Why Everybody Who Doesn’t Hate Bitcoin Loves It (Ep. 160)

Listen now:
(Photo: Jason Benjamin)

(Photo: Jason Benjamin)

After being bombarded by email requests for months, Freakonomics Radio has finally caved and made an episode about Bitcoin. It’s called “Why Everybody Who Doesn’t Hate Bitcoin Loves It.” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.) The gist: thinking of Bitcoin as just a digital currency is like thinking about the Internet as just e-mail. Its potential is much more exciting than that.

Bitcoin is often described as “virtual gold” — as well as everything from a “bubble” to a “Ponzi scheme” to “a haven for individuals to buy black market items.” But what excites some people, like Silicon Valley veteran Marc Andreessen, is Bitcoin’s potential as a new technology that could underlie any number of transactions, well beyond the simple swapping of currency.

Andreessen, a Web pioneer, is now on the board of companies like Facebook and eBay. He is not a disinterested observer in the Bitcoin debate: his venture-capital firm Andreessen Horowitz has invested around $50 million in two Bitcoin-related companies, including Coinbase, and Andreessen says they plan to invest much more to enable Bitcoin to go mainstream.

Why such confidence? The reason, Andreessen tells Stephen Dubner, is that Bitcoin is “the solution to a fundamental problem in computer science”:

ANDREESSEN: One of the things … that’s been missing on the Internet for 20 years is kind of a native concept of money…The ability to very easily pay somebody online, the ability to very easily charge for a piece of content, the ability to very easily exchange a digital title, or a digital key, or a digital contract has just been missing because you have no mechanism for establishing trust. And so Bitcoin basically holds the promise of being the first solution to establishing trust over an untrusted network.

Susan Athey, an award-winning economist at Stanford with a background in computer science, is also a big believer in the technology behind Bitcoin; for what it’s worth, Athey advises the company behind Ripple, which is Bitcoin’s top competitor (by market cap):

ATHEY: The beauty of a new currency, which is part of a virtual currency protocol, is that what I’m moving from me to you is just an entry on a secure, public ledger. And that public ledger is maintained by a set of computers all talking to each other using a protocol. So I don’t have to worry about some bank giving me an IOU and then giving that IOU and handing it to another bank. Instead, if I make a transaction over the virtual currency, it’s just an entry in the ledger. So I don’t need a middleman.

New York Superintendent of Financial Services Benjamin Lawsky, who is leading the charge to regulate Bitcoin in the U.S., tells Dubner that he is concerned about the freedom Bitcoin affords to criminals:

LAWSKY: It’s very hard to transport $1 million in hard currency overseas. You can’t just put it in a backpack and get it on a plane very easily. But it is very easy to do that now digitally using Bitcoin.

That said, Lawsky is also excited about the possibilities of a technology like Bitcoin, which could bring down all sorts of transaction fees. This may be bad news for traditional banks, credit-card companies, and other fee-seeking middlemen. But, as Lawsky points out, a lot of other people stand to benefit:

LAWSKY: Right now, there are thousands and thousands of New Yorkers who work hard every day to send money back home to their families in whatever country they’re from…And right now they’re paying fees for those wire transactions each week at the end of the week, 7, 8, 9 percent. And that’s a lot of money for people who often can’t afford it.

A crowd of leading economists, including two Nobel laureates and former Fed chairman Alan Greenspan, have bashed Bitcoin. They’ve expressed alarm about the astronomical rise in the digital currency’s value. Marc Andreessen argues that they are missing the larger point:

ANDREESSEN: It’s a little bit like dogs watching TV. It’s like, it’s all very interesting, but like whatever until another dog shows up on screen and then the dog freaks out. Economists, like this stuff is all like, whatever, technology, geek, nerds whatever and then “currency” is the flag. And so the minute the word “currency” shows up, all the economists perk up because if there’s one thing economists are all experts on it’s currency… And they look at it and they say, “Oh my god, people are paying $600 for this thing, it’s just a piece of fake digital currency, people have just lost their minds.” I don’t think that they are looking at the underlying substance.

The episode also addresses a question many of you asked when Freakonomics Radio ran a fund-raising campaign: why don’t you guys accept Bitcoin?

Rick Weber

I like the closing note: "One of the characteristics of a new idea is all the experts who came up in the old regime look at it and laugh...And so I think this is just the story, the recurring story of how progress happens. It doesn’t happen by the establishment all basically sitting up at once and saying ‘aha, that’s a wonderful idea,’ that’s just not what happens."

