To use or not to use? This is the question that many businesses are asking themselves regarding cryptocurrencies.
Despite this global ambivalence over the adoption of the digital currencies, the fact is that they gradually seeping into the business world as more traders embrace it. For the proponents of the currencies, they are an idea whose time has come and businesses that ignore them can only count losses.
In Kenya, the currencies are beginning to take root and there are now a number of outlets using them as a medium of exchange.
Among the places where you can trade on bitcoin include a lounge at the Kenyatta University, an automated teller machine (ATM) in Nairobi’s Westlands, an electronic shop located on Luthuli Avenue in Nairobi, a hotel in Nyeri, and most recently a supermarket in Mombasa.
“We have received tonnes of requests from our customers to pay using digital currencies,” said Boxlight Electronics chief executive Robinson Murage in an interview in July.
“As a company whose 90 per cent of customers are young, tech savvy and predominantly online, we choose to be all inclusive and adapt to the needs of those that prefer this type of currency.”
The ATM in Nairobi, which is a first in East Africa, makes it possible to buy bitcoins and litecoins instantly in cash. It allows traders to buy the cryptocurrencies in small tokens for as low as $5 (Sh500), and pay for them in dollars or Kenya shillings.
In Mombasa, a member of The Billion Coin (TBC) Kenya, Bernard Wambua who has traded with the currency for about two years, says the coastal town has over 2,000 people using the digital currency.
“You can do big transaction of millions of shillings using TBC. The population of people using the e-money in Mombasa is increasing at a very fast rate,” said Mr Wambua in a recent interview.
He said they are planning to integrate more businesses to use the currency.
In July, the Nyeri hotel — Betty Place Restaurant— proprietor said three customers had paid their bills using bitcoins,a transaction equivalent of Sh4,000.
“We convert the local currency equivalent using the value of the bitcoin. The bitcoin can go up to the eighth decimal place, for instance 0.00000001 of a bitcoin. You can pay a bill of anything from Sh100 upwards,” said Beatrice Wanjiru Wambugu, the hotel owner.
Despite this rising uptake, experts say the digital currencies still have a long way before they attain all the characteristics of an authentic currency. Cryptocurrencies, they say, have limited adoption and they are yet to be universally accepted in the intermediation space.
“Even though they are being used for purposes of making payments, we have not seen savings, loans and transactions of that nature being in this space of cryptocurrencies,” said Jared Osoro, director of research and policy at the Kenya Bankers Association (KBA), last week.
“There is a long way to go for cryptocurrencies to actually make their way into intermediation space, meaning scaling beyond the payment space - what the bulk of financial technology (fintech) firms are helping.”
Financial sector experts aver that a genuine currency is not only a medium of exchange but also a unit of account, and store of value. Although the digital currencies, are a medium of exchange albeit in a limited way, they do not meet the other attributes as a unit of account and store of value.
Mr Osoro’s comments were echoed in a public forum held last week in Nairobi:
“A cryptocurrency does not meet all the characteristics of what a currency is”.
There is also the lingering question of volatility of cryptocurrencies, especially in Kenya where investment on them is no more than a speculative affair. Moreover, they are neither guaranteed by the central bank nor backed by government regulations.
Investors are totally on their own, the Central of Kenya (CBK) governor Patrick Njoroge warned.
The CBK in the latest bank supervision annual report says these emerging disruptive technologies bring with them various forms of risks.
Notably, the report says, among the new digital products is cryptocurrencies that is associated with anonymity, and commonly used by criminals.
“CBK reiterates that it does not recognize cryptocurrrencies as legal tender. CBK is of the opinion that despite the ubiquitous positive influence of technology, there lies a potential of great risk in the event that the technology fails or is misused by unscrupulous individuals. There is thus the need to ensure that robust controls are in place to ensure that the risks and opportunities associated with emerging technologies are balanced,” CBK says in the Bank Supervision Annual Report 2017.
Mr Osoro, however, says although a number of uncertainties surround adoption of cryptocurrencies, they nonetheless hold a promise of opportunities.
“These are the realities that financial institutions must contend with as they embrace these new emerging technologies in a manner that is going to enable them tap opportunities,” said Mr Osoro.
Promoters of the digital currencies in the country, while admitting that insecurity episodes of hacking and stealing of bitcoins have occurred, they are becoming less frequent over time.
Another line of argument in favour of digital currencies is that they are cheaper than many conventional options for remittances or money transfers and can be very convenient for instance for smartphone payments , to the extent that transactions are settled quickly.
There are more than 700 so-called cryptocurrencies out there in the world, but bitcoin is the best known.
Bitcoin started trading in 2009 - exchange rate then, $0.0007 (Sh0.07) per bitcoin. In February 2011, it reached parity with the dollar.
In November 2013, the value of bitcoin peaked at $1,242 (Sh124,200), and it has been trading at about $900 (Sh90,000), rising to about $19,000 (Sh1.9 million) by December 2017, before declining to its current level of about $7,000 (Sh7,000).