Cryptocurrency and the Myth of the Trustless Transaction

Abstract

This article interrogates the claim that trust can be replaced with blockchain technology. Part I begins with an introduction that provides an overview of the trust issues surrounding cryptocurrency. Part II then outlines the role that trust plays in a financial market more generally, focusing specifically on the trust embedded in what cryptocurrency supporters derogate as a ‘fiat’ currency. Part III introduces the blockchain, as well as Bitcoin and cryptocurrency more generally. Part IV then tests the claims that Bitcoin eliminates the need for trust against real-world experiences of Bitcoin holders and markets. This section disaggregates the blockchain technology itself from how actual people typically use Bitcoin or any of the follow-on cryptocurrencies. It documents the many points at which cryptocurrencies shifts the locus of embedded trust, rather than eliminating the need for such trust. Finally, Part V concludes that rather than replacing trust, cryptocurrencies instead require users to repose their trust in less transparent, less reliable and less accountable parties. The ultimate message is that caveat emptor should be a consumer watchword and that users should understand that many legal protections they take for granted may not apply when purchasing cryptocurrency.