Forced Creativity: Why Bitcoin Thrives in Former Socialist States

“People who work on Bitcoin understand the social impact of decentralization. Even though we now live in a free society, we can already see signs of ‘unfreedom’ or freedom being slowly taken away in many facets of life.”

Nestled between the Julian Alps and the Adriatic Sea, in a beautiful corner of Europe often ignored by international visitors who flock to nearby Veneto or the Dalmatian Coast, is Slovenia – a nation that gained independence from the former Yugoslavia in 1991.

As one of those travelers who was flocking to Venice, I accidentally stumbled into Slovenia several years ago only as a consequence of failing to get a train ticket to Italy. Once there, I decided to explore its impressive karst caves and the unadulterated natural beauty of Triglav National Park, before returning to its historic capital, Ljubljana, to sample the local culture.

While I recognized and appreciated Ljubljana’s friendly people and hearty Slavic cuisine, I was completely oblivious to another vibrant side of the city at the time — its upstart Bitcoin community.

A former socialist state, albeit one which oscillated between hardline policies and a greater degree of economic and personal freedom than existed elsewhere in the Eastern Bloc, Slovenia is a prime example of how cryptocurrency’s decentralized ethos resonates strongly with a citizenry that grew up with a strongly centralized government.

Today, when one talks about Slovenia and Bitcoin, the first name that comes to mind is likely to be Bitstamp — a cryptocurrency exchange formed in Ljubljana in 2011 that now has offices in London, New York, Luxembourg, and elsewhere.

In fact, Bitstamp is now the oldest cryptocurrency exchange still operating, having outlasted other old-school competitors such as Mt. Gox and BTC-e simply by being reliable. This longevity is quite an achievement in itself considering the extreme price volatility and lack of established business models in this nascent industry, especially prior to 2017.

Bitstamp: a national success story

When quizzed about regional tech prowess and fintech startups, most people will immediately speak of the bustling hubs of Silicon Valley, London, or Singapore. Small Slavic nations in Central Europe would seldom come into mind — after all, these nations were under Communist rule just three decades ago.

So, how is it that a company like Bitstamp was able to emerge from Ljubljana with little financial backing, compete in an industry as fiercely unpredictable as crypto, and go on to flourish for nearly a decade? Miha Grčar, Head of Business Development at Bitstamp and a veteran from the company’s early days, explained how Bitcoin and Bitstamp took off in Slovenia.

“The early group were mostly geeks, anarchists, and cypherpunks,” Grčar said. “But there was not too much economy here and there were not a lot of job prospects for young people, so when the price started going up, a lot of young people naturally started paying attention and learning about it.”

“In terms of Bitstamp, I think being among the first definitely helped. But then again we were also lucky — you need to be lucky in this industry.”

“But the things we could influence, I would say, we always tried to do what was best for our customers,” Grčar explained, “because trust in the early days was not something you could win easily. There were a lot of scams, and exchanges just went down and never came back. So, it was hard to do business in those days.”

“But,” he continued, “being reliable, being available, and just doing everything to be a business that people could trust, was a big deal. And in addition to that, we always had banking here, which was a very elusive thing in the early days.”

Grčar’s comments shed light on the monumental challenges crypto exchanges had to overcome just to survive in the early days. Not only was it difficult to win consumer trust in dealing with a novel digital asset which was outside the purview of financial regulators, it was even more difficult to get banking partners — which, of course, were crucial for serving the fiat on- and off-ramps for exchanges such as Bitstamp. No mainstream European banks were remotely interested in touching a crypto business at the time, so it appears that being based in a small and nimble country with local banks who were open to business was in fact a huge boon.

“Slovenia is a very small country with only a couple of million people, so a success story like Bitstamp gets a disproportionate amount of traction. It wouldn’t have been the case in Germany or the UK for example, and definitely not in the U.S. So, when the price of Bitcoin went up a lot in 2013, everybody paid attention to it,” concluded Grčar.

In a way, the success of a startup company and the budding industry it was in grew into a national success story, generating tremendous momentum which fed back into the industry itself. In fact, according to Coinmap.org, there are now more than 250 businesses accepting Bitcoin in Ljubljana today — disproportionately high for a city with a population of only 300,000 people.

Prague’s anarcho-capitalist soul

Further north, beyond the Austrian Alpine range, lies the Czech Republic (or Czechia), a nation that reawakened following the dissolution of Communist Czechoslovakia in the early 90’s. Its capital, Prague, is well known to visitors as a beautiful city replete with culture, history, and stunning well-preserved Gothic architecture.

