization.

If we imagine that the existing basis of the Social Credit System began to operate on the logic of the new technology of blockchain, we have no reason to think that the result of its implementation will be anything more than the mere optimization of an already existing system. As Foucault observed, power relations are not cancelled out through the decentralization of power centres but rather are simply transformed.19 In the case of the Social Credit System, it is more than apparent that users of Internet platforms automatically begin to behave in a way that will bring them the greatest number of points, despite the fact that an apparently neutral monitoring of their behaviour does not demand this. The only change is that people now exercise control over themselves. As Brett Scott notes, in place of the old centralized Hobbesian Leviathan there is now a new, decentralized ‘Tehno-Leviathan’.20 At first glance the Techno-Leviathan operates as a mechanism that returns power to the people, but in fact just the opposite occurs. From the Hobbesian state of nature, in which it is ‘all against all’, we do not pass to a perfect society in which everyone would live in harmony with everyone else, but to an Orwellian dystopian society where everyone lives under the watchful eye of everyone else. A separate central party that would verify the legitimacy of our actions is not necessary, since technology ensures that everyone will do what they must do and will behave in an optimal manner.

The example of bitcoin miners is sufficiently telling. We said that miners ‘dig’ for the history of transactions and verify whether the transactions were performed legitimately. If they are sufficiently successful in this, at the end they are paid in bitcoins. However, and this question is crucial, why are miners paid? For supervision. Their work is not productive in the sense that they create a certain surplus within the algorithm. Their work consists of endless verification of whether everything within their community happened the way it was supposed to. No one can break the rules, since they literally cannot do that. Illegitimate, proscribed activity under the technology of blockchain is simply not possible.

Moreover, at least in the case of Bitcoin, the thesis on the decentralization of power fails at the operative level. We still have laws, it’s just that they are now written by programmers instead of lawyers. Data blocks, which are regarded to be irreversible according to the technology of blockchain, can also be erased and established anew if needed. This is exactly what Ethereum did when, after a considerable portion of currencies was stolen, it erased a blockchain and set up a new one (the famous ‘hard fork’). The decision was democratically taken through a vote by active members, but the very fact that this kind of reverse activity is possible (and dependent on the programmer that performs it) is evidence that in contrast to assertions, the history of crytocurrencies is not immutable. It is similar with ownership. All that is needed to participate in the Bitcoin community is access to a computer and the Internet. But statistically we still find that a minority of people own the majority of bitcoins (and the situation is similar with other cryptocurrencies). The decision-making power is still contingent on ownership (which in the case of 51% ownership can be turned into a centralized mechanism), but ownership (at least in the case of bitcoins) is still contingent primarily on whether you already have money that you can use to buy currency. The fact that banks have started to issue their versions of cryptocurrencies and develop their own models of doing business which operate based on the technology of blockchain is also telling.

It is thus not clear why the certainty factor should inaugurate a new era in monetary history, and how it would be more than merely the automatization of the old regime, which at best replaces administration (and part of the management) with a program. But it is clear that the discourse on the apolitical nature of the new technologies conceals the fact that, along with centres of power, access to them is also dispersed, and so is the possibility to change them. Not only is the leverage for change harder to access in such an arrangement, but in many instances, it becomes entirely unnecessary. Why would we change a system that we believe gives power directly to the people and serves merely as a mechanism for its expression? As Althusser noted: ‘If it is not always possible to solve a problem that does exist, we can rest assured that it is never possible to solve a problem that does not exist’.21

I do not want to suggest that we should preserve the current system of financial institutions because a hierarchical system works better than a horizontal one. Nor do I wish to argue that we must preserve trust as a fundamental concept upon which social institutions are built. But I do wish to emphasize that for a society which seeks technological solutions for human interactions, the challenge is to highlight difficulties that cannot be dealt with simply by the self-justifying authority of mathematical algorithms.

Guttmann, Benjamin (ed.): The Bitcoin Bible: All you need to know about Bitcoins, Books on Demand (Kindle Edition), 2013.

Yelowitz, Aaron and Wilson, Matthew: Characteristics of Bitcoin Users: An Analysis of Google Search Data, Applied Economics Letters 22 (13), 2015.

Scott, Brett: Visions of a Techno-Leviathan. The Politics of the Bitcoin Blockchain, Rosa Luxemburg Stiftung: Policy Papers. 2015.

