Digital currencies the way to go

Bitcoin has been the buzzword for most of this year, topping even in Google’s list of trending searches in 2017.

Financial analysts the world over have, however, labelled this form of digital currency (called cryptocurrencies) a financial scandal and an economic bubble whose implosion is imminent.

In spite of all the scepticism, Kenyans continue to buy and sell bitcoins in a frenzy, perhaps unable to resist the lure of the currency’s growing value.

But just what is bitcoin? How does it work? Where and how can one obtain bitcoins? And what are the risks involved in the trade with this and other digital currencies?

Eugene Mutai, 28, is a software developer at Andela Kenya, an expert in cryptocurrencies and an investor in bitcoins. He helps to break down this latest economic juggernaut. 

“Bitcoin is a form of digital money that has the same fiscal characteristics as regular money but exists only electronically,” Eugene explains. To use bitcoins, he adds, one has to sign up on www.localbitcoins.com to acquire a wallet, a virtual account that operates like an ordinary bank account.

“Bitcoin doesn’t require paperwork or authorisation from anyone to transact, unlike with banks,” he notes.

A user can convert their bitcoins into Kenyan currency or dollars by selling them to a willing buyer, a peer-to-peer transaction that does not require an intermediary.

“The buyer pays for the bitcoins using ordinary money, including mobile money, after which the bitcoins are transferred to the buyer’s bitcoin wallet,” he offers. 

Bitcoins can  also be used as a means of exchange. While some businesses abroad (mainly restaurants and art galleries) accept bitcoins, there are currently no known businesses locally that use this digital currency.

“Kenyans should look at cryptocurrencies more like an investment opportunity than as a means of exchange,” says Eugene, who has invested more than Sh1 million in cryptocurrencies.

He adds: “The adoption of bitcoins as a mode of payment across the world is on the rise. More and more businesses accept bitcoins now despite their  initial reluctance.”

Bitcoins are not recognised as legal tender and thus cannot be used to pay taxes, for instance. But even more curiously, bitcoins are not regulated by the government or traditional banks. This makes an investment (in them) even more perilous.

Mutai, however, disagrees, saying that cryptocurrencies have heralded a financial revolution.

“Trade in digital currency is self-regulating. All transactions are interlinked in a blockchain. A blockchain is a digitised and decentralised public ledger where all transactions are recorded chronologically and maintained publicly,” he explains. 

“Cryptocurrencies bestow the control and management of the account upon the owner of the account,” Eugene says.

Besides buying and selling bitcoins, one can also mine them, a complex computational process of verifying other bitcoin transactions for which the miner is rewarded with bitcoins.

Mutai has monthly earnings of up to Sh100,000 from the sale and mining of ethereum (another form of digital currency).

He has been featured on CNN and Bloomberg for his pioneering exploits in cryptocurrencies on the local scene.

Yet it is the extreme volatility of the bitcoin since the beginning of 2017 that has caused jitters within financial circles. A potential pop of the bitcoin bubble has put investors on edge of  throughout this year. But according to Eugene, there is no cause for alarm. Bitcoins, he explains, have what is known as controlled supply; the amount of coins that can be created is finite.

 “Only 21 million bitcoins will ever be in existence. The current circulation is about 16 million coins. It will take several decades to create the remaining five million coins,” he explains.

An implosion, he argues, is, therefore, out of the question.

Eugene is unfazed that cryptocurrencies have faced so much resistance in most economies globally.  China and South Korea, for instance, have outlawed bitcoins.

Closer home, the Central Bank of Kenya has warned  that they could just be another pyramid scheme in the making. But Eugene disagrees.

“Breaking away from conventional ways of life is never easy. People remain sceptical until the concept proves to work more efficiently than existing methods,” he argues.