TRUMP IS A (SELF-ACKNOWLEDGED) “VERY STABLE GENIUS.” Quite apart from other “weaves” about Greenland and the Panama Canal, he has also talked of creating a bitcoin strategic reserve.
How very stable is this idea? In particular, I wonder if Trump has read Eric Budish’s “Trust at Scale: The Economic Limits of Cryptocurrencies and Blockchains,” The Quarterly Journal of Economics, October 16, 2024? Or at least Brad Wible’s “Trust Limits Cryptocurrencies,” a one-paragraph summary of Budish’s paper in AAAS Science, November 22, 2024? Or, pointedly, anything beyond social media?
Here are tidbits gleaned from insights of Wible and Budish, even to a bit of mathematical gaming.
A Brief Summary of Economic Systems. Wible recounts, “Trust and security, which are essential for economic systems to function, are commonly based on the rule of law and factors such as reputations, relationships, and collateral. Cryptocurrencies instead promote decentralized trust through cryptography and economic incentives.”
Wible continues, “Budish shows that this approach is prohibitively costly to scale in economically meaningful ways. The cost required for computation, and to discourage attack against the system, can reach 400,000% of the value to be secured against attack.”
He sums up, “A ‘pick your poison’ alternative conclusion entails conceding that the system is vulnerable to sabotage that causes the system to collapse.”
What with Wikipedia acknowledging problems of Trump Foundation, University, Taj Mahal, Plaza Hotel and Casino, Castle Hotel, Entertainment Resorts, and the New Jersey Generals, one would think the word “collapse” above would have caught Trump’s eye—had he read Wible’s summary.
Details from Budish. Professor Eric Budish, the University of Chicago Booth School of Business, is more detailed in his analyses, but there is an Abstract for the gleaning: Budish begins, “Satoshi Nakamoto (2008) invented a new kind of economic system that does not need the support of government or rule of law. Trust and security instead arise from a combination of cryptography and economic incentives, all in a completely anonymous and decentralized system. This article shows that Nakamoto’s novel form of trust, while undeniably ingenious, is deeply economically limited. The core argument is three equations.”
Hmm…. the word “deeply” caught my eye. So did the core argument having only three equations. Even my beloved dynamical systems theory (aka differential equations without the dirty bits) contains rather more than three defining axioms.
Zero-Profit Condition (Honest Play). Budish writes, “Our conceptual question here is how much ‘trust support’ will maintain the permissionless consensus if we restrict all participants to behave honestly?” Just the term “Honest Play” makes me shiver with respect to Trump.
Budish begins: “For example, I is the number of people connected to the internet around the world. Each player i chooses a quantity of ‘trust support,’ xi ∈ R+ which we may think of as their quantity of computational work in a proof-of-work blockchain, or their quantity of some other costly action in another blockchain such as stake, storage, and memory.”
Budish contnues, “Let N = ∑ xi , i = 1 to I, denote the total quantity of trust support.”
A Pause. I pause here for three reason: One concerns “costly actions” of maintaining these blockchain currencies: For example, bitcoin, the largest of them, has an electricity consumption comparable to that of Poland.
Secondly, I doubt that Trump’s very stable genius—likened by Mitt Romney to a Third-Grader’s; by Paul Mattis to Fifth- or Sixth-Grade)—is capable of all this new math.
Thirdly, the mathematical notation is a typographical pain. Let’s just discuss Budish’s conclusions.
Conclusions. Budish observes, “Equation (3) says that for the trust to be meaningful requires that the flow cost of maintaining the trust must be large relative to the one-shot value of attacking it. This is like a very large implicit tax. Moreover, the cost of Nakamoto trust scales linearly with the value of the attack—for example, securing against a $1 billion attack is 1,000 times more expensive than securing against a $1 million attack.”
“In the base case analysis considered in Section IV,” Budish recounts, “it would take all of global GDP to secure the system against a $40 billion attack. Traditional trust, whether from rule of law, reputations, relationships, collateral, and so on, is by no means perfect but is a bargain relative to Nakamoto.”
A Simple Cup of Coffee. “Even the most ordinary of transactions, like buying a cup of coffee at the local coffee shop, enjoys trust from multiple sources…. These multiple layers of trust that work together for even the most ordinary of economic transactions are likely part of what makes the traditional market system so robust and, dare I say, beautiful.”
And so much more stable than Trump’s “very stable genius.” ds
© Dennis Simanaitis, SimanaitisSays.com, 2025