The city has long been a den for cypherpunks, crypto-anarchists and dark webbers. But now locals are getting rich on the cryptocurrency craze and Berlin has become a serious hub for the technology. How did bitcoin become so mainstream?
It’s been over four years since Bitcoin’s market value jumped from €80 to about €647 and Exberliner published its first piece about “Betting on bits”. At the moment, the virtual currency is on its way down from €13,600 in December to around €6,900 at time of press. But despite the drop, readers who were inspired to quickly invest in this hypervolatile nascent technology in 2014 would still have enjoyed a pretty serious return in 2018.
Anyone with a network in the scene now finds their social media feeds flooded with pictures of Lamborghinis, yachts, and prototypical beach vacations all bought from the returns made from betting on Bitcoin early. Those who are not part of the community are still trying to understand the phenomenon and whether they, too, should be jumping on the crypto bandwagon. Basically, everyone wants to know how to turn €80 into €13,600 for free and, well, fair enough.
A Kreuzberg pioneer’s ideals
Sitting outside his bar in Kreuzberg, Room 77, Jörg Platzer looks like a man who made a good investment for good reasons. Everyone in his vicinity seems to be aware of this too: people coming by pat him on the back or give him discreet nods of recognition. He is greeted by friends in multiple languages. This might not seem unusual for a bar owner, but Room 77 has an added feature: it was the first brick and mortar business in the world to accept Bitcoin as a means of payment.
In May 2011, when Platzer reportedly sold his first pint in exchange for the pioneer cryptocurrency, Bitcoin was far from big enterprise. He explains that he would have been lucky to have one or two customers a month looking to try it out. But the handful of enthusiasts who came to the bar in 2011 to spend their new internet money had found a home. They would lug their laptops into the bar and manually type in their Bitcoin wallet addresses, a cryptographically secure chain of numbers and letters, and thereby join a movement looking to overturn our current financial system.
Back in the day, the technology was simply another extension of a grander ideology, explains Platzer. Posted on the walls, next to the Bitcoin stickers, one finds quotes from the likes of Julian Assange, Edward Snowden, and Aaron Schwartz. There is even a printout of “Free Ross Ulbricht”, the founder of the dark web marketplace, the Silk Road, taped to the wall. Below a panel of spirits, a sign reads: “I BELIEVE IN HONEST MONEY / GOLD, SILVER AND BITCOIN.” Platzer considers himself a crypto-anarchist, economist and ideological relative of the same utopian values that the internet promised: “I was never part of any official Cypherpunk group, but I was part of the movement,” he says referring to the few people really interested in cryptography and its technological applications during the 1990s.
The connection to the internet is critical because according to many, blockchain technology which underpins Bitcoin could birth a “web 3.0.” It’s still early days, but the hype is palpable. If not yet opening up a new technological era, Bitcoin does promise a correction to one of the internet’s original sins. Platzer explains: “The first mistake we made was not to have built money into the web. A means of payment. People needed a way to monetize their content. The only problem was no one invented the fucking digital cash to do it.”
From idealism to investment
While the logic seems oddly capitalistic, the alternative has clearly been much worse. In the absence of a native currency for the internet, banner ads, pop-ups, and click baits have spawned. Without internet money, Platzer argues, companies like Google and Amazon have a high incentive to collect as much data as possible and turn that into money. In 2017, Facebook alone made nearly $40 billion in advertising revenue. Platzer is sure that “if sites had had a button to let you send a micropayment, there would never have been all this advertising and giving-up-my-credit-card-details shit.” In the eyes of people like him, Bitcoin provided an anonymous way of exchanging value on the internet. No one harvests any data; everyone walks away with clean hands – that was the idea.
What the Bitcoin pioneer is presenting as internet idealism has actually made him a lot of money. When asked if he would divulge information on his returns since accepting cryptocurrencies, Platzer responds abruptly: “Sorry, that’s not possible. I’m sure your editor understands that very well.” With a bit of simple arithmetic, however, we can arrive at a general conclusion: when the bar began accepting the virtual money, a Bitcoin was worth about €0.80, so a €4.20 pint would have cost around 5.25 BTC. In 2012, the price of Bitcoin rose to about €4.25 and that same beer would have then cost something like 0.9 BTC. So, in the span of 12 months, Platzer enjoyed a fivefold increase in value on that one beer sold in his bar. Skip ahead to December 2017, when Bitcoin was worth €13,600 a pop, meaning the Bitcoin value-equivalent of that same beer sold in 2011 (i.e. 5.25 BTC) was now worth around €85,000.
