Abstract
The stated aim of cryptocurrencies is to free the monetary system from the need to trust financial intermediaries, by relying on incentive design and technology. Many descriptive studies, however, have questioned cryptocurrencies’ delivery on the promise of trustlessness. This paper promotes a normative analysis of trust in cryptocurrencies by discussing (i) whether trust is in principle eliminable, and (ii) whether trustlessness is in itself a desirable goal. These issues are closely related, we argue, to the further issue of what kind of institutions cryptocurrencies represent. We discuss the cognitive functions played by cryptocurrencies through the lens of the “extended mind” hypothesis in the philosophy of mind and hence conceive of cryptocurrencies as mind-extending institutions. As the models of institutional mind extension differ in the fiduciary bond they assume exists between individuals and institutional resources, we compare the reliance-based model of “scaffolding institutions” with the trust-based model of “cognitive institutions,” showing that the ineliminability and desirability of trust lead to seeing cryptocurrencies as instances of the latter. In the end, our discussion suggests that trust is a necessary component of cryptocurrencies’ cognitive functions and its promotion helps to perform such cognitive functions more effectively and sustainably
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Nakamoto’s numerous quotes on trust are collected at https://blockchain.news/wiki/satoshi-nakamotos-quotes-on-trust-trusted-third-parties.
In the literature, separate concepts are sometimes used to denote trust between individuals (“interpersonal” trust) and trust in institutions (“institutional” trust), but in this paper, since our goal is exactly to show that institutions like cryptocurrencies are constituted by interpersonal and social relations, we’ll not differentiate between the two. More specifically related to our goal is to distinguish what is genuine trust from what is mere reliance. Therefore the attribute “interpersonal” will henceforth include collective entities unless otherwise indicated.
A first formulation of these criteria can be traced back to Clark and Chalmers (1998).
For example, in social systems based on slavery, chains are better conceived of as an expression of power relationships rather than as a technology.
Considerable fluctuations in the market price of cryptocurrencies suggest that the store of value function is not fulfilled, but some supporters maintain that fluctuations will progressively abate and value stabilize (Ammous 2018). Digital currencies whose value is tied to another asset like gold or other currencies are called “stablecoins.”
An alternative security protocol introduced to reduce the use of electrical energy is called proof-of-stake, and is based on the principle that to be a validator one needs to demonstrate possession of an amount of cryptocurrency, therefore an interest (stake) in the good functioning of the system.
Interestingly for our discussion, after it exceeded the threshold GHash.io first “promised to never launch a 51% attack” and then pledged to “not exceed more than 39.99% of the overall Bitcoin hashrate.” Perhaps by the hand of someone who didn’t trust GHash.io’s promises, the mining pool incurred a serious cyberattack and closed soon after. https://techcrunch.com/2014/07/16/popular-bitcoin-mining-pool-promises-to-restrict-its-compute-power-to-prevent-feared-51-fiasco/.
Nakamoto says, for instance, that “[t]he system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes” (p. 1, emphasis added).
Antonopoulos (2014; p. 209) is even more clear on this when he says that “the consensus mechanism depends on having a majority of the miners acting honestly out of self-interest.”
Another issue that directly involves trust frustrates Bitcoin’s epistemological utopianism. While Bitcoin clients are of three types (full, lightweight, and web clients), only full clients (also known as full nodes) store a complete version of the ledger and perform functions that other clients need to operate through them. Antonopoulos (2014; p. 6) says, the “light client does not store a full copy of all transactions and therefore must trust the third-party servers for transaction validation.” This means, in brief, that they must trust the “truth” full nodes tell them.
This has led someone to suggest that the truth being recorded is a “fiction,” hence a fictionalist account of the nature of Bitcoin (see Warmke 2024).
Although this seems a purely technical aspect of the blockchain, hence a matter of mere reliance, Bratspies discusses the case of a Bitcoin wallet app, called Blockchain (with capital b), that in 2015 experienced a bug that left wallets, namely, where cryptocurrency owners’ private keys are stored, vulnerable. “The flaw apparently came about through a series of bad development choices which all failed in the worst way possible,” a journalist reported, to which statement a Blockchain representative replied: “We immediately disclosed the issue and released a fix.” In any case, the example shows once more how difficult it is to disentangle trust neatly from reliance. https://www.theguardian.com/technology/2015/jun/01/bitcoin-app-critical-update-bug-crypto-breakdown.