The icing on the cake for crypto enthusiasts, though, is that Prague also happens to be a major hub for libertarians and Bitcoin. A Forbes study from 2018 showed that Prague had the highest number of Bitcoin businesses out of any city in the world.

Simon Dixon, Founder of BnkToTheFuture and a veteran in the Bitcoin space, shared with me an interesting anecdote on Prague’s secretive early crypto scene.

Dixon attended the first European Bitcoin conference in Prague in 2011, where he stumbled upon a “scavenger hunt” for the secret location of a hackathon. He recounted, “We had a bunch of clues taking us from one place in the city to another, until we ended up in a dark building that looked like a very dangerous crack den. We got to a room where you had to knock on the door in a certain way for them to open up, then you got in and there were a bunch of people coding away and there were QR codes which you could scan to buy a Mars Bar for 1 BTC.”

Today, a key enabler of Prague’s strong crypto community lies within a black painted three-storey building on Dělnická Street — the headquarters of Paralelní Polis, a non-profit organization dedicated to “cryptoanarchy.” The Paralelní Polis building includes a Bitcoin-only coffee shop, a coworking space, and a hacker space called the “Institute of Cryptoanarchy.”

Over the years Paralelní Polis has established itself as the gathering spot for events and hackathons related to crypto in the region.

The organization’s name means “parallel world” in Czech, which was a concept popularized by Czech activist and anti-Soviet dissident, Václav Benda. The idea of a parallel world was that since neither voting nor revolution seems effective in replacing existing governments and centrally planned systems with anything better, the only way to have a free society and free market is to build an independent, parallel system from scratch — outside the control of politicians, in a realm such as cyberspace.

Paralelní Polis was founded by Pavol Lupták, a prominent figure in the local anarcho-capitalist scene. When asked about the reasons behind Prague’s passion for Bitcoin, he replied, “The Bitcoin phenomenon in Prague is basically caused by two factors. One: crypto business pioneers, like SatoshiLabs or General Bytes, companies that are the world’s biggest producers of Bitcoin wallets and ATMs, are located in Prague. Two: the crypto community in Prague was boosted by Paralelní Polis and the regular weekly Bitcoin events, yearly HCPP congress, etc.”

Quite clearly, Prague benefited from having a perfect blend of: a passionate group of freedom-obsessed people, a high level of technical competence, and a dedicated safe venue where people could gather, share ideas, and further propagate the community. Being geographically in the center of Europe also makes Prague the ideal intermediary between East and West, and a perfect gathering spot for people with different ideas and skill sets. Few cities in the world have been able to offer something similar.

But, what were the fundamental social and cultural ingredients responsible for creating such technical competence and passion for anarcho-capitalism — both natural precursors to Bitcoin?

Based on what I’ve gathered from people like Lupták, the answers may well hide in Czechia’s oppressive socialist past as part of the Soviet Bloc. To confirm this hypothesis, I set out to interview other prominent members of Prague’s storied crypto community.

Life under Communism, and the meaning of freedom

Jan Čapek is the CEO of Braiins, a Bitcoin mining full stack company that operates Slush Pool, the world’s first ever Bitcoin mining pool.

“People who work on Bitcoin understand the social impact of decentralization. Even though we now live in a free society, we can already see signs of ‘unfreedom’ or freedom being slowly taken away in many facets of life,” Čapek told me. “I was born in 1980 so I do have some experiences from the Communist era, and I did recognize that we didn’t have it.”

I pressed on, curious to hear his personal anecdotes from the days of Communist Czechoslovakia, and Čapek obliged.

“My father worked for a chemical factory and they actually sent him on business trips to the Western world because they needed the advanced analytical devices. He was not even a Communist Party member, but they had no other option since he was the only one that was technically qualified. At the time I was only a 6-year-old, but I was already realizing that there was something different about the environment which we lived in, because my father was talking at home about how things worked in the West.”

Čapek continued, “So I was already a small computer geek at that time and I had this Sinclair ZX Spectrum computer which was state-of-the-art back then. My father bought it from his travels abroad using Deutsche Marks he saved, because obviously it was not something you could just find here. Take food for example, I don’t want to say we were starving, but a lot of food options were just not available. You couldn’t just go to the store and buy bananas, because bananas were only imported occasionally from some tropical country at a specific time, and people would line up to buy them.”