As the price of Bitcoin climbed, speculators entered the scene and the clientele at Room 77 changed. People were now showing up with their smartphone-integrated Bitcoin “wallets”, making transactions by conveniently swiping a QR code. In 2011, when people showed up for the monthly Bitcoin meet-up, they didn’t see it as a means to make a living. Now, the same meet-ups at the bar attract start-up recruiters, libertarians and media representatives from notable German newspapers. At the March gathering, there even was a guy from Chad who explained that due to government-induced inflation of the country’s currency, many of his friends and family were turning to Bitcoin.
By now, institutional investors from J.P. Morgan and Goldman Sachs to politicians like Angela Merkel are waking up to this novel economic instrument – for very different reasons.
Due to the same privacy features lauded by Platzer, Bitcoin was quickly adopted by the dark web. Things on offer at places like the Silk Road and Hansa included computer parts, cars, guns, knives, drugs and even people. In those spaces Bitcoin was the sole means of payment.
Getting high on the gamble
Longtime Berliner Simon (name changed) works at a bar near Schlesisches Tor. Going by his job and when speaking with him, you wouldn’t necessarily identify this guy as a crypto day trader. He looks nothing like an overnight millionaire. He is slim, wears skinny black jeans and a black hoodie. And yet, in between guests arriving at the bar, the twentysomething talks about the big “bounce” due to happen in the next few weeks.
The plunge in price is bound to follow a big sell-off by a “whale” (a trustee from Mt.Gox, the first Bitcoin exchange, who is currently trying to pay off creditors and subsequently liquidating swaths of the virtual currency), a shock regulation passed by China, and just the general chaos of valuating something that has never previously existed. This is what Simon is talking about. “It is just like April last year,” he explains. “Things were pretty boring, not much movement, Bitcoin kind of dropped a bit. But it’ll go on a bull run before the summer.” A “bull run” is old school stock market terminology for a continuous price hike. It’s also the term that earned Bitcoin prime television slots over the past few months. The opposite is called a “bear market,” from which we are apparently slowly emerging now. Both, ironically, come directly from the trading institutions that Bitcoin was hoping to destroy.
“I’m bullish as long as it doesn’t dip below €6,000,” he says looking up from his phone. But this recent obsession wasn’t how Simon got hooked on trading. He explains that “at the end of 2014, maybe early 2015, I was just buying stuff on the dark web with Bitcoin. Mostly drugs for my friends. I just thought it was cool to have this Bitcoin wallet and use this new type of money.” Plus, Simon explains, it was only on the dark web that one could buy 100 percent pure cut Colombian cocaine. “I was basically just giving it away for free and telling my friends that I bought it with Bitcoin. I was never dealing,” he confirms. His early stage Bitcoin buying spree included the purchase of counterfeit money for an art project. The latter met its conclusion in 2015 after ten heavily armed Bundespolizisten broke down Simon’s door at six o’clock in the morning screaming, “Wo ist das Geld!? Wo ist es!?” In response to which he sheepishly pointed to a paper-mâché mobile he’d made from fake euro bills.
The ideal of freedom has more or less fallen by the way. Nobody gives a fuck.”
Apparently, servers for a major dark web marketplace in Holland had been compromised by local authorities. Names, addresses and purchasing histories had immediately become available and with the help of foreign authorities relevant individuals were arrested. But since the police couldn’t prove that Simon had been using the money for anything other than arts and crafts with his girlfriend, he only “spent like five minutes in jail.” He was lucky not to have been caught actually spending the counterfeits. But this event, the collapse of the Silk Road and the arrest of darknet market operator Ross Ulbricht spelled the end of Simon’s wanderings around the hidden parts of the internet. As for cryptocurrencies, though, he found yet another use for them: safe storage while traveling.
Changing bud for Bitcoin
A year after his run-in with the law, Simon and his girlfriend took up work harvesting marijuana on a farm in Humboldt County, California. “The work wasn’t too difficult and the pay was pretty good,” he adds. It was, however, still very much illegal in California to grow the plant in 2016 and thus the couple’s paychecks were strictly in cash. “But you don’t really want to be travelling with huge stacks of cash in your bag. It just didn’t make sense. So we put it into Bitcoin.”
This process of moving money was performed via the German online bank Fidor and their convenient relationship with Bitcoin.de, the German Bitcoin exchange. Customers of the bank can open an account at Bitcoin.de, transfer any Bitcoin holdings from their personal wallets onto the exchange, and then sell these holdings for euros or dollars using a Fidor account. From there, it’s just like real money. Simon would first exchange his cash into Bitcoin using localbitcoins.com, a peer-to-peer exchange now illegal in Germany, and keep them on his phone before changing them over to dollars whenever the couple needed it.
This type of activity is exactly what Chancellor Merkel and global regulators are looking to stamp out in 2018. While comparatively lenient, Germany has strict anti-money laundering (AML) and Know Your Customer (KYC) laws to prevent illegal money from moving hands. These kinds of global regulations were also a major talking point at the World Economic Forum in Davos, Switzerland this year. Joachim Wuermeling, a member of the Bundesbank executive board, told Reuters in January that “effective regulation of virtual currencies would only be achievable through the greatest possible international cooperation, because the regulatory power of nation-states is obviously limited.”
