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Bitcoin Finds a Home in Cash-Loving Germany

7 Jan 2018 1:00 pm
By Zeke Turner 

BERLIN -- A motley crew of old-money investors, entrepreneurs, crypto-anarchists and anti-inflation hawks is rallying around bitcoin in a surprising place: cash-loving Germany.

Driven by interest from these very different constituencies, Germany and especially its capital are turning into a development hub for virtual currencies and blockchains, the distributed ledger technology that underpins them.

"It's a technology driven by anarchists who wanted to get rid of banks, and now the banks are promoting the technology," said Shermin Voshmgir, founder of BlockchainHub, a Berlin-based think tank that advocates for blockchain and the decentralized web. "Many of the main actors are based in Berlin," she said.

Germany's Deutsche Bank AG and Bertelsmann SE, among the biggest investment banks and media companies in the world, are both looking to integrate blockchain into their operations, according to company insiders. In Munich and Bonn, fintech startups and venture capitalists are jumping into the cryptocurrency field. In Berlin, a world-class blockchain coding community has been growing for years.

There have been 1307 blockchain-related computer coding projects running in Germany since 2008, according to an analysis by Deloitte of the coding platform GitHub, good enough for fourth place in the world, behind China, the U.S. and the U.K., and ahead of Japan. Members of the Berlin scene say that their real share of the development could be higher since projects aren't always based where coders are doing the work.

The traction of cryptocurrency in Germany -- a country known for its love of cash, skepticism toward complex financial instruments and late adoption of tech trends -- comes as a surprise.

A 2016 study in the International Journal of Central Banking showed that Germans used cash for 82% of transactions and 53% of all payments by value -- far more than American, British or French consumers. A popular German maxim holds that "nur Bares ist Wahres," or "only cash is real."

But Germans' love of cash hides a deeper obsession: a pervasive fear of inflation born from the trauma of prewar hyperinflation.

This fear has made Germans suspicious of the loose monetary policies conducted by the European Central Bank in the wake of the eurozone debt crisis. And it may be fueling some of the interest in bitcoin, which makes creating new coins onerous and caps the total number of coins in circulation, giving it strong anti-inflationary credentials, according to entrepreneurs and experts in Germany who have watched its rise.

It is also a system governed by rules rather than bankers, which followers of Germany's dominant ordo-liberal school of economic policy find infinitely preferable to individual discretion.

And, said Jürgen Stark, a German and the former member of the European Central Bank's executive board, "there are also a lot of market participants that, in the context of low or even negative interest rates, are ready to take a risk."

Some, like Jörg von Minckwitz, see bitcoin's appeal in its absence of central authority. The founder of bitcoin-based startup Bitwala in Berlin's Kreuzberg area said he got interested in cryptocurrencies during the debt crisis around 2011. "We in Germany have always had really big issues with central authorities" and "people who tried to control our money," he said.

The startup community in Berlin has also been attracting expatriates with the anarchist and privacy-activist undercurrents that had their beginnings in Berlin almost a century ago.

Trent McConaghy, a Canadian who founded BigchainDB GmbH in Berlin to create decentralized database software for companies, said the capital's history of openness reaches back to the Weimar period and got a boost from West German draft-dodgers during the Cold War.

"The (city's) subversive element just got way exponential," Mr. McConaghy said. "This is the substrate on which tech brews in Berlin."

Jörg Platzer, a German information architect with 30 years of experience, calls his Kreuzberg bar Room 77 "the first bricks 'n' mortar business ever [to have] accepted Bitcoin" and says the Stammtisch there on the first Thursday of every month is "the longest running Bitcoin meetup on earth as far as we know."

He has paid some of his local beer suppliers on and off with bitcoin for years. "At its core it's about the progress of the technology, and it's disrupting and liberating potential," he said.

Andreas Schildbach, a Berlin-based programmer, was an early developer of the mobile bitcoin wallet, a way of storing and paying with the currency from a smartphone. Gavin Wood, co-founder of Ethereum, the second-most prominent blockchain system, said most of the development work was completed by teams in Berlin. Insiders say that the city hosts myriad other coders working for companies registered officially in places like the U.K. or the Netherlands.

Mr. Schildbach declined to comment.

The excitement around cryptocurrencies and blockchain now reaches from that Berlin scene to the biggest bank in Frankfurt.

Blockchain "is a fabulous enabling technology that will help optimize our existing business but more importantly will open up new revenue streams," said Thomas Nielsen, Deutsche Bank's chief digital officer for transaction banking.

Venture capitalists who have long lamented the country's cautious embrace of new technologies are piling in too.

Finally German companies are sensing the chance to take part in leading a tech trend, said Alexander von Frankenberg, managing director of Germany's High-Tech Gründerfonds, the country's most-active seed-stage investor with backing from old-money German industrials like BASF SE, the world's biggest chemical company by sales, and the engineering group Robert Bosch GmbH.

Felix Haas, a venture capitalist in Munich, says "every week I have a business plan on my desk related to cryptocurrencies." Last month he launched a company called House of Coins to sell real estate in the Bavarian capital for bitcoins.

"Finally we are not missing the boat."

Write to Zeke Turner at Zeke.Turner@wsj.com

(END) Dow Jones Newswires

January 07, 2018 08:00 ET (13:00 GMT)

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