Why was the oldest Chinese writing once sold as medicine?

Because nobody yet knew what the scratches on them were. The bones, mostly ox shoulder blades and turtle shells, were sold as 'dragon bones' for medicinal purposes: turtle shell fragments were prescribed for malaria, and other bones were powdered to treat knife wounds. The carvings on them were the earliest attested Chinese characters, made in the 13th century BCE for the Shang royal house, and they were only documented as writing in 1899. As Xu Yahui put it, no one can know how many were ground up by pharmacies before then and disappeared into people's stomachs.

The rescue has a hero and a legend. In 1899 an antiques dealer sold some of these bones to Wang Yirong, a chancellor of the Imperial Academy in Beijing and a collector of ancient bronzes, who is believed to be the first person in modern times to recognize the markings as ancient writing. A popular tale says Wang was sick with malaria and, with his friend Liu E, spotted the glyphs on his own medicine before it was ground to powder, but how they really found the bones is not known.

By 1928 the bones had been traced to a village near Anyang, the site of Yin, the last Shang capital, and more than 150,000 fragments have been found to date. They recorded divinations: the king had a question carved on a bone, the bone was heated until it cracked, and the answer read in the cracks was carved beside the question. Chinese characters are one of four independently invented writing systems, alongside Sumerian cuneiform, Egyptian hieroglyphs and Maya script, and the only one still in continuous use.