Can cryptocurrency be the much-needed savior to Greece’s Financial Crisis?
Throughout the years of Greece’s economic turmoil, bitcoin has been widely suggested as an alternative currency for the country. With a looming crisis, this may be a viable idea worth considering.
Bitcoins and other cryptocurrencies have been controversial for many, especially governments. Some describe cryptocurrency as revolutionary while others believe it to be a giant “pyramid scheme.” The biggest anxiety however is caused by the fact that it is unregulated.
The reality, however, is that cryptocurrencies could be the solution to the economic problems that some developed and developing countries are facing now. It does not mean that cryptocurrencies may be treated as panacea from all economic misfortunes. However, they have made financial services accessible to the unbanked and underbanked people. Cryptocurrencies and blockchain offer unimaginable possibilities.
Greece is not new to the world of cryptocurrencies notably Bitcoin. Greece’s former finance minister, Yanis Varoufakis claimed that the country could consider a parallel digital currency, using Bitcoin’s digital security and transparency. He also added that the currency’s value could be hedged against future tax.
According to Thanoos Marinos, the founder of BTCGreece, demand for Bitcoins rose by 400% during the 2015 Grexit. The value of the first cryptocurrency rose above $300 per bitcoin by the beginning of July when a referendum took place. CNN reported that Bitstamp, world’s largest exchange, also witnessed a 79% spike in bitcoin transactions from their ten-week average. These reports were confirmed by Bitcoin.de which said it had transactions ten times as the usual trade. Moreover, BTCGreece even planned to install 1,000 bitcoin ATMsnationwide, in partnership with European bitcoin platform, Cubits.
Although this rise in trading peaked at the time of Grexit, it was no more than coincidence. Much of the traffic received was not from Greek citizens. Greece’s crisis threw the entire Euro-zone in panic. Many of those who made trades and inquiries were from countries across Europe and they were likely to understand that a disaster similar to that of Greece could befall their countries. However that does not mean that Greeks did not show interest or make any investments. LakeBTC, a trading platform in Shanghai, China reported 40% increase in visitors using Greece’s IP addresses.
The biggest argument for bitcoin’s unpopularity in Greece is, however, money itself and technology constraints. Majority of Greeks do not have money to invest in bitcoins, they can barely meet their daily needs in fact. As for technology, in 2015, Greece had only one Bitcoin exchange and bitcoin ATM. This has however improved as the country now has four more ATMs, bringing the total to five, though still insignificant.
Another major huddle is that businesses in Greece do not trade in bitcoins. According to Coinmap, there are less than a hundred places in the country accepting bitcoin. Furthermore, many Greeks do not have information about bitcoins and the few that do are skeptical. Communication is key for bitcoin to reach mainstream adoption.
Bitcoin safer than the Mattress
Greece’s citizens may resolve to traditional forms of storage such as safes or mattresses if recent events are anything to go by. Banks have witnessed major cash withdrawals from regional banks, amounting close to 2.5 billion euros. According to the publication Eidiseis, the move has shaken up the entire regional banking community. The alternative to mattresses and safes is digital currency’s store of value. Keeping bitcoin in digital storages is a secure method.
Benefits of Bitcoins
- Decentralization: Bitcoins operate on a peer-to-peer basis. Unlike fiat currencies that operate under one central authority, the bitcoin blockchain network is managed by mass. Bitcoins offer a hedge against unstable currencies and banking systems
- Global Recognition: Cryptocurrencies operate at the global level and are not bound to any countries financial regulations. There are no transaction charges, interest rates or exchange rates, therefore can be used without any problems.
- Fraud: It is impossible to counterfeit cryptocurrencies or make arbitrary charges as is with credit cards. Blockchain has an elaborate encryption procedure making them secure.
The deadlock between Greece and its creditors may not end anytime soon. The austerity measures are socially unbearable, and citizens are growing tired. Greece needs a way out. Culturally, Greeks are a communal society, and this may increase acceptance of cryptocurrencies.