When they finally arrived at New York’s JFK airport for the flight back to Berlin, their plane was delayed nearly ten hours. With the €647 the airline paid as compensation, Simon bought Ripple, a cryptocurrency that acts like a share in “a real-time settlement system and remittance network.” He was basically buying virtual stock in the next generation Moneygram or Western Union. And in 2016, this was an excellent decision. He recounts staking in Ripple when it was trading at less than half a cent per unit. By January 2018, the same digital currency reached approximately €2.50 a unit. This means that, simply by taking the gamble, Simon turned his €647 into €323,500. “It was good, but I was greedy and I could’ve made more,” he laments, “I should’ve sold some of it at the time, but you learn.” Naturally, his interest was piqued and he began further exploring the fast-growing market. “And then Monero started posting stuff about integrating into dark web sites and so I bought some of that too when it was like $11 or so,” he continues. Monero is perhaps the leading privacy-centric cryptocurrency and as such is becoming the new alternative for dark webbers in 2018. Now trading at €184 per coin, it has proven another excellent stroke of luck for Simon.
When asked about paying taxes on his capital gains here in Germany, Simon is quick to reply: “Basically, if you hold a coin for more than a year, you don’t need to pay taxes on it. So I just sort of pull from the Bitcoin I had from when I started and only take out little amounts to pay my rent or whatever.” At the moment, Simon claims to be earning roughly €1600 per month, but “it’s obviously different if I catch a coin on a big run.” So, why the bar gig? “It’s good to get out and socialize. I’m just reading charts all day and following different threads. Even at the bar, I’m still constantly checking my phone. I think I drive my girlfriend crazy. We’ll be going to Asia for a while, which will be good,” he says. “Maybe I’ll quit one day, but I like working some hours here and there.”
A sobering turn
While Simon contemplates what exactly to do with his new windfall, others are repositioning entire companies to find the next Bitcoins, Ripples, and Moneros. April saw the very first C³ Crypto Conference, “Germany’s largest conference on cryptocurrency and blockchain,” which allowed participants to get a better feel for how crypto startups are trying to get their share of all this money. The Station, the conference venue near Gleisdreieck, is done up in blue banners and a striking amount of suits and start-up types pour through the venue’s iron gates. A scene that would probably make cypherpunks, dark webbers, and the 2011 anarchist folk cringe.
On day one of the two-day event, conference founder Dennis Weidner talks about his marketing firm Paranoid Internet and why people in Berlin suddenly are so stoked about Bitcoin. His company currently represents several cryptocurrency ventures looking to generate a native cryptocurrency, projects ranging from Holo (decentralised data storage), to redBUX (a currency for virtual reality porn).
When these tokens are made, they are then put on sale, or “offered,” at a discount for anyone to buy up with currencies like Bitcoin. The business model is called ICO – short for initial coin offering – and, according to Weidner, these discounted tokens will draw colossal gains.
These ventures are basically trying to recreate what Simon experienced with Ripple, but start even earlier, when the virtual shares are worth even less and the windfall could be even greater. Weidner is there to translate the crypto jargon to eager investors. He found a niche left open by the early crypto-nerds who couldn’t get their point across: “In 2015 and 2016, all these developers were screaming ‘Check out this new technology!’ – but no one understood what they were talking about.” Berlin, he says, is an ideal base for what he does: “When I want to know what’s going on in America, I can find out right here in the city. It’s like a big think tank, everyone’s exchanging ideas. It’s all about people.”
Despite the promise of fortunes, it’s all highly tenuous. With billion euro sums flying across the internet, a lot can go wrong. So while this new funding model can be an excellent tool for attracting non-accredited investors, many ICOs have been shut down for fraudulent behaviour and down-right shadiness. Even ten years since Bitcoin’s inception, cyber money is struggling with its identity. Buzzwords like ‘mass adoption,’ and ‘ecosystem,’ are repeated constantly at conferences like C³, but back at Room 77 they ring superfluous to people like Platzer. He still thinks there is something much more important at stake: “We have reached everybody that we want to reach, but while everybody went crazy about Bitcoin, the ideal of freedom has more or less fallen by the way. Nobody gives a fuck. I could sometimes freak out about the surveillance state my government has built with my tax money.”
Perhaps the future isn’t Bitcoin. Nonetheless, in the information age, it is addressing some of the most fundamental issues facing our society. Privacy, Big Data, all the Big Brothers: the internet seems to have opened a massive can of worms. Bitcoin, for what it’s worth in 2018, allows us to inspect the depths of this can – even if its value drops to zero tomorrow.