Tech

Why Bitcoin Won’t Save Greece

As Greece continued its hurtle towards a potential default on Monday, banks remained closed and worried citizens in the country lined up to get money from ATMs, where withdrawals had been capped at 60 euros. As panic surrounding Greece’s economic instability mounts, another effect has emerged from the crisis: a renewed buzz about Bitcoin.

Many people are linking the potential default to a recent surge in the cryptocurrency, which was worth $255.76 USD at the time of writing, the highest rate in more than two months, according to Reuters. Almost all of the stories on the front page of Reddit’s r/bitcoin were related to Greece on Monday afternoon, and various publications heralded Bitcoin as a solution for Greeks affected by the potential default. “Bitcoin is the real winner in Greece crisis,” one headline read. Another publication called Bitcoin “the ideal instrument for Greeks to use as a store of value.”

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But many Bitcoin experts are not convinced the crisis in Greece is to blame for the surge in the currency, and even fewer think it is the answer to the embattled country’s financial problems. Nicholas Weaver, a researcher at the International Computer Science Institute, said he thinks connections between Greece’s crisis and Bitcoin’s success are flimsy at best.

“The problem is Bitcoin’s price is so volatile and so thinly traded, and there is no effective way to short Bitcoin, the market ends up being very irrational—it goes up and down all the time,” Weaver said. “Trying to peg any relatively small move (in this case, about 6 percent over the past week) to any given news is hard for a normal market, it’s impossible for such a thinly traded commodity as Bitcoin.”

Purchasing Bitcoin and converting it into usable currency is still fairly difficult for many people in Greece

Even some of Bitcoin’s vocal advocates are skeptical of how much the currency could help Greece with its current economic problems. Andreas Antonopoulos, a Bitcoin entrepreneur who grew up in Greece, said the currency is too young to offer a viable solution on such a large scale.

“At its core, the Greek financial crisis is a crisis of solvency and liquidity,” he said in an email. “There is not enough bitcoin liquidity to address that. Furthermore, bitcoin is currently in its infancy, a system that is 6 years old and resembles the pre-1994 Internet. All the potential and possibility is there, but the infrastructure, awareness, education, systems, user interfaces, on-ramps and off-ramps are simply not there or not ready for mass adoption.”

Weaver said the supposed benefit of digital currencies during economic crises is evading capital control, limits imposed on citizens such as ATM restrictions. However, in order for that model to work, the people affected would have to already have converted their money to Bitcoin.

“The worry is that you can’t withdraw, but Bitcoin won’t necessarily help that,” Weaver said. “If I can transfer my money out of a Greek bank account into a Bitcoin exchange, that means I can transfer it into my German bank account. What would you need Bitcoin for?”

Many people say a major draw of using Bitcoin during financial crises is that it is more democratized—not backed by any one entity and run on computers, meaning anyone can mine them. However, Nicolas Christin, an assistant research professor at Carnegie Mellon University who studies Bitcoin, says that is not necessarily the case.

“In practice, Bitcoin has become much more centralized than it was designed to be––a few outfits run the bulk of currency exchanges, a few large mining pools dominate currency production,” he said by email. “So, it is not entirely clear to me it is actually easy to circumvent capital controls using Bitcoin (and that’s setting aside the small detail that even attempting to do so might be completely illegal).”

Speculation about the effects of economic disorder on Bitcoin’s popularity is not unprecedented. New York Times journalist Nathaniel Popper recently reported the currency is disrupting the volatile economy of Argentina, which experienced a similar collapse to what Greece is facing in 2001. (For what it’s worth, the President of Argentina’s administration refuted this idea in a sarcastic tweet). In early 2013 during a financial crisis in Cyprus, the country imposed a one-time levy on bank deposits, causing many citizens to lose funds. Some Bitcoin proponents have theorized that the Cyprus crisis was behind a boom in Bitcoin at the time, but Christin is not so sure.

“There certainly was a temporal correlation, but establishing a causal relationship seems a lot harder (and dubious) to me, given that at the time Bitcoin was not very well known,” he said.

Christin also said purchasing Bitcoin and converting it into usable currency is still fairly difficult for many people in Greece.

“I strongly doubt that most segments of the population would strongly consider Bitcoin—it is still fairly hard to access, especially for larger amounts,” he said. “Furthermore, even assuming you can purchase those Bitcoin, then what? Do you leave them on the exchange wallet, considering how poorly exchanges have fared with hacks and breaches? Or do you repatriate them to your computer (which can be compromised or have malware), to your USB stick, or to a paper wallet? This sounds like a very complex process for most people, and I am really not so sure this would be an appealing choice except for a very small segment of the population.”

That isn’t to say that Bitcoin will never be a viable alternative during financial catastrophes. Antonopoulos said he believes imposing Bitcoin on a nation by government fiat would be the opposite of the principles the currency was built on, but that someday more people will voluntarily opt into it.

“Some day, perhaps as soon as 10 years from now, perhaps a bit further into the future, currencies like bitcoin will directly challenge the monopolistic control over money imposed by central banks and offer citizens an ‘opt out’ haven from hyperinflation, austerity and currency controls,” he said. “The current situation in Greece shows us why independent payment networks and independent currencies have an important role to play in our future, but unfortunately will not be able to help most Greeks this time.”

So although Bitcoin may someday be a more stable place to store your money, these experts aren’t recommending it any time soon.

“If you are worried about financial collapse, don’t invest in Bitcoin, invest in gold and .223s,” Weaver said.