Betting on bits

JANUARY PREVIEW: From start-up sexism to the housing crisis, our January issue gives you a road map to the hot topics of 2014. Get a taste right now with our exploration of Bitcoin in Berlin.

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Photo by Michal Andrysiak

China may be Bitcoin’s biggest market, but Kreuzberg just might be its European capital: Graefekiez is home to the highest number of businesses accepting the cryptocurrency. Rachel Glassberg bought some for herself and met with local experts to figure out what to do with it.

It’s a wintry Saturday in late November and Betahaus is starting to feel like a greenhouse. For this edition of the monthly Bitcoin Exchange Berlin (BXB), spirits are especially high: in the past three weeks, the value of the cryptocurrency has soared from around €150 to over €600.

Exchange founder, host and self-described “Bitcoin evangelist” Aaron Koenig rings a bell to open the trading floor, and clusters of Bitcoin buyers – mostly thirtysomething male techie types – begin to form around the few sellers, recognisable by their black bowler hats and little chalkboards listing the amount they’re willing to part with. Near the door is performance artist and Bitcoin enthusiast Onyx Ashanti, clad in some light-up 3D printed plastic prostheses that emit “a sonic representation of the block chain”, the public transaction record that is also, thanks to some algorithmic magic, the means by which new Bitcoins are created. It sounds… glitchy.

A bespectacled middle-aged Irish expat, one of the few female participants, catches my eye. She’s seated quietly with her laptop next to Dennis Daiber, the only seller not wearing a hat: these two clearly mean business. I watch as she counts out €3500 in cash.

“I’ve been meaning to do this for a while,” she tells me. “It’s no more risky than keeping it in a bank.” (Unless you lose the device it’s stored in, that is: the story of a London man who lost $7.5 million in Bitcoins last November when he threw out his hard drive is a reminder that creating a backup is crucial.)

The chalkboard around the neck of another seller, Alex, announces he is selling only small amounts. The curly-haired twentysomething recently moved to Berlin from Australia. Not long after his arrival, he bought a round of beers for some friends, and one of them paid him back in Bitcoin. He realised that the neighbourhood he’d moved to, Graefekiez, was home to myriad Bitcoin-accepting establishments, first and foremost among them Jörg Platzer’s beer-and-burger joint Room 77. His interest piqued, Alex converted a sizeable chunk of his savings using an online exchange. Now, just a few months later, his money has more than quadrupled. He sells off parts of his windfall at events like BXB both to make a little pocket change and to provide a jumping-off point for “people who don’t have any Bitcoin yet.”

Which, today, includes me. After frantically casting about for a Bitcoin client that works on IOS devices – most people are using Bitcoin Wallet for Android, created by German developer Andreas Schildbach – I’ve managed to download an app called Blockchain onto my Ipad. The app is a virtual ‘wallet’ for Bitcoin addresses, cryptographically encoded combinations of letters and numbers through which the currency is stored and transferred.

My very first address takes the form of a QR code. I hand Alex €10 and, after quickly double-checking the conversion rates, he scans my code and transfers 0.0166 BTC to me. Immediately, the amount shows up in my ‘wallet’; not long afterwards, the transaction is confirmed as legitimate by the decentralised peer-to-peer network that forms the framework of the Bitcoin system.

Bitcoin will not turn into money until people are actually able to buy food with it.

Over the two weeks that follow, I check the app compulsively as my meagre investment rises and falls, surpassing €12 as Bitcoin reaches a record high on November 29, then plummeting closer to €8 as the People’s Bank of China issues a warning against the currency on December 5. Should I keep it? Or buy a beer with it while I still can?

Since it was first conceived by a person or group known as “Satoshi Nakamoto” in 2008, Bitcoin has gone from cyberpunk fantasy to black-market infamy as the currency of choice on hidden online marketplace Silk Road, to legitimate economic force. Last month, nearly €18 million changed hands on the German exchange alone… and that represents just a tiny sliver of the total market.

Supporters of the currency tout its advantages: it’s anonymous yet transparent, theoretically immune to inflation (only 21 million Bitcoins will ever exist because that limit has been pre-programmed into the “mining” system through which the currency is produced; 12 million are on the market thus far) and an open-source network that allows for money exchanges sans middleman.

