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.
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INSIGHT

Crypto Trust

  • Cryptocurrency trust relies on a decentralized network of computers, unlike traditional banks backed by governments.
  • This "permissionless consensus" model uses cryptography and economic incentives to maintain a shared database.
INSIGHT

Bitcoin Mining

  • Bitcoin miners compete to add transaction blocks to the blockchain, consuming vast amounts of electricity.
  • Finding the "lucky random number" unlocks the ability to add the next block, earning the miner substantial Bitcoin rewards.
INSIGHT

Trust and Computation

  • Cryptocurrency's trustworthiness comes from the computational cost of altering the blockchain record.
  • Once a transaction is added, it becomes virtually permanent, unless a majority attack occurs.
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