Part 1. Institutional foundations

Bitcoin can be treated as a monetary asset, a protocol, or a political commitment. I treat it first 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.

Part 1 thus establishes the book's analytical language before the case chapters begin. It asks how institutions structure expectations, where transaction costs move, how governance form fits the transaction at issue, what actors can actually do when an arrangement fails, and whether the dispute is computational or volitional. Those questions make the Bitcoin tractable without treating it as either a purely technical system or a self-contained political theory.

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