Bitcoin Crypto-currency and the opportunity for a truly Pan-Africa money revolution
NOT AN APRIL FOOLS JOKE:
Imagine you are a freelance coder in Zimbabwe during the collapse of the financial banking system in the last decade. Your local currency is going through world record inflation meaning anything you earn locally is worthless. Any foreign currency you earn, say through accepting paypal transactions cannot be withdrawn to a local ATM/Cash machine or bank account because of regulations holding back paypal in many african countries. Even if you did manage to get some foreign currency (US dollars), there are capital control restriction in many countries including Tanzania and South Aftica. Services like Amazon Web Services won’t accept your local credit card or form of payment for you to consume some vital cloud services to do your work. You want to send some money to your family in nearby Zambia and your options are Western Union and other money transfer services that still dominate cross border transactions with sky high fees (even with the growth of mobile money, regulations keep these services within borders with no inter-connect for foreign exchange service yet). But you are a top freelance coder with real value to the global marketplace but are restricted by borders and the current global financial system, that is proving to be less trustworthy by the day as we have seen with recent events in Cyprus, where the government can simply raid your hard earned savings. There are good reasons for regulations inc. Know Your Customer/Anti-Money Laundering regulations that ensure funds are not sourced and used for illegal means such as drugs, terrorism or allowing corrupt Government officials to stash money offshore.
Enter Bitcoin, the hot crypto-currency that is fast rising, recently crossed a $1B in market value and is worth more than 20+ exchanges around the world. I have the bitcoin currency value widget on my android phone and watch it rise every day. I have been so obssessed with it over the last week- I could not stop myself from thinking about the implications for Africa to write this post.
We already saw what happens in the face of weak banking systems in Africa that are often over regulated or not designed for the modern age as when Nick Hughes, then at Vodafone, started a pilot project in Kenya to experiment with using the concept of mobile phone airtime as a currency by formalizing it to allow Safaricom agents to become cash out agents- 5+ years later over 30% of the Kenya GDP is conducted over M-PESA which has shown the world what happens when a country wants an innovation badly and a government recognizes its overwhelming benefits and does not regulate it. That model is now being exported to many countries around the world, but the developing nations have shown to adopt mobile money the fastest only hindered by regulation to protect banks as we have seen in countries like Nigeria. Bitcoin could do the same to financial services innovations in Africa across borders in the same way that mobile money is doing domestically with some unique benefits. The use of a crypto-currency like Bitcoin has some very valid concerns, it is still overly geeky and probably still climbing up the hype cycle of adoption- most of the transactions to date you could argue are for illegal services but by the day we are seeing more and more services- but this is how most disruptive technologies start- I remember the early days of skype and how local national telecomms in Africa were trying to block it. Bitcoins may have a while yet to get to mainstream adoption, but it like mobile money it could be faster in Africa.
Signs of some mainstream adoption are starting to appear, you can purchase cup cakes in San Francisco and buy bitcoins over the counter with moneygram in my once local neighborhood of Tenderlion. As this MIT tecnology review article from a year ago shows, there was interest to spread bitcoin to Africa at a mobile money Africa conference in Nigeria. And is it coincidence that Patrick Collison of redhot startup payment Stripe visited Kenya (a hell of a detour) end of last year on his way to a bitcoin conference in London? The conditions are ripe for bitcoin technology to rise in Africa.
Weak Banking (especially across countries), low regulation or collapsing central banking control in some parts of Africa may come to the Rescue: Zimbabwe abandoned its currency in 2009 and accepted rand, dollars and euros amongst other countries- what if Bitcoin was around and Zimbabweans could have another option of moving their money to Bitcoins? Bitcoins are almost like a modern day “gold standard” (without the physical weight and all the benefits of low transport/transfer costs) due to its low abundance and showing increasing liquidity as more people use it. Look at the real time bitcoin transactions and charts here. And hey look, I can buy a Bitcoin for $113 from someone in Nairobi, Kenya vs the current market price of $94 on Mt Gox.
