From a security perspective it has zero advantages, but I guess some people like the aesthetics?
>To me, it seems like a lot of wasted time and effort and potential arms race between encoders and decoders and the risk of being exposed when you could just put a big black box over whatever you wish to obscure.
There doesn't need to be an arms race, one can just erase whatever needed to be hid, put fake random text over it and then pixelate that. Ie., a prettier "black box" but still the same core method as a black box. In principle doesn't even need to be any more work, it'd be easy enough to throw together a simple "pixelate erase" script that'd take a selection, apply average solid color and random text over it, then pixelate the result all in one automatated step.
The problem is if some people think any modification of the original information is ever good enough. Anything based on the original could leak information, so need to erase and then apply any desired aesthetics afterward.