Bitcoin

No, the Greek Banking Crisis Isn't About to Turn the Country Into a Bitcoin Paradise

If there ever were any Greeks to speak of transferring their savings into bitcoins, chances are most have stopped.

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"[T]he demand [for bitcoins] in the last four weeks has risen by 400 percent and the number of newly registered customers by 600 percent," Thanos Marinos, who operates Greece's only Bitcoin exchange, told CoinTelegraph.

Marinos' "400 percent" statistic has appeared in a slew of news reports, including outlets such as Reuters and the International Business Times, which assert that Greeks are pouring their money into cryptocurrency to protect it from the government.

"Greeks are rushing to Bitcoin," was the headline of a particularly flimsy CNN Money article that starts running out of gas for that assertion by its fourth sentence.

When sources with a clear interest in stoking a particular narrative talk in percentages without also providing a baseline number, reporters should fold up their spiral-bound notebooks and boldly tell their copy-hungry editors the bad news. In other words, if there were just one registered customer in Greece's Bitcoin exchange last month, and now there are five[*] registered customers, that's a 400 percent increase. And let's not forget that registered costumers often don't end up buying anything.

The first Bitcoin ATM in Greece ||| Easybit
Easybit

If there ever were any Greeks to speak of transferring their savings into bitcoins, chances are most have stopped. The easiest way to acquire bitcoins is through an online exchange like Coinbase, which involves paying in fiat currency with a credit or debit card. But Greek banks are currently blocking their customers from making online payments.

A small bookstore outside Athens did recently install the country's first Bitcoin ATM, which accepts cash. But with Greeks limited to withdrawing just 60 euros a day, who's going to want to trade his or her precious cash for a currency that can't be used to buy food and fuel? An employee at the bookstore with the Bitcoin ATM told eNews Channel Africa that "[s]ince…all hell broke loose, there has literally been zero interest."

The problem is the same one that arises in just about every potential Bitcoin use case: As long as dealing with cryptocurrency requires constantly interacting with the traditional banking system, bitcoins will mainly serve as just a way to store value—and a pretty lousy one at that because of their price volatility. The point of exchange between bitcoins and fiat currency severely limits the cryptocurrency's usefulness because governments use it as a chokepoint to gain control—either by effectively preventing people from buying bitcoins online, such as in Greece, or by subjecting companies that carry out these money transfers to a byzantine regulatory regime, such as in the U.S.

Bitcoin will only live up to its enormous promise when it can function as a closed system, meaning that consumers can purchase items at stores that accept bitcoins, which in turn pay their suppliers and employees in bitcoins, who in turn spend their bitcoins at other stores, and so on. The most exciting Bitcoin ventures are aimed at facilitating that transition, such as the Silicon Valley remittance startup, Abra.

I'm sure most Greeks would love to magically convert their entire economy to a currency that's beyond the government's reach, but getting there will require a tremendous amount of trust and liquidity. Unfortunately, a 400 percent increase in registered Bitcoin users over the last four weeks, or even a 400 percent increase in registered Bitcoin users over the next four weeks, won't come anywhere close to making that a reality.

[*] The original version of this blog post incorrectly stated that if there were "four registered customers, that's a 400 percent increase."