BitcoinJoerg Platzer, a German who owns the Room 77 restaurant in Berlin's hip Kreuzberg section, has lost his appetite for euros. Instead, he has put a large fraction of his money into Bitcoin, an online currency.

"What the euro crisis and possible breakdown does is make people think about alternative [currencies] that can be used to maintain business and that cannot be manipulated by any central organization whatsoever," he told DailyFinance.

And Bitcoin, as unorthodox as it may sound, was created in 2009 to be just such an alternative.

It's not so surprising that a growing number of Europeans whose countries are in dire fiscal straits are moving their money from banks to Bitcoins. The eurozone is in end-of-times pandemonium over its debt crises; Greece is starring in its own economic tragicomedy; and Spain is scrambling for a major bailout. And just last week, the euro overtook the British pound as the second-most common currency that bitcoins are traded against (after the U.S. dollar, which has 72% of the market thanks to its large community of early adopters).

Euro hit 9% of the Bitcoin market thanks to an uptick in buyers from Greece, Italy, Spain and the Netherlands, according to Charlie Shrem, CEO of BitInstant, a New York company that allows clients to move money between Bitcoin and other currencies. Shrem's firm attributes the recent rise in euros exchanged for bitcoins to the worsening crisis in Europe and people seeking financial asylum in digital form.

As reports increase that the European banking system is evaporating into the ether, will people increasingly find it high time to bank in the cloud.

Is Bitcoin a Panacea For the Euro's Woes?

Quite simply, Bitcoins are an encrypted digital currency that can be freely exchanged between people or between consumers and merchants. Businesses like Bitcoin because it allows them to avoid paying credit card fees of up to 3% on transactions. Consumers get to dodge the costs normally associated with currency exchanges. It's only available for use in a handful of physical locations in cities around the world (it's mostly used via Internet), but a major use for it has been for conversions -- you can buy Bitcoins and then exchange them for another currency at no charge.

Bitcoin is in some senses a financial island removed from the vicissitudes and consequences of a traditional banking system. It's neither controlled by central banks nor governments, and thus not vulnerable to larger-scale shifts like changing interest rates or the rampant inflation of countries in decline.

But Bitcoin's isolation from geopolitical turmoil has been its true selling point for those in Europe.

"I have Greek friends who fear that Greece will drop out of the euro, and all of their money will be converted to the drachma," Shrem said. "And then even a cup of coffee would get pretty expensive for them, because inflation will skyrocket like what we saw in Zimbabwe."

Bitcoin was trading at about $5.26 in on Jan. 1, and bolstered by fears about the euro, its value had risen 19% to $6.28 on Monday. The euro, by contrast, dropped from $1.29 on January 1 to around $1.25, a 3% decline. In fact, Bitcoin performed better than any major asset class in the world in 2011, up 1,700%.

Jon Matonis, a Bitcoin consultant and digital currency specialist, believes moving toward Bitcoin is a smart strategy, advocating any exit from fiat currencies as a step in the right direction.

"It's like musical chairs," he said, "And when the music stops playing, the mad rush out of fiat will begin because a 'paper' con game can turn on a dime." That uncertainty in the value of a fiat currency, especially in the euro, stands in contrast to Bitcoin, which Matonis describes as "an open-source neutral method of going from paper euros to a nonpolitical unit of value in electronic form."

The Risks in Bits

But is a digital currency safe? Hackers have tapped into Bitcoin exchanges, exacerbating fears that the fully-online currency might not be such a sure bet.
Last June, Mount Gox, a major Bitcoin exchange, was compromised, and a cyber attack this May against the Bitcoin exchange Bitcoinica resulted in 18,000 stolen bitcoins (about $90,000). These events have further reinforced some security experts' preference for traditional banking, according to Marc Vael, director of the Information Systems Audit and Control Association: Even though the eurozone is experiencing turbulent times, all EU governments guarantee banks deposits and savings accounts for up to 100,000 euros.

