I don't like cryptocurrency...

I don't really know anything about either economics, or the technical details of cryptocurrencies. I do know that I dislike them though, and I will now make various unfounded assertions.

Distributed block-chains ledgers (on which cryptocurrencies like Bitcoin are built) are perfectly fine as a technology - few technologies are problematic in and of themselves. It can be all too easy to mismatch solutions and problems however, especially if a solution becomes fashionable, or if either the problem or solution are nebulously defined.

Why do block-chains make sense for currency?

Block-chains maintain a public sequence of blocks of information, where the opportunity to append information to the chain is fairly democratised to each participating unit of computing power. Each participant in the block-chain can independently verify the chain's integrity. The key feature of the block-chain is that its properties do not depend on trust. There is no way for any party, malicious or otherwise, to take control of a portion of the block-chain greater than that party's proportion of computing resources.

These properties are achieved by means of cryptographic hash functions - functions that produce seemingly random outputs for given inputs, and that while easy to perform, are very time-consuming to invert. Finding inputs to a hash function that produce the number zero is the mechanism by which computing effort is proven in a block-chain. Each block in a block-chain is accompanied by a number which, when put into a hash function, along with a reference to the previous block, and the information stored in the block, results in the number zero. This means that for each block in the chain, every participant can verify:

1. The rough amount of computing effort expended in creating the block. As the hash function is difficult to reverse, it takes a known amount of effort to find an input for which its output is zero.
2. That this block was produced in sequence, after the previous block in the chain. A reference to the previous block is fed into the hash function, so it would only have been possible to find a solution to the hash function after that previous block had been published.
3. That the information in this block was produced by the same party that expended the computing effort to solve the hash function. Since the information itself is also fed into the hash function, anyone wanting to append different information onto the block-chain would need to solve a different hash problem.

If this system sounds inefficient, that's a feature! Efficiency is traded away for security, trust, and ability-to-be-distributed. When a block-chain is used for cryptocurrency, it is the inefficient solving of hash functions that provides value to what would otherwise be a simple sequence of blocks. Computing power costs money, and so the privilege of being the one to append to the block-chain has a calculable price, as long as someone is willing to pay it. The difficulty of solving hashes gives cryptocurrencies their value, just as the difficulty of mining for gold gives that value too. This is presumably where the term cryptocurrency mining comes from.

I don't think cryptocurrencies are a secure medium of exchange

In order for money to work, a more important property than scarcity or provable ownership is its ability to be traded for other things. When money is exchanged for goods, there is always the risk that the goods never materialise.

When using physical currency, the goods can often be seen while exchanging money, and any attempt on the part of a seller to take the money and run comes with the risk that the buyer is simply faster than them. In the age of remote commerce - firstly through mail, and secondly over the internet - the traditional financial system and law enforcement have developed practical measures to allow money to be recouped, and scammers to be traced and brought to justice.

Despite its focus on trust and security, cryptocurrency is not designed to be securely exchanged for something else. You can, extremely securely, transfer your cryptocurrency to someone else, but that doesn't help whatsoever if they run away with the money. Because trust is rooted in the block-chain itself, there is no easy way to recoup or trace stolen funds. Cryptocurrencies expect to be used in digital commerce, but have the same security features as physical currency.

Solving this would require somehow integrating the exchanged goods themselves into the block-chain. The closest anyone has come to achieving this is - with great excitement - putting URLs of weird JPEGs into a block-chain. This was not, as it turns out, particularly useful or revolutionary.

If the appeal of cryptocurrencies is that they provide an alternative financial system whose trust is rooted in the cold mathematics of cryptography, then it is hard to see how they can maintain this benefit while being used for anything that hasn't also been engulfed by the same cumbersome and inefficient system.

An efficient currency isn't a get rich quick scheme

Cryptocurrencies are often promoted as massively profitable investments. It is hard to square this with them being usable currencies. A currency that massively increases in value over time is not the kind of thing that a healthy economy is built on.

If cryptocurrencies are to gain widespread adoption, then at some point, they will need to stabilise in price, and the costs of whatever profits have been generated by their massive increases in value will have to be settled with someone.

While fiat currencies are backed by governments and banks who have a strong interest in their continued stability, cryptocurrencies are promoted as not requiring trust in any single organisation. They do however, like any currency, require their users to continue believing that they're worth something.

If a cryptocurrency actually managed to be a usable currency, then the idea that had been sold to a large proportion of its holders would fail. It would no longer be a Ponzi scheme, because functional currencies don't act like Ponzi schemes. It would then be in the interest of those same individuals to simply start over, with a new currency.

For now though, the inefficiencies of cryptocurrencies seem more than excusable for money laundering and scamming, but I don't see much legitimate use for them beyond this.

There might be some more interesting uses to the underlying technology though. Supply chain logistics feels like a use-case where mutually untrusting parties might derive enough benefit from a secure shared ledger of information to justify the costs of using it.