Some Simple Economics of the Blockchain

IN OCTOBER 2008, a few weeks after the Emergency Economic Stabilization Act rescued the U.S. financial system from collapse, Satoshi Nakamoto(34) introduced a cryptography mailing list to Bitcoin, a peer-to-peer electronic cash system "based on crypto graphic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party." With Bitcoin, for the first time, value could be reliably transferred between two distant, untrusting parties without the need of an intermediary. Through a clever combination of cryptography and game theory, the Bitcoin 'blockchain'-a distributed, public transaction ledger-could be used by any participant in the network to cheaply verify and settle transactions in the cryptocurrency. Thanks to rules designed to incentivize the propagation of new