Bitcoin and Other Cryptocurrencies Are Useless, The Economist Says (economist.com)

With few uses to anchor their value, and little in the way of regulation, cryptocurrencies have instead become a focus for speculation, The Economist magazine said this week. From the story, which may be paywalled: Some people have made fortunes as cryptocurrency prices have zoomed and dived; many early punters have cashed out. Others have lost money. It seems unlikely that this latest boom-bust cycle will be the last. Economists define a currency as something that can be at once a medium of exchange, a store of value and a unit of account. Lack of adoption and loads of volatility mean that cryptocurrencies satisfy none of those criteria. That does not mean they are going to go away (though scrutiny from regulators concerned about the fraud and sharp practice that is rife in the industry may dampen excitement in future). But as things stand there is little reason to think that cryptocurrencies will remain more than an overcomplicated, untrustworthy casino.

Can blockchains -- the underlying technology that powers cryptocurrencies -- do better? These are best thought of as an idiosyncratic form of database, in which records are copied among all the system's users rather than maintained by a central authority, and where entries cannot be altered once written. Proponents believe these features can help solve all sorts of problems, from streamlining bank payments and guaranteeing the provenance of medicines to securing property rights and providing unforgeable identity documents for refugees. Those are big claims. Many are made by cryptocurrency speculators, who hope that stoking excitement around blockchains will boost the value of their related cryptocurrency holdings.

Comments

What next?

[Kenja]

I bet they'll say my Magic cards & Beanie Babies are useless as well!

Re:What next?

[Jason1729]

You can play a game with Magic cards and enjoy looking at Beanie Babies on your shelf while holding them as a speculative investment. Bitcoin is literally useless.

Re:What next?

[Junta]

Do you actually use it as the negotiated salary? As in 'X' number of bitcoins a year? Presumably you do a last minute calculation based on a more stable currency and by the same token she presumably cashes it out pretty quickly. That's a problem for what is ostensibly a 'currency'.

It sounds like you may have had a positive experience, purchased X bitcoins, but by the time payday came to pass, you probably needed a lot fewer due to boom, so you had spare. Conversely, if you paid what *should* be enough for her salary, using X USD to acquire them, say a week in advance, but on payday your account is suddenly short, that's a big problem. As it stands, the only way to have predictable income/spend relative to real goods is to minimize the time from when it's a stable currency, to cryptocurrency, and back to stable currency again.

There's some interesting (albeit too wasteful of energy) technology things going on, but the non-technical context does not bode well for the current cryptocurrencies.

Use: Evading capital controls.

[HornWumpus]

'The Economist' might not see evading capital controls as useful, but they are wrong.

Not an investment vehicle, but for 'in and out' in a day, good enough.

Re:Thus disproving their own premise, it exists st

[Pseudonym]

"All art is quite useless." - Oscar Wilde

It's not their best headline writing, but TFA makes the point clear: cryptocurrencies are not currencies, let alone useful currencies. Their only "use" is speculation, and to an economist, that doesn't count as "useful".

No value unless exchangable for something else

[StandardCell]

All cryptocurrencies are underpinned by the belief that people will trade something of value for them. That usually means currency, but it could also be material goods or intellectual property.

On top of that value, you have speculation based on other factors; in this case, scarcity and demand. The more the perceived mania continues, the more volatility there will be.

What is different here is that a number of early adopters held onto the currency, and others bought in late. That distorted people's perception of the cryptocurrency where they thought they could all make money fast. Well, lo and behold, the currency crashed since its peak, and seems to be teetering currently.

That there are systemic problems with exchanges and blockchain goes without saying. This is unlike traditional currency because the transaction costs are increasing exponentially and putting additional pressure that a normal paper currency managed by a sovereign central bank doesn't have. That reduces monetary velocity through the system and impedes cryptocurrency use for fine-grained transactions. I won't get into the back door idea or breaking the cryptography, although those might become factors in the future. These translate to additional volatility and uncertainty that hurt the value.

The other big difference between an independent cryptocurrency and a regular currency is who and what backs it. That's probably the greatest concern for The Economist and for those who favor classic economics. This is uncharted territory, and uncertainty will always be punished by the market by participatory withdrawal and diminished value. Only time will tell, but something tells me that Bitcoin and the like may be a game of musical chairs.

More investment than currency still, but ....

[King_TJ]

I honestly believe the single biggest impediment to the public accepting crypto as an alternative currency were all the hacks and corrupt coin exchanges that took people's funds and vanished.

Crypto-coins had the promise of being extremely secure and anonymous, but we quickly saw that unravel as folks learned how to trace transactions back through blockchains and as all of the web site compromises and coin-stealing malware arrived.

It's still too complicated for the average person to take a payment or spend crypto-currency. The unique wallet ID, alone, is a big, long, messy string of characters that nobody can remember. So they have to pretty much launch their wallet app and copy/paste the thing any time they want to instruct someone else to pay them. So that's another big problem. But really, a lot of this stuff can be coded into a more user-friendly UI, if someone is motivated to do it. (I think that's one of the promises of the new project out there to let independent musicians get paid directly for use of their music, without needing a middle man.)

But we're far from seeing the whole thing get stable enough so folks have a good handle on just what a given crypto-coin is worth. Everyone I know hanging onto any of them does so with a hope of reselling them at a profit at some later point in time. They're not keeping them like folks collect spare change in jars at home.

Re:Thus disproving their own premise, it exists st

[DontBeAMoran]

Just like the Internet has pseudoanonymity, so does BTC. For now, no one knows you're a dog.

And then you pay something in Dogecoins and your cover is blown.

Re:Economist is controlled via bankers same drivel

[Build6]

"vote back to you" - no it doesn't. it gives the vote to the existing whales, which for the hoi poloi entering the field, means "not you". it's like people trumpeting how the right to bear arms keeps them safe from "tyranny", when they have no chance to fight against an entity that can field APCs and drones.

Wait

[Hentai007]

Are you saying imaginary internet money was a poor investment on my part?