Among technology pundits in the West, conventional wisdom is that Bitcoin is an idea that has failed. The crypto-currency lost 43 percent of its value in the first weeks of 2015, amid stories of hacks and collapsing exchanges.
But from an African perspective, reports of Bitcoin's death seem to have been wildly exaggerated; at least, that's what a number of new startups and their investors are hoping.
Earlier this year BitPesa, a Kenyan digital currency exchange, was able to raise $1.1m on the premise that Bitcoin could be a cheap way for Kenyans to move money across borders - from the UK back to their families, for example. The Australian exchange Igot has recently launched in Kenya as well.
The problem these Bitcoin entrepreneurs aim to address is the high cost of remittances, with traditional money transfer companies like Western Union charging an average of 12 percent to transfer money to Africa, according to the Overseas Development Institute.
"I know people who pay 17 percent, imagine, for moving money from one country to another," says Michael Kimani, head of the African Digital Currency Association in Nairobi. "A lot of people in the US or in Europe have an easier time moving money across borders. But here the rates are so expensive, it makes sense to start here. That's why there's so much attention and focus on Bitcoin use cases in Africa."
BitPesa claims to be able to transfer money into Africa, through Bitcoin, for a mere three percent. With over $60bn in remittances flowing into African annually, some see the continent as ripe for a digital currency revolution. "The Bitcoin ecosystem right now is trying to target a perfect use case for Bitcoin, and remittances just make sense right now because there's so much opportunity there," says Kimani.
In East Africa, and in Kenya in particular, the widespread use of mobile money is an added attraction that makes it a "unique environment for building a Bitcoin business," he says. "It's much less of a shock to have digital value in a phone. Kenyans can already move money between one another using mobile phones, so in that sense Bitcoin isn't really introducing something new." With Bitcoin, he adds, they can also now move it to another country.
Perhaps more importantly, mobile money provides a digital infrastructure that companies like BitPesa, which have secured access to Safaricom's wildly popular M-Pesa service, can use to make receiving Bitcoin remittances easy for people already accustomed to getting money through their phones. In addition, M-Pesa's registration requirements provide for a pre-existing compliance infrastructure, Kimani points out, simplifying the work of regulators.
But not everyone thinks Bitcoin is poised to revolutionize remittances. Gareth Grobler, CEO of the South African Bitcoin exchange ICE3X, thinks some of these new startups might be overestimating the public appetite for the virtual currency. "You've got a very, very niche group of people in all the countries that get excited about it," he says. "They're definitely there. But as far as the wider adoption, in general it's still a lot more about survival."
The African market, he argues, is still primarily need-driven; any new product that cannot clearly demonstrate its utility and gain the trust of the consumer is doomed to fail. Even in Africa, Bitcoin has a public relations problem, and its complexity makes it difficult to explain to the average consumer. "They don't understand how this thing is an asset, yet [they] can't touch it," admits Kimani. "It's going to take a bit of time for that to change."
As for a company like Western Union or Moneygram, "what they provide is 100 percent security. They provide confidence. They've got trust. They've been around for longer than most people have been alive," says Grobler. "Right now Bitcoin as a currency is not giving people enough reason to adopt it."
Too few adopters means that the currency suffers from a lack of liquidity, he adds, which makes its value notoriously unstable, and makes it difficult to scale up a remittance company. "The remittance application of Bitcoin is not the first one that should be successful. That's not the one that's going to make Bitcoin work as a currency," says Grobler.
But that doesn't mean that nothing can, he says, or that Bitcoin has no future in Africa. ICE3X recently expanded to its second country, Nigeria, which Grobler says presents "a much bigger opportunity than anywhere else in Africa, because Bitcoin solves more problems there".
One of the big problems in Nigeria - common in other African countries as well - is a widespread lack of confidence in local bank cards, which makes it difficult for African consumers to buy goods online. Bitcoin allows consumers to sidestep the banking system altogether, as long as vendors have the ability to process the crypto-currency. This could open up an enormous market to foreign companies without exposing them to the risk of credit card fraud.
But Grobler is betting that Bitcoin's real potential lies in what it can accomplish behind the scenes. "Being able to utilize the technology, being able to utilize the currency without the end user at this point being involved with any of that, I think that's how you're going to crack this nut," he says.
Kimani also thinks Bitcoin will eventually end up being invisibly worked into the back end of businesses. Even Western Union may one day integrate the technology into its own systems, he speculates, thus making international transfers more affordable without users ever having to interact with Bitcoin itself.
"It's an open technology - anyone could just grab it and use it," he says. "It's not just about Bitcoin coming and taking over and eating everyone's lunch."
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