Part 1

Bitcoin can be treated as a monetary asset, a protocol, or a political commitment. I treat it as an institution: a rule-structured environment in which operational settlement can be precise while higher-level governance questions remain unsettled. The central problem is not whether Bitcoin’s code works but what happens when code settles validity without settling legitimacy, authority, recourse, or purpose.

I draw heavily on institutional economics - especially from the field’s Nobel lineage of Ronald Coase (1992), Douglass North (1994), Elinor Ostrom (2010), and Oliver Williamson (2010) - to argue that Bitcoin’s governance challenges are not anomalies around an otherwise algorithmic technology. Instead, governance challenges arise where; transaction costs shift, governance forms fail to fit the transaction they are asked to govern; voice and exit separate (Hirschman, 1970); or actors disagree over volitional choice (Bromley, 2006) about what there is most reason from Bitcoin (Rudd, 2023). Bitcoin’s design reduces some institutional burdens by making settlement verifiable without an issuer but it also relocates institutional responsibility to holders, miners, developers, custodians, market mechanisms, and regulators.

The cases in Part 1 follow that relocation across Bitcoin’s main action arenas. Relay policy shows how implementation choices become disputes over Bitcoin’s purpose (Chapter 3). Mining shows how PoW security becomes a claim on society’s broader energy governance infrastructure (Chapter 4). Custody shows how financialization can increase access while weakening the agency that Bitcoin’s bearer control was meant to preserve (Chapter 5). Quantum migration shows how an architecture built to resist unwanted authority may struggle to authorize and implement coordinated defensive action (Chapter 6).

The later chapters in Part 1 widen the frame. Bitcoin can operate as temporal infrastructure only when its commitment properties remain salient in practice (Chapter 7), shaping time preference and having an impact beyond Bitcoin’s usual financial domain of influence. Scenario modeling of possible future “Bitcoin Worlds” maps the configuration space in which “stability-first” and “sovereignty-first” worldviews and commitments diverge (Chapter 8). Stablecoins complete the contrast by showing how issuer-based monetary instruments can strengthen recourse and voice but Bitcoin preserves a different institutional capacity: exit from issuer promises entirely (Chapter 9).

Part 1 thus establishes Bitcoin as a tractable case for studying institutional economics. Given society’s rapid technological acceleration, the challenges for Bitcoin governance are becoming acute. AI, in particular, increases the gap - what I label “institutional latency” - between algorithmic velocity and binding institutional response. Part 1’s distinctive contribution is not that Bitcoin, a permissionless protocol, escapes governance because of its non-exclusionary structure, but that it reveals where governance is displaced, deferred, or experiences difficulty in implementing binding decisions.

References

Bromley, DW 2006. Sufficient Reason: Volitional Pragmatism and the Meaning of Economic Institutions. Princeton NJ: Princeton University Press.

Coase, RH 1992. The institutional structure of production. The American Economic Review 82: 713-719. http://www.jstor.org/stable/2117340

Hirschman, AO 1970. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. Cambridge, MA: Harvard University Press.

North, DC 1994. Economic performance through time. The American Economic Review 84: 359-368. http://www.jstor.org/stable/2118057

Ostrom, E 2010. Beyond markets and states: polycentric governance of complex economic systems. The American Economic Review 100: 641-672. http://www.jstor.org/stable/27871226

Rudd, MA 2023. Bitcoin is full of surprises. Challenges 14: 27. https://doi.org/10.3390/challe14020027

Williamson, OE 2010. Transaction Cost Economics: the natural progression. The American Economic Review 100 673–690. http://dx.doi.org/10.1257/aer.100.3.673