Unpacking Bitcoin’s Social Contract

A framework for skeptics



Illustration: engraving by Abraham Bosse via Wikimedia

Bitcoin is a novel social and economic institution. It is so different from our existing institutions that we should be skeptical and ask as many hard, pressing questions as we can before trusting it with any economic value. Some answers will only reveal themselves with time (or Lindy, as the cool kids say), but that doesn’t mean we can’t come up with theories or frameworks. One such framework that has helped me a lot in understanding bitcoin is social contract theory.

First, fiat money is the result of a social contract: The people give the state control over the supply and other vital functions of money. The state, in turn, uses that power to manage the economy, redistribute wealth, and fight crime. But many don’t realize that bitcoin works through a social contract as well.

The social layer and its rules are the heart of bitcoin.

And that social contract framework can be used to answer some essential questions: Why did bitcoin come into existence? Who decided its properties? Who controls it today? Can a critical bug kill bitcoin?

Social Contract Theory

Social contract theory starts with a thought experiment: It assumes a hypothetical state of nature full of…