That insight has implications for how we think about economic growth and the role of entrepreneurship. You aren't free unless you're free to be wrong, and entrepreneurship cannot take place unless entrepreneurs are able to undertake projects that break from the status quo; projects that established authorities didn't think up and that could fail.

Daddy Dave

Thanks for covering this subject. Though I can agree with the foundation of Andreessen's opinions, the multitude of unanswered questions means I'll stick with standard currency for the foreseeable future.

If I work for Hobby Lobby and my paycheck has strings attached, how are the strings cleared? If I pay with Bitcoin to get a shirt cleaned, does the requirement transfer to the cleaners? If not, I don't see the reason for this deluxe feature in the first place.

Mom gives me 20 Bitcoins with an attachment that prevents me from buying beer. I give my friend 15 of my Bitcoins and he buys beer? What if my friend gives me the beer he bought?

Confused in Wyoming.


I'm a big fan of the podcast, but I really thought this episode was very one-sided. I was surprised at the end that there wasn't going to be a part 2: the downsides of Bitcoin.

I guess crypto-currency is a reasonable thing to be strictly positive about, but Bitcoin itself has a lot of problems not the least of which is that it isn't backed by anything. That fact got about 10 seconds of air time.

I also didn't like the way it ended. "Hey, all the experts say it's doomed, that means it's going to succeed since that happened once before!" I'm exaggerating obviously, but that's roughly the feeling the final though left me with.

John Perkins

Having listened to this podcast several times I still don't know why I should care about bitcoins. I live under a stable government and banking system in the us, don't move large sums of money, and don't send money overseas to my poor relations. If I shouldn't be concerned then I'd appreciate it the news media would stop giving it so much coverage. If I should be then this was not freakonomics best work.


Why don't you call up the Canadian CB and ask them about Mint Chip? It sounds interesting but there isn't much talk about it.


My question was mentioned, but not explained. What is backing Bitcoin to give it value? Or is that the point... you don't need anything to back it and it has its own "value". Is that even possible?


The hour on bit coin was very disappointing; I was reminded of 50's style shows about how "in the future" we will travel by flying car and live under the ocean.

More economics would have been nice, such as:
- if supply remains limited, how can we expect that to impact the bitcoin market?
- bitcoin was compared to the rise of paper currency, but what about the rise of cheques, wire transfers and credit cards, which currently far outperform paper cash in sheer volume?
- there are only so many "hard" currencies, could bitcoin ever achieve that distinction? How?
- bank accounts are insured and pay interest, how is bit coin different than burying gold in my basement? i.e., would I really keep "cash" on hand that fluctuates wildly depending on the market, as opposed to depositing my bit coin where it can be lent out as captital?

I'm not saying bitcoin won't be a major player in the future, but there are significant economic hurdles as well as technical hurdles, and Freakonomics could have discussed some of the economics.

Finally, we all like to blame government, but the money transfer system created under the Federal Reserve was similar to the creation of the interstate system: all parts of the economy gained from the efficiencies it created. I suppose if flying cars are ever invented, people will blame government for having wasted sooooo much money building roads and bridges.


John Bolton

I was shocked that your interview of Mark Andreessen, who "has invested around $50 million in two Bitcoin-related companies, including Coinbase" was immediately followed by Erik Diehn, senior director of business development at WNYC, who gave this answer to your question, "So why doesn’t WNYC accept Bitcoin?":

"I think it would take a turnkey provider that we could go to that would essentially say yes you can just put this little widget on your site, you can set your prices in dollars, we will do all the translation on the backend, we will take all of that headache off of your shoulders."

COINBASE!!! I screamed in my head.

Joe Larson

I was surprised by this podcast. It seemed strangely aligned on the "pro" side of the argument and seemed to ignore some of the very pragmatic downsides of bitcoins like the fact that you can't even begin to use bitcoins without an internet connection, which if you want to use bitcoins while you're out-and-about for most people means an expensive (and optional) data plan. The internet is hardly ubiquitous yet. The buy-in for bitcoins is for many prohibitively higher than the buy in for using traditional dollars and coins. Sure, credit or debit cards require a little bit of initial setup as well, but once that setup is done you still don't need an always on connection to the internet and smart device that costs hundreds of dollars to do your transactions. Just a little piece of plastic.

Someone figure out a way to get bitcoins to that level of easy, maybe a durible card with a QC code with your wallet on it, and then bitcoins will have a much lower barrier for entry. Of course then the problem is the fact that there's no force with a stake in the game pushing people to make this choice. Being a free and open service there's no well funded PR department trying to encourage adoption. So that's another problem.



