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Cryptocurrency ownership is soaring in Turkey as high inflation and a weak lira prompt Turks to seek ways to preserve the value of their savings. Concerns rise about a fast-growing industry and legislation is overdue.
Trading volumes in the Turkish cryptocurrency market are astonishingly high
Turkey witnessed an unusual coin toss at the recent Istanbul football derby between Besiktas and Fenerbahce. To decide which team starts on which side, referee Arda Kardesler apparently tossed a coin bearing the logo of the bitcoin cryptocurrency, surprising millions. The Turkish Football Federation (TFF) launched an investigation.
The incident was just an illustration of the growing frenzy around a new investment opportunity. The country ranks among the top users of cryptocurrencies.
Turkish television channels and billboards are full of advertisements of cryptoplatforms urging Turks to open accounts and trade — and promising clients to get rich quickly.
In an environment where the national currency loses value almost daily, some Turks have turned to cryptocurrency assets as they seek to protect their savings from devaluation.
The Turkish lira has lost half of its value in the past 12 months while annual inflation reached a 20-year-high of nearly 70% in April.
“The trading volume [in the cryptocurrency market] is high in Turkey, the demand is high. because we are looking to protect our money from high inflation and high interest rates,” Vedat Guven, a consultant who co-authored the book “Blockchain, Cryptocurrencies, Bitcoin – Satoshi is Changing the World,” told DW.
Previous generations of Turks tried to dodge inflation by investing in more stable assets like gold and real estate. Now, the current generation has a popular alternative.
“There are 5.5-6 million Turks who hold a cryptocurrency account in the country and if you include family members, this is something that interests around 10-12 million people,” said Guven. “Unfortunately, here the ‘let’s-get-rich-fast’ mentality involving no learning and no effort is higher than in the rest of the world.”
While the state has been trying to halt the slide of the lira by taking a new decision almost every day to restrict access to foreign exchange resources, it has so far failed to reverse the nosedive.
“Confidence in the Turkish lira could not be established despite all efforts,” said Burcak Unsal, law attorney in the Istanbul-based Unsal Law Office, which specializes in cryptocurrency and blockchain transactions.
“Real estate and foreign currency investments and the like are expensive and unreliable; there are taxes and commission fees to be paid.”
By contrast, students and pensioners can invest in crypto with very modest amounts — even if they have no credit card, they can still invest in cryptocurrencies,” he added.
There are concerns, though, about the market segment after the founder of cryptocurrency platform Thodex shut down its site and reportedly fled the country with as much as $2 billion (€1.9 billion) in investors’ assets last year. New legislation is overdue after the Turkish Central Bank (CBRT) decided to ban the use of cryptocurrencies in payments for goods and services last year. The question of how to tax cryptocurrency transactions also remains to be resolved.
“There isn’t enough legislation on this issue in Turkey so far, this is a problem,”said Unsal.
“Turkey is definitely too late — a healthy and reliable sector should be created without further delay, based on precise and comprehensive legislation,” he said.
The sudden ban on the use of cryptoassets for payments by the CBRT has raised questions about what exactly Turkish authorities make of cryptocurrencies.
“If you ban payments with cryptocurrency you ban blockchain projects and it’s very wrong. We hinder ourselves,” said cryptocurrency expert Guven.
Blockchain is the digital public ledger where bitcoin transactions are processed and recorded. Invented to host bitcoin, the technology now forms the basis for many other cryptocurrencies.
Bitcoin is thought of as a digital currency because it exists only virtually, without any physical coins or notes. It resides in a decentralized, encrypted network that is independent of commercial or central banks. This allows Bitcoin to be exchanged under the same conditions all around the globe. It’s also a cryptocurrency, because it uses encryption to conceal users’ identities and activities.
The cryptocurrency was first publicly described in 2008 by an unknown person — or group of people — who used the name Satoshi Nakamoto. Its implementation began in January 2009, when it was released as open-source software.
There are three different ways to acquire Bitcoin: First, you can buy the cryptocurrency with legal tender (e.g. dollars and euros) at online exchanges such as Coinbase or Bitfinance. Second, you may accept Bitcoin as a payment in exchange for your products and services. And third, you can create your own Bitcoins in a process known as mining.
Before you can buy Bitcoin you have to install so-called wallet software onto your computer. It contains a public key (your address) as well as a private key that allows only the owner of the wallet to send or receive cryptocurrency. Smartphones, USB sticks or any other digital hardware or cloud-based data storage can serve as wallet. Without the digital wallet, no Bitcoin for you.
To see how the process of paying with Bitcoin works, let’s imagine Mr. X wants to buy a hat from Ms. Y. First thing Ms. Y needs to do is send Mr. X her public wallet address, which is like her Bitcoin bank account.
After Mr. X has received the public wallet address of Ms. Y, he signs off the transaction with his private key to verify that he is indeed the sender of the digital currency. The transaction is now stored on the Bitcoin blockchain with thousands of other transactions that are made with Bitcoin every day.
Now Mr. X’s transaction is broadcast to all other participants in the peer-to-peer blockchain network, which are also called nodes. Essentially, they are private computers, or “miners,” which verify the validity of his transaction. After that, the Bitcoin gets sent to Ms. Y’s public address, where she can now unlock the transfer with her private key.
Theoretically, everyone can become a “miner” in the blockchain network. But most of it is done in huge computer farms that boast the necessary computing power. Bitcoin processing keeps transactions secure by chronologically adding new transactions (or blocks) to the chain and keeping them in the queue.
The Bitcoin transaction between Mr. X and Ms. Y is finally included in a vast public ledger, the blockchain, where all confirmed transactions exist as blocks. As each block enters the system, all users are made aware of each transaction. Who has sent how many Bitcoins to whom, however, remains anonymous.Once confirmed, a transaction can’t be reversed — by anybody.
Miners generate new Bitcoins when they process transactions, which they do using special decryption software. Once solved, a new block is added to the chain and the miner is rewarded with Bitcoins. China is the biggest miner in the Bitcoin network. It’s cheap electricity from coal gives it a competitive edge over rival miners, mainly in the US, Russia, Iran and Malaysia.
Due to the massive computing power needed for crypto mining and processing, the Bitcoin network consumes vast amounts of energy — about 120 terrawatt hours of power per year. University of Cambridge’s Bitcoin Electricity Consumption index, has calculated the cryptocurrency requires more energy than each of the countries shown in blue on the map above. Graphics: Per Sander Text: Gudrun Haupt
Author: Gudrun Haupt
The daily trading volume of Turkey’s first cryptocurrency platform BtcTurk touched around $424.3 million last week, according to CoinGecko data, while another local Turkish platform, Paribu, had a trading volume of $203.5 million.
Some 40 cryptocurrency exchanges are operating in Turkey.
“Exchanges are popping up like mushrooms, among them foreign exchanges entering the Turkish market,” said Unsal.
“The volume they create, the direct investment they bring and their know-how are truly incredible,” he noted.
In another sign of unpredictable volatility, cryptocurrencies nosedived last week.
Bitcoin, the largest cryptocurrency by total market value, fell to its lowest level in 16 months last Thursday.
Edited by: Hardy Graupner