Are Bitcoin’s Programmers Fiduciaries?

Last week, bitcoin reached an intra-day high that represented its highest price of all time. More significantly, the Ethereum network began a bold set of amendments that promise to make Ethereum “more scalable, more secure, and more sustainable.” Experience with Eth 2.0 will expand our understanding of cryptocurrency systems, which are here to stay. The only question is how long it takes them to achieve their potential.

Unlocking the full potential of cryptocurrencies will require understanding everything about them — everything — including their power arrangements and politics. Bumps in the road to Ethereum’s successful fork show that, contrary to the decentralized, “leaderless” ideal of the cryptocurrency world, a relatively small group often makes choices that drive cryptocurrency development. There is research finding that cryptocurrency communities reveal hidden authorities at “moments of breakdown.” Unpacking and understanding the dynamics in this “small-for-all” group decision-making is a ripe area for research.

So I have been interested in an argument made by Angela Walch of St. Mary’s University School of Law, who says that cryptocurrency developers are fiduciaries. The people who write the code on which cryptosystems run, she argues, have the same obligations to users that lawyers do to clients, doctors to patients, and so on. Her argument is counterintuitive to me. The latest news invited me to dive in.

The assumption has been that changes to the code on which cryptocurrencies run emerge from rough agreement between three groups of actors: developers, miners, and users. When developers push a code change, users must agree by shifting to software that produces transactions consistent with the new code. Miners, the same. Each group has effective veto power because refusing to adapt to the new code would make it unusable.

This all presumes that the groups understand what code changes do and assure themselves that the code changes are consistent with their interests. In such circumstances, nobody has to trust in a central authority. Satoshi Nakamoto wrote several times in the bitcoin white paper about avoiding trust — in transaction processors, at least.

But the assumption of widespread crypto-competence has not proven out so far. The triumvirate of actors described above do not have relatively equal understanding of code changes. Most do not interpret the code and its effects. They do not decide for themselves individually and collectively what code is best to adopt. Developers, with superior knowledge, come to hold most decision-making power.

In her book chapter titled “In Code(rs) We Trust: Software Developers as Fiduciaries in Public Blockchains, ” Walch says correctly, “we have not escaped the need to trust in other humans.” She strikes at a taboo in the cryptocurrency world, where many are keen to escape the dominance contests involved in traditional political and legal systems. Walch is addressing a key problem for cryptocurrency, or at least the ideals held up by the cryptocurrency community.

Her solution is to nest these power dynamics in a well-known, terrestrial legal concept: fiduciary duty. Walch compares the role of cryptocurrency developers to the attributes that define fiduciaries, finding that “certain developers of public blockchains bear a strong resemblance.” They provide socially desirable services, they are entrusted with power, there is risk of their being untrustworthy, and it is hard for cryptocurrency users to protect against such risks. Voilà! Fiduciaries!

But cryptocurrency is a relentless category-buster, and I find Walch’s application of the fiduciary concept too mechanistic. Cryptocurrency coders have nothing like the legal relationship — in law, privity — with users that traditional fiduciaries generally have with their clients and entrustors. Developers are providers of public goods — infrastructure — not the private goods such as health care, investment advice, accounting, and legal advice that traditional fiduciaries provide. Indeed, different sets of cryptocurrency users may have conflicting interests, making it impossible for a coder to satisfy a fiduciary duty to all.

It would be extremely difficult to administer fiduciary responsibilities laid on cryptocurrency developers. Many are anonymous or at least working in legal jurisdictions far from their alleged beneficiaries. Flaws in cryptocurrencies have not obviously arisen from behavior comparable to a breach of fiduciary duty. Cryptocurrency coders seem rather intense, competitive, and critical of one another. It is not necessarily a breach of fiduciary duty if they fail to see or solve a hard problem.

The solution here, in my opinion, is not to shortcut things by straining to impose legal duties on the set of actors that currently have the most acute role in software adoption. Rather, it is to distribute their knowledge and power. That means broadening the understanding of cryptocurrency systems so that coders, miners, and users all have a role in choosing the software they adopt.