Because of hoarding, essentially.

TL:DR; the current banking industry and late-period capitalism may suck, but replacing it with Bitcoin would be like swapping out a hangnail for Fournier’s gangrene. tax evasion, crazy gini coefficient, mining has a CO2 footprint from hell, etc

2014-02-09: While the ship has sailed for buttcoins, all these new cryptocurrencies give the permanently deluded another chance to dust off their “rigs”.

With the rise of ASIC mining, we’ve been deprived lately of hilariously awful mining rigs.

2014-02-25: I don’t have to watch any telenovelas, i’m getting all the drama / lulz from the buttcoin saga. The best part is the (failed) plan to bail them out because “too big to fail”
2014-06-13: This seems bad

The GHash mining pool just reached 51% of total network mining power. Bitcoin is no longer decentralized. GHash can control Bitcoin transactions.

2016-01-14: Where is your god now, buttcoiners? A true believer rethinks his life.

But despite knowing that Bitcoin could fail all along, the now inescapable conclusion that it has failed still saddens me greatly. The fundamentals are broken and whatever happens to the price in the short term, the long term trend should probably be downwards. I will no longer be taking part in Bitcoin development and have sold all my coins.

2021-01-12: Haven’t made fun of buttcoin in a while, time to fix that:

A hedge fund! If you’re a person who bought some Bitcoins and lost the password then, oops, that’s tough for you, and we’ll all have a laugh about it. But if you are a professional investing firm who bought some Bitcoins with your investors’ money and held them as a fiduciary for those investors, and then lost the password, then you probably can’t be a professional investing firm anymore. That’s not good.

And yet it is in a way understandable. If you are a hedge fund and you buy some stock, you will not spend even a moment worrying about losing the stock. That is an entirely solved problem in 21st-century finance. You will have a custodian who holds the stock for you, but it’s not like the custodian is keeping stock certificates in a vault that might burn down. The custodian has an account with the Depository Trust Company, the stock is all on computers (like a blockchain!), there are a lot of backups and redundancies, and in practice stock does not just go missing. We talk occasionally about weird anomalies in this system, places where the system briefly loses track of where some bits of stock are supposed to be, but they are all temporary and marginal. Nobody misplaces billions of $ of stock forever. Nobody misplaces 20% of all the stocks in the world forever, come on

2021-11-18: Avery Pennarun looks at this again, 10 years later:

10 years(!) have passed since I wrote Why bitcoin will fail. And yet, here we are, still talking about bitcoin. Did it fail? Here are some reasons I missed for why bitcoin (and blockchains generally) didn’t and still don’t work, for anything productive:

• Scams. Lots and lots of scams. Blockchains became the center of gravity of almost all scams on the Internet. I don’t know what kind of achievement that is, exactly, but it’s sure something.
• Citizens moving money out of authoritarian regimes. This is, by definition, illegal, but is it a net benefit to society? I don’t know. Maybe sometimes.
• Other kinds of organized crime and trafficking. I don’t know what fraction of money laundering nowadays goes through blockchains. Maybe it’s still a small percentage. But it seems to be a growing percentage.
• More and more blockchains. There are so many of them now (see “scams”, above), claiming to do all sorts of things. None of them do. But somehow even bitcoin is still alive, even though a whole ecosystem of derivative junk has sprouted trying to compete with it.
• Corrupt or collapsed exchanges. I predicted technical problems, but most of the failures we’ve seen have been simple, old fashioned grifters and incompetents. Indeed, the failures of this new financial system are just like the historical failures of old financial systems, albeit with faster iterations. Some people are excited about how much faster we can make more expensive mistakes now. I’m not so sure.
• Gambling and speculation. I wrote the whole article expecting bitcoin to fail at being a currency, but that charade ended almost immediately. What exists now is an expensive, power-hungry, distributed, online gambling system. The house still always wins, but it’s not totally clear who the house is, which is how the house likes it. Gambling has always been fundamentally a drain on society, a tax on the uneducated,, but it’s always very popular anyway. Bitcoin is casino chips. Casino chips aren’t currency, but they don’t “fail” either.

2022-01-23: And here’s Moxie’s take.

Given the history of why web1 became web2, what seems strange to me about web3 is that technologies like ethereum have been built with many of the same implicit trappings as web1. To make these technologies usable, the space is consolidating around… platforms. Again. People who will run servers for you, and iterate on the new functionality that emerges. Infura, OpenSea, Coinbase, Etherscan. Likewise, the web3 protocols are slow to evolve. When building First Derivative, it would have been great to price minting derivatives as a percentage of the underlying value. That data isn’t on chain, but it’s in an API that OpenSea will give you. People are excited about NFT royalties for the way that can benefit creators, but royalties aren’t specified in ERC-721, and it’s too late to change it, so OpenSea has its own way of configuring royalties that exists in web2 space. Iterating quickly on centralized platforms is already outpacing the distributed protocols and consolidating control into platforms.