Varoufakis believes that a digital currency could be a savior to Greece and possibly a way around the European Central Bank’s stringent measures. However, he proposes that the government must have control over the currency and make it taxable. He further adds that a parallel digital currency would boost the money supply and provide a source of liquidity for the governments that is outside the bond markets. Although in agreement with having digital currencies, he is against Bitcoin terming them as deflationary, and bad for Greece.
Reasons against Bitcoin use in Greece
Bitcoin is a deflationary currency
Greece’s economic turbulence is a result of its huge debt. A low amount of euros are in circulation in the country. The European Central Bank prints Euros and controls the money in circulation. Therefore, Greece can ask for a bailout as they already have. Switching to bitcoins means Greece will not have control over the number of bitcoins in circulation. Consequently, they will have no creditors in the event of a shortage in bitcoins.
BTC is capped at 21 million bitcoins. So far, there are 13,882,100 bitcoins in circulation today, with 20,343,750 more bitcoins expected by January 1, 2025. When all of these bitcoins have been produced, the supply of bitcoins will cease to grow while the demand continues to grow. About 10 million people own bitcoins. Assuming that bitcoin is a successful currency and the price keeps increasing, one or two billion people will own bitcoins in 20 years. Therefore, the value of bitcoin will continue to grow, and the price of products valued in bitcoin will become less in number.
The price of bitcoin is highly volatile and it is thinly traded. There is no effective way to control it. For instance, in 2012, the price of one bitcoin was $11 rising to $1,100 a year later. Bitcoin is more volatile than the dollar. The dollar exchange rate is unlikely to change significantly, but the exchange rates for bitcoin will bounce around more. Therefore, bitcoins may not be a viable solution for Greece, an economy in a crisis of solvency and liquidity.
Cost of electricityBitcoin mining requires electricity, lots of electricity. In a report published by the International Energy Agency, global bitcoin mining consumes more electricity than some countries. According to Digiconomist mining of bitcoin and ethereum combined, consumes more power than countries like Syria. Bitcoin mining alone consumes 14.54 terawatt-hours. One bitcoin transaction requires the same amount of electricity used to power a household for a month, reports Dutch bank ING.
Bitcoin mining components, especially graphics cards require a lot of power. In addition, bitcoin verification consumes a lot of power since the protocol used requires a lot of processing power. Bitcoin verification aims at making verification expensive to deter fraudulent transactions. More energy-expensive bitcoin is more secure.
Embracing bitcoins will increase the number of miners, growing the total energy consumption to epic proportions. Time taken to mine bitcoins remains constant, but the computing power varies. As more people join the network, more computing power is used and as a result more electricity.
Greece has the most expensive electricity in Europe. By the first half of 2016, the average electricity price was 17.6 euros cents per kWh. A 49% increase from 2010, when Greece started experiencing a new wave of crisis. Electricity bills are unpayable for thousands of households. Mining bitcoins will be detrimental, for the already struggling country. It will not be as profitable as the input exceeds the output.
Italy, also on the brink of an economic crisis is one of the countries that have embraced cryptocurrencies. Though marred with many challenges, the country has reported having a few bitcoin millionaires. Michele Ficara Manganelli, president of Assodigitale, however, reports that net profit of bitcoin mining does not exceed 20-euro equivalent. He cites high electricity cost and fast obsoleteness rate of mining machinery and equipment as the biggest contributor to this.
Besides, education and infrastructure are not available for mass adoption. Moreover, a large segment of the population worldwide would likely not consider bitcoins - they are difficult to access. The scenario may be no different in Greece.
The situation in Greece emphasizes the important role that decentralized currencies will play in the future: a challenge to monopolistic control over money imposed by governments. The world will experience financial freedom when the world adopts decentralized systems. For now, it is, however, difficult to tell if this is the best remedy for Greece.
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