Above: Watch 16×9′s full investigation into the growing mania behind Bitcoin.
Joerg Platzer’s Bar “Room 77″ is dark and filled with smoke. It conveys the edgy ambiance and quiet cool found all over Berlin’s Kreutzberg neighbourhood.
Bar 77 is now also a pilgrimage spot for Europeans looking to buy things without using cash or credit cards. Instead, they use a new kind of currency called Bitcoin, which only exists on the Internet.
Bitcoin is not tied to any government or central bank and its backers say it has the potential to revolutionize the world. Platzer, whose bar was the first to accept Bitcoin, likes the anti-establishment ethos of this currency.
“No president, no king in this world can stop a Bitcoin transaction,” Platzer explains.
“When you use Bitcoin you are totally in control over your own money….You don’t hold Bitcoins in a bank account where the government can take it away… you personally control it.”
Bitcoin is one of the first digital currencies used to send money through the Internet. It is a sort of Western Union, Visa or Paypal, except there is no bank or large corporation acting as a middleman. Bitcoins are issued through a process called “mining” and are generated by super computers that crack complex codes and are issued a certain number of Bitcoins in exchange.
When a code is cracked, the person who owns the computer now has a new Bitcoin and – like a lump of gold – they can sell it or use it to buy things. The number of Bitcoin is finite – capped at 21 million.
And Bitcoin is growing. The crypto-currency is now accepted at more than two dozen establishments in Berlin alone and thousands of shops online. It also has worldwide appeal. The price of one Bitcoin has more than quadrupled in a matter of weeks reaching highs of over $1000 with major institutional investors on Wall Street as well as Chinese consumers buying in.
“Every major venture capital firm in the country is looking to invest in our company and they’re very serious about many companies in the space,” says Jaron Lukasiewicz, a New York entrepreneur who founded Coinsetter, one of several Bitcoin start-ups in that city. “Being a Bitcoin company right now… they want to invest too much money.”
But critics say that Bitcoin is also the perfect tool for criminals who want to purchase guns or drugs anonymously. Silk Road, a website that dealt in selling a wide array of illegal goods, only accepted Bitcoin. When the FBI shut it down in October, they called it “the most sophisticated criminal marketplace on the Internet.” One regulator called it “a haven for narco-traffickers, terrorists, and money launderers.” But already another illegal bazaar that uses Bitcoin has sprung up in Silk Road’s place. It is called Black Market Reloaded – and it boasts ads for cocaine, AK-47s, even grenades.
Arvind Jain, an economist at Montreal’s Concordia University thinks that the underlying fundamentals of the currency may be flawed.
“It’s being issued by an algorithm on a computer. But who’s deciding that? Who decides how many dollars are issued? Who has control over that and that part gives me a bit of fear that it has the potential to become a Ponzi scheme.”
Jain says our current financial system is not perfect but it works because it’s backed by governments with norms and institutions like regular elections and taxes.
On the other hand, Arvind says Bitcoin is only regulated by the free market and operates in a wild west of speculators and promoters.
“If you ask me what is going to be the value of Bitcoin in one year, I would say, somewhere between 20 and 2000 dollars…A bubble is not a stable situation,” says Jain. “It’s in the long run, very unhealthy for the economy.”
Jain also worries about a new digital currency emerging in another month.
“What prevents someone from coming up and saying my Bitcoin algorithm is better than yours … if something better comes along, there goes the value of Bitcoin.”
Still, for Bitcoin believers like Joerg Platzer, the currency is the next big thing in computing.
“I am as confident about it as I was about e-mail 25 years ago when everybody told me who is ever going to send these funny computer to computer messages that’s got no future.”
© Shaw Media, 2013