The Washington Post

The reports of Bitcoin’s death may have been greatly exaggerated

People queue at an ATM outside a closed Laiki Bank branch in capital Nicosia, Cyprus, Thursday, March 21, 2013. (Petros Giannakouris/AP)

One of the most interesting side notes from the Cyprus bailout drama has been the sudden return to prominence of virtual currency Bitcoin after its fifteen minutes of fame in 2011.

In Cyprus, a combination of banking system volatility, strict capital controls and a dramatic loss of confidence in bank deposit insurance created almost perfect conditions for a Bitcoin comeback. In the last two weeks, the value of a single Bitcoin has exploded in value, from $40 to nearly $75 over the course of roughly two weeks, as depositors in Cyprus searched desperately for a way to keep their money from being confiscated during a bank bailout.

Bitcoin has become a new safe haven for investors similar to the way gold has historically been the favorite refuge of panicked investors during a financial crisis. Bitcoin has become so mainstream that worried Spaniards (many of whom see themselves as potentially the next victims in a financial contagion scenario) are downloading Bitcoin apps to their mobile devices at a rapid pace. There’s even a plan to install the first-ever Bitcoin ATM in Cyprus so individual investors can exchange their “real” currency for Bitcoins without the need for suddenly unreliable bank intermediaries.

Compare that scenario to 2011, when Bitcoin was first emerging as a decentralized cyber-currency, providing an opportunty to conduct shadowy financial transactions far from the prying eyes of bank regulators. The primary concern back then was privacy and finding a way to go off-grid. As such, Bitcoin was the perfect currency for the Occupy Wall Street crowd, living outside the traditional financial system of central banks, savings accounts and physical cash. And, not surprisingly, Bitcoin gained a reputation for being an outlaw currency, favored by black hat hackers, money launderers, drug dealers and tax cheats.

image of bitcoin (

You can now use Bitcoin as a payment option on Reddit, while some brick-and-mortar businesses are starting to accept virtual Bitcoins as a payment alternative. One homeowner in Canada, Mashable reports, is even willing to sell his roughly $400,000 house in exchange for Bitcoins.

But Bitcoin still makes a lot of people uncomfortable. Regulators and law enforcement officials by and large view Bitcoin as a dangerous tool for money laundering. Others refer to Bitcoin as an underground banking system or the currency of those who seek to engage in more controversial activities — such as financing the development of 3D-printed guns. And Bitcoin may not be as safe as its supporters would like to think, no matter how strong the encryption, given the Bitcoin heists and hacks of the past 18 months.

Nevertheless, some people have decided to put their full faith and credit, not in governments, but in the crowd and technology. They think nothing of storing digital wallets on smart phones, and no longer look askance when friends and family talk about alternative virtual currencies. (Remember FarmVille?) That said, we are increasingly aware of how nearly anything — especially our financial transactions — can be used to track our activities. Bitcoin may not be the answer to what ails the modern financial system, but it hints at a future in which technology plays an increasingly important role in stabilizing the ups and downs of any nation’s financial sector.

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Dominic Basulto is a futurist and blogger based in New York City.



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