This page collects my work on cryptocurrencies and blockchains. My main conceptual idea in this area is in equations (1)-(3) of the “Economic Limits” paper. These equations show that the anonymous, decentralized trust invented by Satoshi Nakamoto, while undeniably ingenious, is profoundly expensive: the ongoing, “flow” cost of maintaining the trust has to be large relative to the one-off, “stock” value of attacking the system. Moreover, this equilibrium cost of blockchain trust scales linearly with the value secured – which means that if cryptocurrencies and blockchains were to become more economically useful, then the costs of trust would have to grow to absurd levels. By one calculation in the paper, it would take all of global GDP to secure the Nakamoto blockchain to $25 billion. There is a way out of my flow-stock argument but it is premised on the risk of economic collapse. Thus, “pick your poison”: extremely high costs, or security premised on risk of collapse.

I initially circulated “Economic Limits” as a short paper in June 2018, and completed significant updates in June 2022 and December 2023. The December 2023 draft emphasizes the contrast between Nakamoto trust and traditional trust grounded in rule of law and complementary sources such as reputations, relationships and collateral. The key advantage of traditional trust is the economies of scale that arise from credible deterrence: society or a firm pays a fixed cost to enjoy trust over a large quantity of economic activity at low or zero marginal cost.

Recent work with Adi Sunderam discusses the economics of the blockchain data structure if the trust is anchored in traditional sources including rule of law. Our discussion focuses on the potential value of such a data structure for traditional finance. Recent work-in-progress with Andrew Lewis-Pye and Tim Roughgarden shows that the “pick your poison” argument generalizes to the class of dynamically available permissionless consensus protocols, and obtains a positive result for the economic security of proof-of-stake, but only if the attacker is not too large.

Selected Materials

Research Papers

Trust at Scale: The Economic Limits of Cryptocurrencies and Blockchains

Quarterly Journal of Economics, Revise-and-Resubmit; Draft Updated December 2023.
Sources for Appendix C: 51% Attacks, Crypto Thefts and Crypto Collapses to Date
June 2018 version, NBER Working Paper No. 24717
Harvard Harris Lecture: The Economics of Cryptocurrencies (November 2022)
[PDF] [Slides] [All Related Material]

Blockchain Technology in Traditional Finance

Coauthors: Adi Sunderam
Sveriges Riksbank 7th Annual Macroprudential Conference, Latest Draft: March 2024.
Presentation at Sveriges Riksbank 7th Annual Macroprudential Conference (Aug 2023)
[PDF] [Slides] [All Related Material]

The Economic Limits of Permissionless Consensus

Coauthors: Andrew Lewis-Pye, Tim Roughgarden
Working Paper, Available at arXiv:2405.09173, Draft: May 15, 2024.
[PDF] [All Related Material]

Talks and Public Discussion

High-Frequency Trading and the Design of Financial Markets

a16z Seminar, July 24, 2023.
[Slides] [All Related Material]

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

Booth All-Faculty Seminar, April 18, 2023.
[Slides] [All Related Material]

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

Harris Lecture at Harvard University, November 9, 2022.
[Slides] [All Related Material]

Freakonomics Podcast, Does the Crypto Crash Mean the Blockchain Is Over?

Coauthors: Stephen J. Dubner
Freakonomics Podcast, June 2022.
[PDF] [All Related Material]

The Economics of Cryptocurrencies (April 2022)

Oxford University Economics Department, April 6, 2022.
[All Related Material]

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

Atlanta Fed Financial Markets Conference, May 19, 2019.
Transcript and audio recording, Atlanta Fed
[PDF] [Slides] [All Related Material]

AFA panel “Blockchain: Myth and Reality”

The American Finance Association, January 4, 2019.
[All Related Material]

Bitcoin Is Less Secure Than Most People Think

Coauthors: Alex Tabarrok
Marginal Revolution, January 7, 2019.
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Bitcoin Looks More Like Gold Than a Currency

Coauthors: Noah Smith
Bloomberg, July 11, 2018.
[PDF] [All Related Material]