In 2016, for instance, Ethereum’s team unilaterally altered the blockchain’s record after $150 million were diverted from the first smart contract-based funding organization (DAO) (see Ammous 2018; pp. 254–255).
The video can be seen at https://www.youtube.com/watch?v=XQqZ9b0S0BY (Accessed on July 23, 2023).
Transcripts are ours.
This is a possibility that Jalan et al.’s (2023) analysis does not rule out.
A smart contract is a computer program running on a blockchain that executes only once certain conditions are met (i.e., it follows an “if-then” logic). For example, the transfer of a piece of property title is automatically executed when certain conditions are met (e.g., the payment of a corresponding monetary sum): then the transaction gets recorded into the blockchain, becomes publicly known, and cannot be reversed unless other prespecified conditions are met. A Bitcoin transaction can be seen as a form of smart contract, but the Bitcoin protocol does not generally implement smart contracts. The Ethereum multipurpose blockchain also runs the second-largest cryptocurrency after Bitcoin named Ether. Other blockchains that implement smart contracts are Binance Smart Chain, Avalance, Cardano, Tron, and Ripple.
Ammous seems at one point to be aware of this, too: “eliminating the need for trust in third parties is not an unquestionably good thing to do in all avenues of business and life […] it is clear that there is a trade-off involved in moving to a system that does not rely on any trusted third parties” (Ammous 2018; p. 259).
Buterin does not deny that there are also short-term benefits of trust. He mentions “COMMUNITY SPIRIT,” defined as “[h]aving a tightly knit community, where everyone feels a sense of camaraderie in a common tribe and mission” (Buterin 2022; Part 3, essay 6) as one of the reasons why the blockchain has undergone fewer attacks than economic theory would predict. His point, however, is not that the blockchain cannot count on community spirit but that it cannot count on it systematically. In discussing this, however, Buterin adds a bit inconsistently that blockchain’s protecting factors like community spirit “are true today, but are likely to get less true over time” (ibid.).
References
Ammous S (2018) The bitcoin standard: the decentralized alternative to central banking. Wiley, New York
Antonopoulos AM (2014) Mastering Bitcoin: unlocking digital cryptocurrencies. O’Reilly Media, Sebastopol
Baier A (1986) Trust and antitrust. Ethics 96(2):231–260
Bratspies RM (2018) Cryptocurrency and the myth of the trustless transaction. Mich Technol Law Rev 25(1):1–57
Buterin V (2022) Proof of Stake: The Making of Ethereum, and the Philosophy of Blockchains. With an introduction by N. Schneider (Ed.), Seven Stories Press, E-reader version
Buterin V, Lanier J (2018) Foreward to Radical Markets, by E.A. Posner & E.G. Weyl, pp. xxiii-xxxii, Princeton University Press
Clark A (1997) Economic reason: the interplay of individual learning and external structure. In: Drobak J, Nye J (eds) The frontiers of the new institutional economics. Academic Press, pp 269–290
Clark A (1998) Being there: putting brain, body, and world together again. MIT Press, Cambridge, MA
Clark A (2003) Natural-born cyborgs: minds, technologies, and the future of human intelligence. Oxford University Press, Oxford
Clark A (2008) Supersizing the mind: embodiment, action, and cognitive extension. Oxford University Press, Oxford
Clark A, Chalmers D (1998) The extended mind. Analysis 58(1):7–19
Davidson S, De Filippi P, Potts J (2018) Blockchains and the economic institutions of capitalism. J Institutional Econ 14(4):639–658
De Filippi P, Mannan M, Reijers W (2020) Blockchain as a confidence machine: the problem of trust & challenges of governance. Technol Soc 62:101284
De Jaegher H, Di Paolo E, Gallagher S (2010) Can social interaction constitute social cognition? Trends Cogn Sci 14(10):441–447
Dekker E (2022) How cognitive institutions and interpretative rationality enable markets with infinite variety. In: D’Amico DJ, Martin AG (eds) Contemporary methods and Austrian economics. Emerald Publishing Limited, pp 151–167
Denzau AT, North DC (1994) Shared mental models: ideologies and institutions. Kyklos 47(1):3–31
