Bitcoin reached a huge new peak in value in June 2017, when one unit of the virtual currency was worth US$2,851 (£2,208), up from around US$600 just a year earlier. More than 10m people worldwide are now thought to own bitcoin and more than 100,000 merchants accept it for goods (not counting all those using it to sell drugs and other illegal items on the black market).
Part of bitcoin’s appeal for many of its users is the lack of centralised control or regulation by any government or bank. Instead it relies on a technology known as blockchain to underpin and secure transactions. But research my colleagues and I have conducted suggests that the lack of any social trust in the way blockchain operates poses a challenge for bitcoin’s further spread.
Blockchain is a public database that records digital transactions. These are validated by computers working within a worldwide network that solve complex coded problems. Whereas traditional bank transactions are authorised by financial institutions and controlled by governments through taxation and contracts between parties with known identities, blockchain is decentralised, unregulated and anonymous.
In our studies of blockchain’s users we found that these features appeal to bitcoin users because of increasing distrust of financial institutions and governments. The technology empowers people to regain control over their money, with no restrictions over where and when they can send it.
But our findings also indicate that two core aspects of blockchain’s design – the fact that transactions are anonymous and irreversible – pose significant challenges to the social trust among its users. Anonymity has an obvious appeal for people looking to avoid government control. And irreversible transactions were built into blockchain’s original design as a positive feature to address banks’ privilege of reversing transactions, even when the contract states that they were final.