Dodd, Nigel: The Social Life of Bitcoin. Theory, Culture & Society 35 (3), 2017, 35−56.; Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System,2008. Accessed 9 June 2018:; Scott, Brett: How Can Cryptocurrency and Blockchain Technology Play a Role in Building Social and Solidarity Finance? Working paper UNRISD, 2016. Accessed 9 June 2018:

Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System,2008. Accessed 9 June 2018:

Lapavitsas, Costas,Marxist Monetary Theory. Leiden-Boston: Brill, 2017.

Millet, Damien and Toussaint, Éric: AAA: revizija, odpis, drugačna politika (AAA - Audit, annulation, autre politique). Ljubljana: Sophia, 2014.

Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System,2008. Accessed 9 June 2018:

Historically, calls for monetary reform can be divided into those which wanted to free money from banks (Positive Money in Great Britain, Gode Penge in Denmark, Fair Money in Australia, and Betra Peningakerfi in Iceland), and those that wanted to free money from the state (see authors such as Hayek). For more details see Dodd, Nigel: The Social Life of Bitcoin. Theory, Culture & Society 35, 2017, 35-56Bitcoin wants to free money from the control of banks as well as from the control of the state.

Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System,2008. Accessed 9 June 2018:

Nakamoto, Satoshi: Bitcoin: A Peer-to-Peer Electronic Cash System,2008. Accessed 9 June 2018:

In the famous first purchase using bitcoins on 22 May 2010, computer programmer Laszlo Hanyecz bought two Papa John’s pizzas for 10,000 bitcoins; in December 2017 the value of one bitcoin in online exchanges exceeded €15,000. Something similar happened with mining. Whereas five years ago, each person could mine their own bitcoins, current bitcoin mining uses more energy than the whole consumption of Serbia, and by 2020 is expected to use more energy than that used by the entire world today.

Barlow, John Perry: A Declaration of the Independence of Cyberspace.Electronic Frontier Foundation, 1996. Accessed 9 June 2017:

In general many ideas that are present in the bitcoin community could be genealogically linked to projects associated with the very beginnings of the Internet (Dodd 2017).

Botsman, Rachel: Who Can You Trust? How Technology Brought Us Together and Why It Could Drive Us Apart. Great Britain: Portfolio Penguin, 2017.

Here it should be noted that although I adopt Botsman’s definition of trust, I do not follow its later elaboration. The reason for this is twofold: first, she offers only a definition of the concept but does not subsequently develop it. Second, she concludes that trust is not nullified through mediation but only dispersed – from a centralized form of trust to a distributed form of trust, within which individuals directly trust the assessments and work of other individuals. As shall be seen in the continuation, our thesis is precisely the reverse.

Dodd, Nigel: The Social Life of Bitcoin. Theory, Culture & Society 35 (3), 2017, 35−56.

Golumbia, David: The Politics of Bitcoin Software as Right-wing Extremism. Minneapolis: University of Minnesota Press, 2016. There are theories that claim that the technology of blockchain encourages socialist projects. See for example Huckle, Steve and White, Martin: Socialism and the Blockchain. Future Internet 8 (4), 2016, 49-64.; Huckle, Steve, Martin White and Rituparna Bhattacharya: Towards a post-cash society: An application to convertfiat money into a cryptocurrency. First Monday 22 (3), 2017. For a critique of these see Cockshot, Paul and Dapprich, Jan P.:Bitcoin is not what socialism needs,2017. Accessed 26 June 2018:

Foucault, Michael: Rojstvo biopolitike: kurz na Collège de France: 1978−1979 (The Birth of Biopolitics: Lectures at the Collège de France, 1978--1979). Ljubljana: Založba Krtina, 2015.

Scott, Brett: Visions of a Techno-Leviathan. The Politics of the Bitcoin Blockchain, Rosa Luxemburg Stiftung: Policy Papers. 2015. Accessed 9 June 2018:

Althusser, Louis, Reading Capital, London/New York: Verso, 2016.

Published 4 February 2019
Original in Slovenian
Translated by Jean McCollister
First published by Dialogi 7/8 2018 (Slovenian version); Eurozine (English version)

Contributed by Dialogi © Lea Kuhar / Jean McCollister / Dialogi / Eurozine


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