Dodd N (2014) The social life of money. Princeton University Press, Princeton, NJ
Dodd N (2018) The social life of Bitcoin. Theory Cult Soc 35(3):35–56
Frolov D (2023) Digital capitalism and new institutionalism. Taylor & Francis
Gallagher S (2013) The socially extended mind. Cogn Syst Res 25:4–12
Gallagher S, Crisafi A (2009) Mental institutions. Topoi 28(1):45–51
Gallagher S, Petracca E (2024) Trust as the glue of cognitive institutions. Philosophical Psychol 37(1):216–239
Gallagher S, Mastrogiorgio A, Petracca E (2019) Economic reasoning and interaction in socially extended market institutions. Front Psychol 10:1856
Gambetta D (2000) Can we trust trust? In: Gambetta D (ed) Trust: making and breaking cooperative relations. Blackwell, pp 213–237
Gandal N, Hamrick JT, Moore T, Oberman T (2018) Price manipulation in the Bitcoin ecosystem. J Monet Econ 95(1):86–96
Hawley K (2014) Trust, distrust and commitment. Noûs 48(1):1–20
Hayek FA (1945) The use of knowledge in society. Am Econ Rev 35(4):519–530
Hodgson GM (1988) Economics and institutions: a manifesto for a modern institutional economics. University of Pennsylvania, Philadelphia
Ingham G (1996) Money is a social relation. Rev Soc Econ 54(4):507–529
Jackson T (2023) The price of crypto. New York Rev Books LXX(10):6–10
Jacobs M (2021) How implicit assumptions on the nature of trust shape the understanding of the blockchain technology. Philos Technol 34(3):573–587
Jalan A, Matkovskyy R, Urquhart A, Yarovaya L (2023) The role of interpersonal trust in cryptocurrency adoption. J Int Financ Mark Inst Money 83:101715
Kowalski M, Lee ZW, Chan TK (2021) Blockchain technology and trust relationships in trade finance. Technol Forecast Soc Chang 166:120641
Kroll JA, Davey IC, Felten EW (2013) The economics of Bitcoin mining, or Bitcoin in the presence of adversaries. In Proceedings of WEIS, Vol. 2013, No. 11, pp. 1–21
Lipman MA (2023) On Bitcoin: a study in applied metaphysics. Philosophical Q 73(3):783–802
McLeod C (2021) Trust. In The Stanford Encyclopedia of Philosophy, E. N. Zalta (Ed.), https://plato.stanford.edu/archives/fall2021/entries/trust/
Menary R (ed) (2010) The extended mind. MIT Press
Nakamoto S (2008) A peer-to-peer electronic cash system. https://bitcoin.org/bitcoin.pdf
Nakamoto S (2009) Bitcoin open source implementation of P2P currency, February 11, 2009, Available at https://p2pfoundation.ning.com/forum/topics/bitcoin-open-source
Paniagua P (2018) Money and the emergence of knowledge in society. Rev Soc Econ 76(1):95–118
Petracca E, Gallagher S (2020) Economic cognitive institutions. J Institutional Econ 16(6):747–765
Rupert RD (2004) Challenges to the hypothesis of extended cognition. J Philos 101(8):389–428
Sadhya V, Sadhya H, Hirschheim R, Watson E (2018) Exploring technology trust in Bitcoin: The blockchain exemplar. Paper presented at the Twenty-Sixth European Conference on Information Systems (ECIS2018), Portsmouth, UK
Simmel G (2004) [1900] The philosophy of money. In: Frisby D (ed) Trans. by T. Bottomore and D. Frisby, Routledge
Tan TM, Saraniemi S (2022) Trust in blockchain-enabled exchanges: future directions in blockchain marketing. J Acad Mark Sci 51(4):914–939
Warmke C (2024) What is bitcoin? Inquiry 67(1):25–67
Acknowledgements
We thank the Handling Editor and two anonymous referees for their comments. We also acknowledge valuable discussions and feedback from participants in the “SAS23 Reliability or Trustworthiness” conference (HLRS, Stuttgart, 2023) and the “Source of Trust – Navigating the Fragility of Certainty” workshop (Centre of Psychosocial Medicine, Heidelberg, 2024).
Author information
Authors and Affiliations
Corresponding authors
Ethics declarations
Conflict of interest
On behalf of all authors, the corresponding author states that this research was conducted in the absence of conflicts of interest.
Additional information
Publisher’s Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Petracca, E., Gallagher, S. Trust and reliance in the cognitive institutions of cryptocurrency. Mind Soc (2024). https://doi.org/10.1007/s11299-024-00302-z
Received:
Accepted:
Published:
DOI: https://doi.org/10.1007/s11299-024-00302-z