Detractors point out that transactions are irreversible, that Bitcoin is vulnerable to theft and loss and that the current upswing in value suspiciously resembles the dot-com bubble of the early 2000s – or even the Dutch tulip craze of the 1630s. Bitcoin has been banned in Thailand and warned against in France and China (its biggest market, where about 40 percent of exchange activity takes place).

Meanwhile, Germany has taken a more progressive stance, becoming the first country to legally recognise Bitcoin as a “unit of account” after a parliamentary inquiry in August.

“It’s not the government’s role to recognise Bitcoin,” Aaron Koenig scoffs. “Does Germany need to recognise the internet, or the mobile phone?” A staunch libertarian, Koenig chaired the Pirate Party during the 2009 election season but was voted out over ideological differences: “I agreed with the original agenda, but then it went completely in a socialist direction…”

He is a big believer in the Austrian School of economics, which advocates the gold standard and denounces federal regulation of money – so when he first heard about Bitcoin in 2011, he was quick to get on board. His video production company Bitfilm now pays employees in Bitcoin, and half of his current clients are Bitcoin startups, including, for which he made an educational cartoon featuring “Dr. Münzmacher”.

Koenig launched the BXB in June of this year, inspired by similar “Satoshi Square” gatherings in New York. The hats, the bell-ringing, the talks by visiting experts – it’s all meant to “lower the entry barrier, make Bitcoin accessible to normal people.” The friendly group setting is certainly more appealing than the alternatives: online platforms, which charge transaction fees and require would-be buyers to submit identification and proof of address; and one-on-one meetups via, which involve a certain amount of trust and risk.

There’s just one problem. “Last time, we had significantly fewer people with hats. It’s natural that the rising exchange rate makes them want to hold onto their Bitcoins.” Like me, they’re waiting to see how much higher the value will go…

There’s at least one seller Koenig can always count on. I meet Dennis Daiber at Room 77 just prior to the monthly Bitcoin meetup – more of an informal hangout than an exchange and a welcome chance for Daiber, who’s married with kids, to cut loose a little. He tells me that the Bitcoins he sells are obtained through mining. Day and night, specially purchased computer equipment stashed by Daiber “in a basement somewhere” performs a series of complex calculations that are “pooled” with those of millions of other miners around the world.

Every 10 minutes, those calculations result in a Bitcoin “reward” that is split between each miner in the pool. When Bitcoins were worth less, produced more frequently and mined by fewer people, Daiber cleared 300 BTC per month. Now he makes around 5 BTC, barely enough to offset the €40,000 of equipment he’s using. And as the rate of Bitcoin creation slows until it ceases altogether in 2140, mining will only get more expensive and less lucrative. “It doesn’t make sense to do it as an individual anymore,” he says. “I only do it because I still have the equipment. I can’t sell it – it’s already outdated.”

But Daiber is more than your average computer geek. A stockbroker by day, yet “distrustful of the financial system”, he also runs BitcoinCommodities, a site that allows people to trade their Bitcoin in for gold and silver. It’s completely legal and, with 1000 customers and a turnover of €3 million, one of the top Bitcoin webshops in the world.

To receive money through his site, Daiber has partnered with BitcoinsBerlin, a year-old startup founded by Jan Goslicki and headquartered in Friedrichshain. Labelling itself a “Bitcoin startup incubator”, the company enables websites to accept Bitcoin using Bitpay, a US-based web service. Customers pay a merchant in Bitcoins; Bitpay sends the merchant the equivalent amount in euros. The service costs either $30 per month or one percent of every transaction – vastly lower, Goslicki points out, than the fees associated with credit cards. And because of the peer-to-peer system, he says, “it’s not possible to create fraudulent transactions.”

Of all the bitcoin proponents I meet, Goslicki seems the most pragmatic. He refers to Bitcoin as “a currency made for the internet” and still sees the current financial system as adequate for face-to-face transactions. In fact, his company owes much of their profit to a willingness to use said financial system in the face of Bitcoin users’ paranoia: among their services is a “shopping agent” that charges a 5 percent commission to make payments to non-Bitcoin-accepting companies on behalf of Bitcoin-paying customers who don’t have, or don’t want to use, credit cards.

