On Monday, bitcoin did the opposite of what it’s supposed to do.

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

In the beginning, there were two basic theories: One said this first cryptocurrency was a refuge from government, and the other — possibly the one embraced by bitcoin’s creator — said it was an alternative to the corruption, instability and self-dealing in a financial system that had just finished wrecking itself, and everyone else along with it.

Alas, neither of these theories has panned out. Indeed, as in Monday’s market meltdown, cryptocurrencies have often done the opposite of what they were supposed to do.

Though bitcoin and other cryptocurrencies might be useful in places such as Venezuela, where monetary policy is so awful that anything — including a can of mackerel — is an improvement over the local currency, it isn’t a good substitute for money anywhere that has a reasonably well run central bank. Its architecture is too cumbersome; transactions take minutes, even hours, to be processed through the blockchain. You can ameliorate this problem by using a third-party processor, like an exchange, but at this point you’ve started to re-create the financial system you hoped to replace, except without the protections against theft and abuse that have developed over centuries.

Advertisement

Rather than a currency or a substitute for the banking system, bitcoin evolved into its own volatile asset class, whose value has ranged, within just the past year, from about $25,000 to about $70,000. The crypto ecosystem that grew up 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.

Follow Megan McArdle

The volatility is also a problem for the people who viewed crypto as a haven from government depredation.

Many of them, of course, just wanted a way to avoid the prying eyes of the taxman, or the Drug Enforcement Administration — but found, to their dismay, that crypto was not as anonymous as initially assumed. If investigators can link you to your bitcoin wallet, then bitcoin’s decentralized ledger will provide them with a complete and quite indictable record of all of your........

© Washington Post