BERLIN -- A sign above the counter of a popular bar in Berlin's hip Kreuzberg district warns customers of owner Joerg Platzer's somewhat peculiar payment preferences: "I believe in honest money -- gold, silver and Bitcoin."
Platzer's Room77 is among a cluster of more than two dozen local businesses to accept the virtual currency for everyday payments. Stickers with Bitcoin symbols on restaurant doors and shop windows guide the way.
Instead of paying with cash or cards, many of Platzer's customers use their Android phones to scan a code that the waitress pulls up on a tablet PC. In seconds, bitcoins are transferred to pay the bill.
"Bitcoin, as a free and decentralized currency, is a beautiful idea," Platzer said. "Thanks to Bitcoin, we have increased our customer base. On average, I would say, we now have between one and five Bitcoin customers per day and Berlin is experiencing some ... Bitcoin tourism."
Experts say that about 11 million bitcoins are in circulation today, worth an estimated $1 billion dollars.
Invented in 2009 by an anonymous programmer known only by the alias Satoshi Nakamoto, Bitcoin has been transformed from an experiment during the financial crisis to a viable currency.
Around the corner from Room77, Ivan Crncic's printing shop started accepting Bitcoin earlier this year. For the young entrepreneur, Bitcoin is a sign of the times.
"I see that people are very interested in learning about Bitcoin and favor the currency's transparency and its freedom from government control," the 29-year-old Crncic said.
Users purchase bitcoins with the help of special software that generates a pair of unique codes, the so-called private and public keys, that are linked using mathematical encryption. Bitcoins are sent to someone’s public key; the private key is used to send payments.
The virtual money is stored in “wallets,” the creation of Bitcoins is called “mining” and a “blockchain” describes a public ledger of all transactions in the Bitcoin network.
Start-ups like Berlin-based 9flats.com, a “share economy” platform, say that the Bitcoin concept is working in their favor.
"The main advantage for our business is that we do not lose money on transaction fees because with Bitcoin there are none," said Alexander Lossenko, lead developer at 9flats.com.
To avoid the risk of devaluation and strong fluctuation in Bitcoin prices, companies like 9flats.com often use services that convert bitcoins into euro or dollars instantly.
"It also opens new markets for us. In Russia, for example, PayPal does not exist, so Bitcoin offers another alternative for payments," Lossenko added.
Because Bitcoin is not controlled or regulated by a central bank, the money-transfer system is surrounded by legal uncertainty and could be subject to illicit use.
"If criminals, like the Mafia or other illegal organizations, start to use these systems for dubious activities, then it is something to worry about," said Georg Erber, a cyber expert at the German Institute for Economic Research.
This month, the twins Cameron and Tyler Winklevoss, best known for a legal battle against Facebook, filed a proposal with the Securities and Exchange commission that would allow investors to trade bitcoins.
The growing popularity of the online money system is now also drawing attention from mainstream financial institutions, security outlets and policymakers.
In a recent analysis, the European Central Bank concluded that the growth of virtual currencies will continue and warned that “periodical examination of developments” is necessary.
Sebastian Galy, a New York-based senior currency strategist with Societe Generale, said that Bitcoin should be treated more like a "speculative commodity" than as a rival to dollars or euros.
"In this case the balance sheet is a fixed amount of coins which are distributed by some algorithm somewhere based on rules that have been set a while ago by someone we don't know,” he said. "So you could argue that it has some of the elements of a currency, but it is not really a very stable unit of measurement."
That volatility and day-to-day fluctuations could pose problems for small business owners trying to set prices.
But back in Berlin, which has been branded the "Bitcoin capital of the world," such warnings seem behind the times.
Netherlands native Florentina Martens opened up Floor's Cafe, a small and cozy coffee shop in Kreuzberg, this spring. Only a month later, she decided to offer Bitcoin as an alternative means of payment.
"The currency just fits the lifestyle here -- progressive, modern and often anti-establishment," said Martens, who has been living in Germany for four years.
Martens, 26, has not earned vast amounts of bitcoins yet.
"After all, I am selling cups of coffee," she added.
But her customers are getting more and more interested in the virtual money. "Many of the tourists that come to Kreuzberg, people from outside the community, applaud that they can pay with bitcoins here."
"Someday, I might exchange my bitcoins, but for now, I just use them for buying a burger around the corner," she said.
First published July 27 2013, 4:12 AM