Recently we have seen both Argentina and Ukraine fall into two very different types of crises, but the economic results appear to be the same.
Both countries have seen their national currencies fall in value, withdrawal limits put in place to prevent bank runs and currency controls implemented to prevent capital outflows. These conditions greatly hamper trade, forcing many individuals to resort to bartering as their main payment method. These conditions can open the door for Bitcoin.
During times of crisis, the simple ability to trade and secure wealth becomes significantly compromised. Trade comes to a stand still, all facets of a nation's economy are strained and small business owners see their livelihoods destroyed. As faith in the status quo disintegrates, likelihood of bank runs will increase which further strains trade and commerce. Traditional payment networks such as credit cards and other centralized digital payment systems will often go down. Additionally, the national currency may experience a significant loss of value due to reduced faith in the government. Bitcoin is a decentralized global currency, and as a result, remains unaffected by national level crises. It provides a unique refuge for merchants looking for a crisis-resistant payments solution.
The Bitcoin network runs through the Internet, and with just a smartphone, a merchant can accept Bitcoin payments from customers globally. Bitcoin payments are executed instantly, have a small fee paid by the sender, and have no chargebacks. The Bitcoin network has a public ledger, the blockchain, which provides a built in proof of payment. Anyone can store a copy of this for his or her own record. Furthermore, services like BitPagos allow merchants in crisis-inflicted areas to accept international credit cards, receiving payouts in Bitcoin.
All Bitcoin are stored in the cloud, making them particularly resistant to government seizure or theft. As long as nobody gets access to your private key (the long string of letters and numbers that acts as your password), they can't get access to your funds. If you memorize a seed to your private key, a 12-word passphrase, access to your funds is essentially stored in your own memory. Bitcoin is a completely self contained system, separate of traditional payment networks, making it more resilient in times of crisis than anything possible within the current system.
That being said, there is currently one major caveatyou need Internet access to accept Bitcoin payments. There are currently three projects attempting to solve this issue, using texts messages, satellites and digital television signals. The project using text messages, 37Coines, is the farthest along and has a functioning product. The other two are currently in a proof-of-concept phase. 37Coins enables users to send and receive Bitcoin using just SMS text messages, without the need for Internet.
Since Bitcoin is not only a payment network but also a competing currency system to traditional fiat currency, it is conceivable that in times of economic crisis, a government may choose to crack down on Bitcoin usage. This would greatly hamper Bitcoins usefulness as a payment system, and this possibility shouldnt be overlooked. Although governments can block Bitcoin, it's not an easy task. As it stands now, if a government were to cut off Internet and cell phone access completely, they could also stop all Bitcoin traffic. However, all Internet traffic would have to be cut off, as it would be nearly impossible for them to selectively block only Bitcoin traffic. A government can also make it difficult to buy, sell, and trade for Bitcoin, and could easily target merchants who accept Bitcoin and harass them. They could shut down financial services for Bitcoin exchanges, like we saw happen with Unisend earlier this week in Argentina. Similarly, earlier this summer the National Government of Ecuador banned Bitcoin, but it is yet to be seen how they will choose to enforce it. That being said, decentralized cash exchanges, such as Mycelium for Android and LocalBitcoins will continue to remain an option in most countries.
As Bitcoin continues to gain momentum and support around the globe, citizens that wish to accept payments and store their wealth outside of traditional economic systems can find a potential safe haven in Bitcoin. Bitcoin is still a very nascent technology, but as global adoption increases, Bitcoins usefulness in times of national crisis will continue to go up.
Matt Odell is a Bitcoin entrepreneur and Co-Founder of CoinPrices.io. Follow him on Twitter at @CoinPricesIO.