"The existing banking system, including online banking possibilities, still protects citizens even when money gets stolen out of their account," Vael said. "Keeping money under EU-regulated financial institutions is the safest option for EU citizens."

But as the euro's problems deepen, people are putting less faith in it, and hoping the security technology of Bitcoin exchanges is enough.

"It's as safe as the cryptography," Matonis said. "And the cryptography has been peer-reviewed, and it currently enjoys the mathematical trust of the cryptography community."

"These individuals moving their value from euros to Bitcoin are trusting the cryptographic algorithms," Matonis said. "If they store the private keys themselves, then they do not even have to trust a third-party entity."

The Future of Bitcoin

Though Matonis believes that traditional banking is "in decline" and that Bitcoin possesses important advantages for Europeans at the moment, the digital currency hasn't necessarily proven itself as a fully universal platform.

"What is disputed is the efficiency of a distributed system and perfect application to a scaleable monetary or payment function," Matoris said.

Currently, for example, Bitcoin's current market cap is only the equivalent of $50 million -- a drop in the ocean of the world's money supply.

But even as its future -- not just as a monetary escape route but also as a common currency -- remains uncertain, the digital trend has gained at least some traction. Consumers are using "linden dollars," the currency used in the online game Second Life, across the Internet as a true digital currency, according to the Financial Post. The Canadian Mint earlier this year also instituted MintChip, its digital form of money.

Platzer, the German restaurateur who has moved his money to bitcoins, views this change an inevitable part of our digital world.

"Cryptocurrency not only does not have the disadvantages of centralized currencies which led to the current crises," he said, "It also suits the requirements of an information society much better than the money from the Industrial Age."

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206 Comments

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Martin Teppor

Anyway, I love Bitcoins and I am exchanging them at www.xmlgold.eu

November 20 2012 at 1:37 AM Report abuse rate up rate down Reply
Dharma Sanctuary

Great subject, great thread. The people who are supporting this BitCoin network are doing a good job keeping the conversation on the up and up. I note that the thread went dead Jun 22, 2012 or thereabouts. I supposed this kind of thread will appear again and again, with new readers. I find the subject quite a stretch, but detect that it is something revolutionary, and not just another scheme, ponzi or otherwise.

We need to be open to the possibilities being revealed where new technologies intersect with our spiritual development. Anything that is decentralized and peer to peer is the way of the future. The old paradigm of top down, centralized power is fast eroding. Money is an elusive, effervescent substance and deserves a cultural re-do. In the future it will no longer be created by fiat. based on nothing. All the old command and control systems will be seen to malfunction in the near future...

August 03 2012 at 3:17 AM Report abuse rate up rate down Reply
Bangers

As I huge Bitcoin fan I do enjoy reading the arguments that ensue when people that don't really understand the principles that govern this amazing technology cross swords with those that do. I'm not a techie and even a year in I'm still learning more and more about the inner workings and potential but I do "get it".

To those of you who's full understanding is based simply on assumptions formed by reading articles such as this I'd strongly recommend you at least spend some time doing some proper research on the matter.

Try and find the faults yourself and then come and argue your case. I can assure you that any arguments that you can raise against it will be roundly debated and and I rather suspect that your mind may be changed.

One thing that you will require is a small dose of vision. The Bitcoin protocol is still very much in its infancy and many layers still need to be built on top of it. Just try and place yourself back in time to 1991 and some geek turns to you and says "Hey, have you seen that new protocol called HTTP that some guy called Tim has given to the world for free? It's gonna change the world you know......."

Yep, you'd most likely have yawned, said "I neither understand nor care" and walked away. In 1991 the Mosaic browser was still 2 years away. The rest, as they say, is history.