Thanks for a useful topic! My first attempt at understanding bitcoin. I did not listen to the show, just read the comments (possibly out of contents) but what I take away is that bitcoin has an immediate future to replace the likes of paypal more succesfully


It is clear that the Freakonomics team has misstated the primary issue economists have with the currency: it's valuation process originates completely from speculation. People only appear to be buying the currency with the hope they can sell it at a higher value later.

This is why the terms "Ponzi" and "pyramid" are thrown around loosely in relation here, even though they aren't quite technically correct. What is correct is that it is a greatest fool game, where people hold the currency in the hopes that more fools will come on board to sell to. It doesn't have another valuation process available to it, so the artificial scarcity of the coin is demand driven by buzz to higher values, and when the buzz goes away, the speculation does as well. Nearly every econometric model in the professional journals shows this in detail.

So the only way for it to increase in value is if you fool someone into believing that they should buy so it can go higher in value. That seems a highly unethical thing to promote, Freakonomics team, and it is sad to hear your report completely miss this.

Additionally, it has a number of weakness in this so-called "technical innovation" that make it vulnerable to attacks even by less than half of the network. A class of attacks known as block withholding attacks (including selfish mining and discarding attacks) allow for obtaining more value from the block mining process than the rest of the network and subverts the transaction process (allowing for transaction reversal and making single confirmation waits an unreliable standard). And there are numerous other weaknesses that make it unsuitable for industrial use as a currency of exchange used widely.

Those are the kinds of things that should be discussed in an evaluation here. There are a number of interesting things with the technology, but it is important not to simply parrot the words of the popularisers, as they have a financial incentive to make it sound cool and inviting while glossing over any shortcomings.


Diana Miller

Decentralized/peer-to-peer systems are the way to empower the people and bypass banks and all centralized financial institutions, the path to re-set the control from the few to the many, are the future for everything. The potential implications of the development of distributed consensus technologies is revolutionary.

We have now an open source peer to peer decentralized digital currency. It is very safe, since is cryptographically secured by a distributed global mathematical algorithm and public decentralized open source ledger, a revolutionary disruptive technology called 'Blockchain'.

This could be the future of money for everything, from donations, micropayments, money transfers, online shopping and bill payments, etc.

Empowering and welcoming to the game to billions of unbanked people. And the blockchain peer-to-peer open source decentralized secure technology will be used for many more applications, like escrow, contracts, voting, global ledger, etc.

We shouldn't be like the ones that were dismissing the internet not long ago as a "den of pedophiles, drug dealers and terrorists". The blockchain is the biggest thing since the internet and will benefit also the billions of under and unbanked people.

Bill Gates: “Bitcoin Technology is Key”

PayPal now lets shops accept Bitcoin:

Bitcoin goes mainstream:

Bank Of England: Digital currencies and how do they work

Transfer money anywhere, safely, no fees, no middlemen, no charge-backs for merchants and no fraud.

These are just physical businesses accepting bitcoin:


With tens of thousands more online:


Some of the Big companies accepting Bitcoin:

PayPal, VirginGalactic, CheapAir, Uber, Wordpress,Wikipedia, Zynga,Dish Network,Suntimes, Gyft, CheapAir, TigerDirect, OverStock, Expedia, Newegg, 1-800-Flowers.com, Dell,LordandTaylor, Shopify, Foodler, Digital River, Scan.co, Overclockers.co.uk, Takeaway.com, Wix.com, Cheaperthansteam.com, eGifter.com, Etsy.com, King’s College, OKCupid, Mint.com, Pizzaforcoins.com, Reddit, Square, Twitch.tv, Zappos.com, Menufy

If you want to learn more:








"Not having an internet strategy in 1995 is the equivalent of not having a bitcoin strategy now.”
-Moe Levin

“I’m a big fan of Bitcoin … Regulation of money supply needs to be depoliticized.”
-Al Gore

“Bitcoin is a technological tour de force.”
-Bill Gates

“Bitcoin will do to banks what email did to the postal industry.”
-Rick Falkvinge

“With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.”
-Satoshi Nakamoto
Historical graph: How much bitcoin a $1 dollar can buy? https://i.imgur.com/pR4ptme.jpg

Runaway Dollar Inflation Graph: (Source: the FED) https://i.imgur.com/t8oBzH0.jpg

Note: Bitcoin yearly gains so far since creation:

2009 +4,867%

2010 +387%

2011 +1,320%

2012 +170%

2013 +5,317%

2014 +/- ???%