LETTERS: Let’s have candid debate about bitcoins, cash

Bitcoins at online dealer in Berlin, Germany. File PHOTO | NMG
Bitcoins at online dealer in Berlin, Germany. File PHOTO | NMG 

There has been a lot of outcry recently by regulators in Kenya about bitcoin and other cryptocurrencies. Some countries in Africa have banned them altogether.

While these actions might have been motivated by genuine concerns for their citizens and statutory obligation to protect the financial system, one would agree that the manner in which it has been done leaves a lot to be desired. To use an analogy, it is like telling your teenage son that sex is bad without explaining why.

There seems be deficit of information on cryptocurrencies and the underlying blockchain technology in general. The citizenry will need to be educated and left to make their own decisions as to what is good for them.

To understand whether regulators are being forthright about cryptos, we need to define what money is and the transitions it has gone through over time.

The original idea of money was quite noble — it was a value unto itself. Gold was mostly used and the danger of fake gold or volatility in value was virtually non-existent.

Then carrying all these gold was problematic — it posed some danger but it was also cumbersome. Enter currency, coins and paper money, their face value representing the stored value in gold.

Up until this point, everything was great, you could go to the authority that issued the currency, say central bank, and redeem it for its face value in actual gold. For every paper or coin currency that was in circulation, there was its equivalent value in gold stored somewhere safe in a vault.

The only way money could be increased was to mine more gold and the amount of the precious metal in the entire world, though unknown, is finite. Meaning, you can never create more gold, you can only mine the amount of it that already exists.

We are now in the era of fiat currency. Fiat is a Latin word meaning let it be so. Like in the Bible, God created much of the universe by fiat. The money you carry in your wallet is just so by a government decree. It only has value because of people’s trust in their government.

On its own is virtually worthless. The staff at central bank will think you are crazy of you went there to exchange your paper money for its worth in gold. This basically means that things can go wrong very fast since there is actually no limit as to how much a government can print currency.

The very latest example that comes to mind is Zimbabwe that tried to print itself out of economic decline. The result was catastrophic decline of the currency to its real intrinsic value — almost zero.

The problem with the current monetary system is its centralisation. The control is therefore concentrated in the hands of a few who claim to act in the best interest of the majority.

These are the issues that weighed in the mind of Satoshi Nakamoto when he developed bitcoin, a decentralised currency that is in the hands of public and controlled by no one in particular. Bitcoin is basically based on a public ledger, a growing list of records known as blockchain.

The record is not controlled by anyone, there are millions of copies of it and it is indestructible. It is also peer to peer so there are no middlemen involved. It is money that works as it was originally intended.

Bitcoin is finite, only 21 million of it will ever be issued. At the current mining speed, it is estimated that the last bitcoin will be mined in the year 2140. This quality makes it as good, if not better, than gold.

Much has been said about its anonymity and that because of this it can be used by criminals, fraudsters and money launderers.

A common example is Silk Road, a website in the dark web where bitcoin was the currency accepted by drug peddlers and perpetrators of other vices. The truth is, blockchain is a public indestructible ledger, so for any transaction there is an indelible public record.

On the other hand, fiat currency is no better, even worse than bitcoin in anonymity. Any transaction conducted in fiat currency (read cash) is only known to the parties transacting.

Instead of government and regulators shouting from the roof tops and warning us of the impending doom digital currencies will bring upon us, we will be better served by gaining more insight and taking advantage of the new technology to improve our economy. Our whole government could be run on blockchain.

Kevin Orango is a former banker and crypto enthusiast.