June 20 2012 at 4:08 AM Report abuse rate up rate down Reply
BTCinstant

I love bitcoins! it's the future.

http://www.btcinstant.com

June 19 2012 at 5:12 PM Report abuse rate up rate down Reply
Artie

And, what backs up the "Bitcoin" and who administers it? Until I have a better understanding of just what this "digital currency" is, I'd be very leery of dealing with it. As a general rule, don't invest or buy into anything you don't fully understand.

June 19 2012 at 1:14 PM Report abuse -1 rate up rate down Reply
2 replies to Artie's comment
Gavin Andresen

RE: don't invest or buy into anything you don't fully understand: Good advice.

RE: what backs up bitcoin : the same thing that backs up the value of screwdrivers-- they are useful and it takes effort to make them.

RE: who administers it: a bunch of people all over the world. Seems like that couldn't possibly work, right? But you and I are communicating over the Internet, which is administered by... a bunch of people all over the world.

June 19 2012 at 5:47 PM Report abuse +1 rate up rate down Reply
Jace_TBL

I fully agree, sir. Not investing in anything you don't fully understand is indeed the smart thing to do!

Having said so, weusecoins.com and bitcoin.org would be good starting points to get some more information. And bitcointalk.org is a very active and informative forum to learn anything Bitcoin related. Furthermore, 0.mk/bitcoinfaq may also answer questions or doubts you have.

As for the question what backs up Bitcoin: essentially the same thing that backs up gold or silver. Nothing, except the trust that other people will agree on the value it represents, and accept to trade products or services for it. Note that compared to gold or silver, Bitcoin has some major advantages: see 0.mk/bitcoin-vs-fiat-and-gold

Who administers Bitcoin: everybody. The entire Bitcoin network. Note that Bitcoin is a decentralized peer-to-peer system. There are no accounts, or registered users, or administrators with special privileges, or central servers.

One more thing: Bitcoin is not just 'digitial currency'. Today, with most money transactions already happening electronically, euros and dollars are also 'digital currency' most of the time. More importantly, Bitcoin is *cryptocurrency*. That is, it is based on mathematical laws, rather than having to trust some bank or organization (think PayPal!) and their false promises.

Bitcoin is very ingenious, but also pretty complicated for the Average Joe. That's why it will still take at least several years before Bitcoins becomes mainstream. But it's coming. And it's gonna be huge. This is just one of those groundbreaking revolutionary advancements that is gonna change the world. As much as banks would like to see otherwise, we will soon no longer depend on them for handling our money.

June 19 2012 at 6:38 PM Report abuse rate up rate down Reply
Night Hawk

Fiat money is still fiat money no matter what you call it, without being backed by gold or silver it's no better then the dollar or euro.

June 19 2012 at 11:48 AM Report abuse -1 rate up rate down Reply
5 replies to Night Hawk's comment
Reo

We have to "Give and Take" to make it ...we really need each other!

I don't understand the Bitcoin system yet, but I might try a little bit!

I'm happy to be an American...living in America ;-D

June 19 2012 at 11:16 AM Report abuse rate up rate down Reply
vallowery1

Good luck paying a credit card bill, morgage, rent, or even buying milk with a Bitcoin.

June 19 2012 at 6:29 AM Report abuse rate up rate down Reply
3 replies to vallowery1's comment
commish12804

Greece will leave the Euro Zone, and with any luck there will be a massive earthquake that will sever Greece from the rest of Europe and send it sinking into the Aegean Sea.

June 19 2012 at 6:03 AM Report abuse -1 rate up rate down Reply
prime

One thing that is clear after reading these comments is, AOL clearly has the dial-up market in its hold because most of these comments are obviously made from a bunch of backwood rednecks who are at least 20 years behind the rest of the modernized USA. Its the end of the world in one comment, an Obama Conspiracy in the next, Some bull about a new world order. Wow

June 19 2012 at 6:00 AM Report abuse -2 rate up rate down Reply
1 reply to prime's comment
nick

what does your comment got to do with the article?

June 19 2012 at 6:28 AM Report abuse +2 rate up rate down Reply