Trust at Scale: The Economic Limits of Cryptocurrencies and Blockchains

Trust at Scale: The Economic Limits of Cryptocurrencies and Blockchains

Quarterly Journal of Economics, Revise-and-Resubmit; Draft Updated July 2024. [PDF]


Satoshi Nakamoto invented a new form of trust. This paper presents a three equation argument that Nakamoto’s new form of trust, while undeniably ingenious, is extremely expensive: the recurring, ‘flow’ payments to the anonymous, decentralized compute power that maintains the trust must be large relative to the one-off, ‘stock’ benefits of attacking the trust. This result also implies that the cost of securing the trust grows linearly with the potential value of attack — e.g., securing against a $1 billion attack is 1000 times more expensive than securing against a $1 million attack. A way out of this flow-stock argument is if both (i) the compute power used to maintain the trust is non-repurposable, and (ii) a successful attack would cause the economic value of the trust to collapse. However, vulnerability to economic collapse is itself a serious problem, and the model points to specific collapse scenarios. The analysis thus suggests a ‘pick your poison’ economic critique of Bitcoin and its novel form of trust: it is either extremely expensive relative to its economic usefulness or vulnerable to sabotage and collapse.

Earlier Version

June 2022 Version

[PDF] [All Related Material]

June 2018 version, NBER Working Paper No. 24717

National Bureau of Economic Research Working Paper Series, No. 24717, 2018.
[PDF] [All Related Material]

Press Coverage

How Costly is Trust in the Blockchain?

Marginal Revolution, Tyler Cowen, Jul 26, 2022 [PDF]

Bitcoin Holders Have No Choice but to Trust in Chinese Crypto Miners

MarketWatch, Mark Hulbert, May 28, 2021 [PDF]

Think GameStop Is Wild? Meet Dogecoin, the Meme-Inspired Digital Currency That Began As a Joke and Is Now Worth Billions

Chicago Tribune, John Keilman, Feb 04, 2021 [PDF]

Bitcoin Is Less Secure Than Most People Think

Marginal Revolution, Alex Tabarrok, Jan 07, 2019 [PDF]

Why Bitcoin Will Never Replace Gold

Barron's, Mark Hulbert, Jul 31, 2018 [PDF]

Rental Attacks Mean That Blockchains Must Evolve or Die

Techcrunch, Abe Othman, Jul 22, 2018 [PDF]

Bitcoin Looks More Like Gold Than a Currency

Bloomberg, Noah Smith, Jul 11, 2018 [PDF]

Bitcoin’s Inherent Economics Could Keep It from Ever Being Very Important

MIT Technology Review, Mike Orcutt, Jul 06, 2018 [PDF]

Public Talk

The Economic Limits of Cryptocurrencies and Anonymous, Decentralized Trust on the Blockchain (April 2023)

Booth All-Faculty Seminar, April 18, 2023.

Harvard Harris Lecture: The Economics of Cryptocurrencies (November 2022)

Harris Lecture at Harvard University, November 9, 2022.

The Economics of Cryptocurrencies (April 2022)

Oxford University Economics Department, April 6, 2022.

Related Works

Sources for Appendix C: 51% Attacks, Crypto Thefts and Crypto Collapses to Date



Slides, 2022 Northwestern University Conference


Presentation on Bitcoin Research at the May 2019 Atlanta Fed Financial Markets Conference

Atlanta Fed Financial Markets Conference, May 19, 2019. [PDF]


Virtual MD Seminar Presentation, March 2021

Virtual MD Seminar Series, March 15, 2021.

AFA panel “Blockchain: Myth and Reality”

The American Finance Association, January 4, 2019.