The Pie: An Economics Podcast
Crypto’s Fatal Flaw: Trust, Scale, and the Economics of Blockchain
Apr 1, 2025
Eric Budish, a distinguished Professor of Economics at the University of Chicago, explores the paradoxes of cryptocurrency. He discusses how permissionless consensus, while innovative, introduces vulnerabilities like majority attacks. The conversation contrasts trust dynamics in traditional banking versus cryptocurrencies, examining energy costs and economic limits of decentralized finance. Budish also shares insights on market bubbles and the complexities of investing in Bitcoin, all while reminiscing about his culinary favorites, including pie.
46:00
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Quick takeaways
- The reliance on decentralized computing power creates a unique trust model in cryptocurrencies, but it simultaneously exposes them to significant vulnerabilities like majority attacks.
- The economic sustainability of cryptocurrencies is questioned due to their speculative nature and high energy costs, raising alarms about their future as stable transactional mediums.
Deep dives
Understanding Trust in Cryptocurrency
The trust model in cryptocurrency differs significantly from traditional banking systems, where institutions are backed by government regulations and reputational incentives. In cryptocurrencies like Bitcoin, trust arises from a decentralized network of computers that maintain transaction records through a competitive mining process. This reliance on a vast, anonymous computing power creates a unique form of trustworthiness, but it is also where the system reveals its vulnerabilities. Without an overarching authority, the integrity of the cryptocurrency system is maintained as long as computational power is decentralized and robust.
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