If nothing else, bitcoin was supposed to protect people from governments that were destroying their own currencies -- governments such as Venezuela’s, where inflation is said to be somewhere around 49,000% right now.

Lately, though, bitcoin hasn’t fulfilled that mission. Not unless you think being down about 80%, as bitcoin has been since last December, counts as “protecting” you from the 99.6% losses you would have taken on your Venezuelan bolivar during that time. (The virtual currency slid as much as 17% Monday, to $3,523.)

The fact of the matter is that bitcoin has been around for 10 years now, but we still haven’t found one use for it. At its most grandiose, it was supposed to replace the U.S. dollar as the way people did business around the world. But at its most realistic, it was at least supposed to replace, say, the Zimbabwean dollar as the way people did business in places where inflation had spiraled out of control.

Why has bitcoin stumbled over even this lowest of bars? Because there’s a paradox that lies at its heart.


The easiest way to think about this is that bitcoin wants to make it so that you don’t have to trust banks to move your money, or governments to keep your currency from losing its value. Bitcoin does the first part by setting up a system where, instead of paying a middleman you know to process a transaction, the network pays a group of middlemen you don’t know to do so. That’s what bitcoin “mining” is. People race to be the first one to update the public ledger of all bitcoin transactions — cutting out the need for a bank to verify things — to try to win the new bitcoin that is given out to whoever hits that mark.

Which brings us to the second part, aimed at retaining the cryptocurrency’s value: The total number of bitcoins that will ever be created has been strictly limited in advance to preclude any possibility of their value being inflated away.

But there’s a problem. The reason bitcoin miners are willing to do the very real work of processing transactions is that they think the bitcoin they’re getting paid with will keep rising in value. And what would make them do that? Well, the finite supply certainly helps, but at some point there has to be more demand for them too. Which means that people have to actually start using them.

But why would people use their bitcoins when, as we just said, they think their price is only going to go up? They wouldn’t. They’d just hold onto their bitcoin as an investment and use their dollars for day-to-day purchases — which, of course, is more or less what has happened. Indeed, the total number of bitcoin transactions hasn’t increased at all in the last two years.


So people mine bitcoin because they think mainstream adoption will make the price go up a lot more, but the fact that it’s going up as much as it is means that it’s not going to get adopted by anyone but the most fervent believers. It’s getting hoarded instead. This, in turn, creates a natural boom-bust cycle that’s been amplified by what a few academics say looks like repeated price manipulation.

The result is that, since the end of last year, bitcoin has been massively outperformed by the euro, despite the fact that Europe’s central bank has been printing money that whole time; badly outperformed by the Turkish lira, despite the fact that the country’s central bank has been forced to keep interest rates inappropriately low by the regime; and has only modestly outperformed the Venezuelan bolivar, despite the fact that Venezuela’s central bank has been irresponsible on the kind of world-historical level we haven’t seen since Yugoslavia in the 1990s or Zimbabwe in the early 2000s.

Now, losing a little less value than the worthless currency of a bankrupt government run by an economically illiterate drug cartel has — Venezuela’s ruling class has also gotten into the cocaine trade — might not seem like much of an accomplishment. That’s because it isn’t. It’s something that everyone, even countries like Turkey that are undergoing currency crises of their own, have managed to do. And at the very least bitcoin has too.

So maybe some sort of congratulations are in order: Bitcoin is a better store of value than the worst store of value there is.