If one Berliner has his way, Goslicki’s shopping service will soon be obsolete. “Is Berlin the Bitcoin capital of Europe?” asks Jörg Platzer rhetorically. “Why not the world?” As the owner of Room 77 and mastermind behind the “Bitcoinkiez”, a still-growing group of Graefekiez businesses that accept the currency, Platzer is the man who put Berlin on the Bitcoin map.

He opened the bar in 2004; before that, he’d worked as an “information architect”, developing online marketing strategies for big names including Mercedes while fostering an obsession with “hacking, phreaking and crypto-stuff”.

After finding out about Bitcoin in 2010, Platzer co-founded the Berlin-based Crypto Economics Consulting Group. Their first order of business: “How can we make this bigger?”

Applying all his marketing know-how, Platzer hatched a plan. “I said, Bitcoin will not turn into money just because financial regulators say it’s money, or Wall Street people start speculating with it. It’ll turn into money when people are actually able to buy food with it.”

In early 2011, Room 77 became the world’s first brick-and-mortar establishment to accept Bitcoin… just in time for a March price surge and ensuing journalistic frenzy. “It allowed us to give the media pictures of normal people doing normal things that other people understand.”

The novel idea of spending bits on beers attracted not only media attention but also new business from tech-savvy tourists and locals. Over the course of the next year, Platzer spread the gospel of Bitcoin among his Graefekiez neighbours. Italian restaurant Prima Maggio, cocktail bar Fabelhaft and record shop Longplayer were the first to get on board at the end of 2012, with other establishments soon following suit.

There are currently seven Bitcoin-accepting bars, cafes and stores listed on Platzer’s site, and he estimates there are “at least two dozen” total in Berlin. Add to that restaurant takeaway site and German AirBNB competitor, and Berliners can (theoretically) eat, drink, sleep and shop without having to spend a single euro.

Platzer’s next move: co-chairing the newly formed Bundesverband Bitcoin, a non-profit organisation dedicated to the recognition and promotion of Bitcoin in Germany. Like the currency it supports, Platzer hopes that the organisation will be open-source and decentralised, with members deciding how their €25 membership fees will be spent.

Although he is dedicated to promoting Bitcoin, “I’m not going to advise people to invest money in it – at least, money they’re not willing to lose,” Platzer says. “Here in the community, we still call it an ‘experiment’.” He smiles. “But a very successful one.”

Two weeks after acquiring my first Bitcoin, I’m finally ready to start spending it. Floor’s, an eight-month-old cafe on Schönleinstraße that proudly displays one of Platzer’s “Bitcoin Accepted Here” stickers in the window, is as good a place as any. After ordering my coffee and croissant, I switch on my Ipad, open Blockchain, scan the QR by the counter, input the Bitcoin equivalent of €4 and hit “send”… only to receive an error message.

My frustrated cursing catches the attention of Onyx Ashanti. He’s been sitting in the back corner eating a sandwich, incognito without his cyborg accoutrements. Does he come here only because it accepts Bitcoin? “Well, and I like their paninis.” He tells me that my problem probably has something to do with IOS – if I was really serious about Bitcoin, he says, I’d get an Android device. It seems that if Bitcoin is going to find the wider acceptance Platzer and company are hoping for, either the network or Apple is going to have to do some capitulating. And that for all the talk of not trusting banks and credit card companies, Bitcoin requires even more trust: trust in a code that, however open-source, is gibberish to most of us; trust that the community of people who prop the network up won’t abandon it for Litecoin or the next trendy cryptocurrency that comes along.

It takes 20 minutes of troubleshooting, but finally 0.00591 Bitcoins sail off into the ether, leaving me with around €6… but not for long. In the next days, as China continues its attempts to regulate the currency and speculative hype begins to die down, the November Bitcoin bubble deflates significantly. I’m wondering if I should cut my losses and blow my remainder on a cocktail at Fabelhaft when I remember what Koenig told me: “We’re just at the very beginning. It might not be long before you pay one Satoshi [0.00000001 BTC] for a coffee.” I decide to hold onto it. For now.