What Is Crypto Good For?

From practically the time bitcoin launched in early 2009, I have been wondering what the heck it is good for.

Bitcoin was launched in early 2009, and ever since then, I’ve been wondering what good it’s supposed to be.

There were two main theories in the beginning: The first claimed that this first cryptocurrency served as a refuge from government, while the second — which was perhaps favored by bitcoin’s creator — stated that it provided an alternative to the corruption, instability and self-dealing inherent in a financial system that had just finished destroying itself and everyone else in the process.

Alas, neither of these theories has come to fruition. In fact, as was the case in Monday’s market meltdown, cryptocurrencies have frequently done the opposite of what they were intended to do.

While bitcoin and other cryptocurrencies may be useful in countries like Venezuela, where monetary policy is so disastrous that anything — even a can of mackerel — would be an improvement over the local currency, they do not serve as a viable substitute for money in any country with a reasonably well-run central bank. Its architecture is overly cumbersome; transactions take minutes, or even hours, to be processed through the blockchain. You can mitigate this issue by using a third-party processor, such as an exchange, but at this point you’ve essentially begun to recreate the financial system that you had hoped to replace, albeit without the centuries-old protections against theft and abuse.

Instead of becoming a currency or a replacement for the banking system, bitcoin has evolved into its own volatile asset class, with its value fluctuating wildly — within just the past year, it has ranged from about $25,000 to about $70,000. The crypto ecosystem that has developed around bitcoin and all the other cryptocurrencies appears to be less reliable and stable, and more corrupt, than the established banking system. The best thing that can be said about it is that it doesn’t matter much.

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This volatility also poses a problem for those who viewed crypto as a haven from government tyranny.

Many of them, of course, simply sought a way to evade the prying eyes of the tax collector or the Drug Enforcement Administration — only to discover, to their dismay, that crypto was not as anonymous as initially believed. If investigators can link you to your bitcoin wallet, then bitcoin’s decentralized ledger will provide them with a complete and indictable record of all of your transactions.

But other crypto enthusiasts were concerned that the government would steal from them by inflating away the value of their hard-earned savings. They hoped that crypto, with its algorithmically controlled supply, would eventually replace inflationary fiat currencies or at least become a kind of digital gold, a haven from not only inflation but all other types of global instability.

As I mentioned earlier, it might serve that purpose in countries like Venezuela, where the government has destroyed the economy and the currency. But elsewhere … well, in the spring of 2020, as the world searched for safe assets and gold soared, bitcoin remained flat.

True, it eventually began climbing, but it’s hard to say it became a counterweight to the pandemic’s economic gyrations. While one might be tempted to attribute this rise to inflation, bitcoin’s price peaked in November 2021, then fell almost 50 percent as inflation continued to rise. It bottomed out around the beginning of 2023, as inflation was starting to wane. And as inflation fell, it quadrupled in value.

Then came Monday. As if to drive the final nail in the coffin, to once and for all extinguish any hopes of using cryptocurrencies as “digital gold,” bitcoin fell by 15 percent. This is not how a hedge against inflation or calamity behaves. As Joe Weisenthal of Bloomberg News put it, it acted more like “3 tech stocks in a trenchcoat.” If that’s what you want, why not just buy the tech stocks?

So what is crypto good for? It can perhaps aid people in evading currency controls that prevent them from moving their wealth out of the country — although this will only be effective as long as people in places like the United States and Europe are still willing to trade valuable local currency, or goods and services, for crypto. It certainly appears to be helpful in facilitating the collection of ransomware payments.

But beyond that, it seems less like digital gold than a digital slot machine. I can't help but feel that the majority of people use it not because it serves as a good substitute for anything they require, but rather because it's enjoyable to watch the reels spin without knowing whether they will pay out. To put it another way, bitcoin isn't particularly useful for anything except giving those who have money to burn a new way to light it on fire.