“In a way, the perception of that reality at that time made us very flexible to navigate through the system and to find a way so that our level of living was at least acceptable.”

“Since we didn’t have much choice back then, there wasn’t really a consumer culture here, and in a way that gave people more time to build rather than consume.”

“Politically, of course they were trying to criminalize people who were thinking differently, who did not want to be part of the system. And I think this is where it came from, the experience of living in a reality that did not have freedom. After the Velvet Revolution when the borders opened, people naturally embraced the new information coming in and grabbed the new technologies and started building businesses around them.”

Alena Vranova, a co-founder of SatoshiLabs — which created the Trezor wallet — also echoed Čapek’s sentiment.

“Historically people just don’t trust politicians, because they have lied and let people down too many times throughout the last century,” she explained. “In 1953 my grandparents lost everything because there was a monetary reform — the president literally went on radio the night before and told everyone that there is no substance to the rumors of an upcoming monetary reform, and the next morning everyone was forced to change to the new currency and lose about 30-to-1 on everything they owned.”

“As a result of the distrust in politicians, people developed this resilient DIY culture and always found a way to get around bans or restrictions.”

“Let’s call it forced creativity.”

She then touched on the lack of freedom in movement. “In the Communist days not only was it difficult financially to travel abroad, but also because a whole family was not allowed to travel together. For my dad to travel abroad, he had to fill application forms and go through background checks, get approval, and was only allowed to bring a limited amount of cash, all to ensure that he does not defect while abroad. There was total restriction and surveillance on the movements of citizens, and unfortunately, we are now seeing some parallels in 2020.”

 

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She brings up an uncomfortable point. In our modern day information era where self-sovereignty over data and money have all but disappeared and surveillance is rapidly becoming ubiquitous, we may have already surrendered too much.

Jan Čapek, like others who frequented Paralelní Polis, strongly believes that Bitcoin is a crucial part of the solution, “We realize how precious freedom is and we don’t want it to be taken away from us again — Bitcoin is a mechanism for the global society to react to anything that might change our freedoms.”

“I was working as an IT freelancer making good money when I discovered Bitcoin, and I felt that it was the worthwhile cause I wanted to spend the rest of my productive life working on, so I made the leap.”

It appears that people who passed through the doors of Paralelní Polis all have something in common — a deep passion for Bitcoin born out of memories of a past where freedom was a privilege rather than a right.

Passion coupled with technical ability is a powerful combination that can disrupt entire sectors and change the world. Fortunately for the Czech crypto community looking to engineer a free system without government interference, both ingredients appear to be available in abundance.

Like Bitstamp, Prague-based Braiins/Slush Pool and SatoshiLabs are also early Bitcoin businesses that have managed to stand the test of time. Not only did these companies rise out of Prague’s anarcho-capitalist roots, they have managed their business so shrewdly that they have continued to prosper into the present day, even with their industry bearing little resemblance to what it was several years ago.

“We have been very focused and conservative since Day One,” Čapek said, pondering what made his company successful. “We focused on things without letting ourselves get distracted by unnecessary stuff that would blow resources, and we were always very conservative with hiring. We were lean and profitable from the beginning, and we never took any external capital.”

In other words, his company embodied the Czech bootstrap spirit.

Similar, yet different

“Yugoslavia was generally less oppressive compared to the Soviet Bloc, and Slovenia was the wealthiest republic of Yugoslavia, so we could get some things like Western cars,” Grčar told me, “With that said, we still didn’t have anywhere near the freedoms and choices they had in the West. For example back then if you go to the store to buy beer, there would only be one or two brands available to choose from.”

Grčar’s comments made me greatly appreciate the options on tap at my local pub, and fortunately for him, beer selection is no longer an issue today.

Both Slovenia and Czech Republic have emerged from oppressive socialist regimes and successfully transitioned to free and progressive nations, yet the two are very different — as are their respective crypto success stories. Bitstamp was a retail-friendly national flagship startup that put Slovenia on the fintech map, while the numerous companies out of Prague were primarily focused on serving every facet of the cypherpunk community.

Ultimately, what matters is that they are all achieving results. The exchange business, the mining business, and the hardware business have all seen massive competition enter with seemingly endless resources, yet these newcomers have failed to squeeze out the lean and resilient veterans from Slavic Central Europe. 

And for that, the culture of creativity may take the credit.