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Kenya: Virtual Currency Bitcoin, Bitpesa Rejected in Kenya
Lately, the uptake of virtual currency has suffered a setback in East Africa with the Central Bank of Kenya (CBK) issuing an outright rejection and caution to citizens against using virtual currencies like Bitcoin.
In a statement, CBK maintains Bitcoin and other virtual currencies are not legal tender because they are not issued or assured by any government.
“No protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business,” CBK said in a statement published on its website last week.
This development goes after some legal proceedings in Nairobi where a judge ruled in favor of telecom giant Safaricom versus two companies facilitating transactions via bitcoin. The two companies – Lipisha Consortium and Bitpesa had gone to court to challenge Safaricom’s decision to suspend an agreement that permitted Bitpesa to be used as a payment method.
Safaricom, claimed that Bitpesa needed to be cleared by the CBK for it to proceed running on its network.
With this, Kenya goes after in the step of Vietnam, India, China, Bangladesh and Iceland India in banning Bitcoin on their soil.
The use of virtual currency – Bitcoin is flourishing in UK, the US and Australia where it does not operate as legal tender but rather as a Money Service Business.
Local technologists have particularly been discussing this development with enthusiasm. The virtual currencies issue was picked up by local tech gurus engaged in a talk punctuated by scrutinising remarks on the KICTANET mailing list where many Kenyan tech gurus meet to discuss. Some of the discussants are in favour of using the virtual currency.
One of the correspondents on the KICTANET list Ngigi Waithaka asked, “Let’s see. What is MPesa? It’s a Virtual Currency that has a 1:1 Mapping with the Kenya Shilling. That’s why when I send you MPesa, you don’t receive a legal tender, but you know you can convert it to KES at a rate of 1:1 minus the petite charges.
He argued that Mpesa is backed by equivalent shillings deposited to reflect the actual amount in your Mpesa account. “Let us call Mpesa a bank account, because that is what it is. Is your bank balance a legal tender?” he asked.
He compared it to Paypal – a Virtual Currency that he said has a 1:1 mapping with say US Dollar. “PayPal too is an account that reflects real money managed by a central bank earned by suggesting goods or services,” he said and went ahead to explain that BitCoin is a Virtual Currency that has a *fluctuating* mapping with other currencies for example 1:130 with USD.
However, the CBK maintained in its statement that, “There is no underlying or backing of assets and the value of virtual currencies is speculative in nature. This may result in high vitality in value of virtual currencies thus exposing users to potential losses.”
In countries where it has been accepted, consumers have been quick to adapt the peer-to-peer payment system that permits buyers to buy goods across borders without exchange rate fees. In some countries where it is not legally recognised, consumers are even buying bitcoin from those who have. In Uganda for example, some technologists have been seen passing word around that they need bitcoins to purchase some online items.
According to wikipedia, in 2012, the European Central Bank defined virtual currency as “a type of unregulated, digital money, which is issued and usually managed by its developers, and used and accepted among the members of a specific virtual community”.
Digital currency can be defined as an Internet-based form of currency or medium of exchange distinct from physical (such as banknotes and coins) that exhibits properties similar to physical currencies, but permits for instantaneous transactions and borderless transfer-of-ownership. Both virtual currencies and cryptocurrencies are types of digital currencies.
The big difference inbetween Mpesa and Bitcoin in Kenya is that Mpesa is regulated while Bitcoins are not.
Wikipedia explains that the IRS of USA determined in March 2014, to treat bitcoin and other virtual currencies as property for tax purposes, not currency. Some people suggested that this makes bitcoins not fungible–that is one bitcoin is not identical to another bitcoin, unlike one gallon of crude oil being identical to another gallon of crude oil–making bitcoin unworkable as a currency.
A brief history of BitPesa:
According to CoinTelegraph.com, Bitpesa the Digital Currency exchange very first opened up shop in Kenya in November 2013, and one of its leveraging implements turned out to be M-Pesa. Originally, its target market was individuals sending money from UK to kenya. While the sender sends bitcoins, the recipient receives the money in the form of Kenyan Shillings with their mobile number or M-Pesa account serving as the digital wallet. It later expanded its suggesting to enable individuals to covert their money inbetween shillings and bitcoinCT using an M-Pesa account. It became possible to buy bitcoins using M-Pesa for other purposes such as trading with transactions costs capped at 3%.
By Februrary 2015, the company reportedly was able to raise up to US$1.1 million in its 2nd round of funding from San Francisco-based Pantera Capital, crypto currency Playmates, Future/Ideal Ventures, Stephens Investment Management, and Bitcoin Chance Corp. among others.
Other virtual currencies that exist around the world include:
Primecoin is an altcoin with a difference. Developed by Sunny King (who also developed Peercoin), its proof-of-work is based on prime numbers, which is different from the usual system of hashcash used by most cryptocurrencies based on the Bitcoin framework.
Litecoin, the 2nd largest cryptocurrency in the world was launched in the year 2011. It was created by Charlie Lee, a MIT graduate and former Google engineer and can be described as the second-in-command to Bitcoin. Litecoin is based on an open source global payment network that is not managed by any central authority and uses “scrypt” as a proof of work, which can be decoded with the help of CPUs of consumer grade.
Darkcoin, the secretive version of Bitcoin. However Bitcoins are anonymous when compared to traditional money, there is still a record of all transactions ever carried out in a ledger “blockchain” which can expose a lot of information. Darkcoin offers more anonymity as it works on a decentralized mastercode network that makes transactions almost untraceably.
Peercoin, which is referred to as PPCoin, Peer-to-Peer Coin and P2P Coin, was created by software developers Sunny King (a pseudonym) and Scott Nadal. It was launched in August two thousand twelve and was the very first digital currency to use a combination of proof-of-stake and proof-of-work. The coins are originally mined through the commonly-used proof-of-work hashing process but as the hashing difficulty increases over time, users are rewarded with coins by the proof-of-stake algorithm, which requires minimal energy for generating blocks.
In deed, as advised and feared by CBK, “transactions in virtual currencies such as bitcoin are largely untraceable and anonymous making them susceptible to manhandle by criminals in money laundering, financing of terrorism and exposing users to potential losses.”
For the time being, many are asking, surely the should local public desist from transacting in Bitcoin and similar unregulated virtual currencies? Don’t be caught on the wrong side of the law. Hopefully, BitPesa will get clearance from the Central Bank of Kenya and this will of course set off the trust!