I am starting to see some countries allow multiple currency accounts simply as a services, even if they require a lot of paperwork to get them going. Even a bank like Bank of Africa, which touts its pan- Africa presence in 14 countries, contintent wide reach is only a marketing gimmick, you can’t just walk into a branch in Benin and take out money from your account in Kenya at present- the cross border banking services have not caught up with reality.
Facilitating Africa Cross boder portability, payments and E-commerce: I have seen it with my own eyes during my overland travels between Kenya and Tanzania, how local land shuttles act as a cheaper and often more convinient or percieved trusted means of exchange across borders. Mobile money is not solving this yet even though Vodafone owns M-PESA and has stakes in 2 bordering countries. In other words, I can’t use M-PESA in tanzania to pay an M-PESA agent in Kenya. Why would I need to do this? The very shuttle I use between Arusha and Nairobi only takes Kenya M-PESA. This hits upon an important point that often hinders African economies- not enabling enough regional trade that would help boost economies- using a cryto-currency like Bitcoin may help enable this without adopting a single currency like the Euro which has to be mandated by Governments. As we know, Bitcoin is a decentralized currency with no central authority. That freelance coder in Zimbabwe, if web services around the world started accepting bitcoin, could now pay for cloud computing services and solve a key issue that I believe could be holding back some emerging market skill. To be frank, its just too hard for the likes of Amazon to set up a local sales/billing subsiduary to charge someone in Zimbabwe- bitcoin would enable that. In fact- services like Paypal should really be doing this, but because their model is beholden to working with local banks, they can’t move here. Now imagine the ecommerce or freelance service that needs continent wide or global means to accept money- think collaborative consumption services like Airbnb or Odesk built in Africa start being used by early adopters, not paying your local utility bill. I believe these services might be the first to accept bitcoin given the global nature of their business working with small amounts of money transfers regularly. Someone could feasibly earn $50-100/week with regular low cost transfer payments.
As a store of value if you don’t trust your bank or as “Mattress 2.0”: The value of bitcoin has gone up quite a bit and it can be considered a form of investment (with risk)- its a form of “digital gold”- so rather than watch your money get eaten by banking fees, inflation or even the Governments or other world authorities actions, you can use bitcoin as the “money under the matress 2.0”. Most africans probably invest in real estate or move ther money offshore to a more stable currency- but what is a stable currency that you trust is the Euro in Cyprus like the russians thought? There is no reason to believe that like Zimbabwe, we might not see similar situations in Africa in the future. Only time will tell if bitcoin is a good investment- there was already a major hack in 2011 that caused the first crash in Bitcoin and maybe if we have lots more bitcoin mining activities, the laws of supply and demand may bring down the real value and hence real prices of bitcoins down to earth. The risks are there, in a different form but are these risks as acceptable to you as trusting your bank, mattress or buying gold?.
The world is watching bitcoin right now and maybe it gets over-regulated and banned for mainstream use fearing risks and disruption, but even then, a set of libertaerian geeks will continue to use it for some underground transactions. One likely option, is that it becomes a new form of currencyunder the right global regulatory conditions and is allowed to thrive- something like this bitcoin exchange merged with wallet and payment startup, Ripple. But there are clear opportunities for global or pan Africa financial inclusion that could facilitate the rise of talented workers to earn and spend real value unbound by governments and central bank, benefiting that freelance Zimbabwean coder more than someone in the western world. Like steve jobs who took illegal music downloads and created itunes, who will take bitcoin and create a trusted pan african currency service? If I had my way and was a true renegade I would create a tech development bank backed by bitcoin, for techies, by techies with offices in every hub in the Afrilab network– but now its all getting to my head and this post will become more of an Apri’s fools joke :). But the iHub could start mining bitcoins during idle time in their new super computer cluster for starters and make coins more widely available amonst the tech community.