Greeks Seen Turning to Bitcoin amid Bank Closures

Bitcoin use in Greece
Some of Bitcoin enthusiast Mike Caldwell's coins and paper vouchers, often called "paper wallets", are pictured at his office in this photo illustration in Sandy, Utah, January 31, 2014. Jim Urquhart/REUTERS/

Some Greeks appear to be turning to cryptocurrency bitcoin in the face of painful capital controls and a potential exit from the euro.

Bitcoin exchanges have seen a surge in interest from Greek users and the digital currency's value has increased from $230 on 31 May to $264.79 at the time of writing, a monthly increase of more than 15%, according to price index Coindesk.

CNN reported that bitcoin trades from Greece have rocketed by 79% on Bitstamp, the world's third biggest exchange, while Greeks are registering with German exchange Bitcoin.de at a rate 10 times higher than usual.

Athens is edging towards an exit from the single European currency after Greek Prime Minister Alexis Tsipras called for a referendum on proposals from eurozone creditors, due to take place on Sunday. If the Greek people vote against the proposals, what has been called 'Grexit' would be the most likely outcome.

In the latest twist in its financial crisis, an extraordinary meeting of eurozone finance ministers was called for Tuesday night after the Greek government made a last-ditch appeal for a new two-year loan.

Publicly-maintained registry BitcoinMaps records only about a dozen locations which accept the digital currency in Athens and its surrounding districts, including a family restaurant and a yacht rental company.

Bitcoin is a digital currency which allows for anonymous payments without the use of banks and is currently unregulated and not tied to any particular country.

In March-April 2013, the value of Bitcoin spiked by almost 700% in Cyprus when capital controls were introduced in the country, limiting the amount which citizens could withdraw from their accounts. On Sunday, Greece closed its banks and imposed a daily €60 limit on cash withdrawals.

Mike Hearn, a core Bitcoin developer who has also worked as a software developer for Google, says the cryptocurrency is not a "magic bullet" that could solve all of Greece's financial woes, although he believes that the Greek crisis could have avoided such a messy conclusion if the country had been using Bitcoin for a number of years.

"If Greece used Bitcoin instead of the euro, the outcome would still be the same where the government would have to balance taxation and spending but it probably would have happened a lot sooner," says Hearn.

He says that fractional reserve banking - in which only a small percentage of bank deposits are backed by cash and available for withdrawal - is less likely under a Bitcoin system, where the amount of currency in circulation is regulated by a fixed formula.

According to Hearn, this means Greece would have been unable to continue borrowing from its creditors and racking up such huge debts, meaning it would have been forced to get its house in order much earlier.

The use of the cryptocurrency, created in 2009, is legal within Europe. Bitcoins can be bought on exchanges using different currencies and are stored in a digital wallet on a user's computer or in a cloud storage system.

In August 2013, the value of all Bitcoins in circulation exceeded €1.3bn, with the digital currency particularly popular in North America and Europe, according to Bitcoin.org. The Isle of Man, which is part of Great Britain, is ranked by Coindesk as the most popular European location for the cryptocurrency, with one ATM for every 87,000 people.

Dr Stephen Kinsella, senior lecturer in economics at the University of Limerick, Ireland, says that Greek interest in Bitcoin is a natural reaction to the imposition of financial strictures on people's bank accounts.

However, he says the volatile nature of Bitcoin, which can vary wildly from week to week, makes it unsuitable for use as a parallel currency in Greece.

"The key problem is volatility. Would you like your wages paid in Bitcoin? No. Would you like to pay taxes in bitcoin? No," he says.

Other commentators have noted that Bitcoin's value is highly volatile and believe that the recent surge in value is largely unconnected with the possibility of a Grexit.

The co-founder of Vaultoro, a bitcoin exchange which lets customers exchange the cryptocurrency for gold, toldReuters there had been a 124% increase in visits from Greek IP addresses. However, he later told Coindesk that traffic had also grown by 60% in Germany and Spain, whose economies are in far better shape than Greece's.

Greeks Seen Turning to Bitcoin amid Bank Closures | Business