A bit about Bitcoin

Could a digital currency be just what Africa needs to compete in the global economy?

Read time 4min 40sec

In the opening week of 2014, Bitcoiners in Cape Town were urged to contact Borja Serra Mencos immediately.

Mencos was one of two adventurers who arrived in the Cape of Good Hope in January after a several month motorcycle trek across Africa.

The purpose of the expedition was to raise awareness about the Bitcoin and to set up Bitcoin exchanges in under-represented countries across the continent. In each city, the duo was looking to connect with interested parties who were keen to trade cash for Bitcoins.

Around the same time that Mencos was setting off on his journey across Africa in October 2013, another Bitcoin advocate was returning from a Cape Town to Victoria Falls cycle tour to raise awareness about the peer-to-peer payment system.

With a largely unbanked population, it seems Mother Africa may be the perfect marketplace for this alternative payment mechanism. And as the rand continues on what seems like a never-ending downward spiral, some tech enthusiasts have suggested Bitcoins may be what SA needs to solve its economic woes. Others posit the introduction of a new money system could tackle SA's rampant inequality as it has the potential to create a more democratic economy.

But is Africa ready for Bitcoin? With cashless transactions on the rise across the continent, particularly in SA and Kenya, it just may be.

Bitcoin unpacked

This is the simplest explanation I could find on the ins and outs of Bitcoin.

You and I sit next to each other on a park bench. You have an apple, I do not. Feeling generous, you give me your apple. Now, I have an apple and you do not. This is true by virtue of the fact that observers of this simple exchange are now able to see that as you and I sit on this park bench - I am in possession of an apple and you are not.

Not merely a technical experiment forged by bored, computer-savvy anarchists, the digital currency is gaining momentum fast.

If we were to move this transaction online - neither of us would be sitting on a park bench, there would be no witnessable trade and we would be transferring a digital apple rather than a physical one. Because the movement of this apple is now virtual, the only way anyone knows that you have given me an apple is because the trade, and every other similar trade that has ever happened, is recorded in an apple trade ledger. To ensure all transactions happening in this virtual apple marketplace are kept above board, the ledger is monitored by apple trade enthusiasts, call them apple miners, who are rewarded for their efforts with freshly picked virtual apples of their own.

Now replace the apples with a regulation free, virtual currency and I give you, Bitcoin.

On the up

The peer-to-peer payment system has been lauded as a way to break free from sluggish, old-school financial infrastructures, and their subsequent exorbitant fees, to create a more efficient, frictionless and less costly economic system, free from government control.

Not merely a technical experiment forged by bored, computer-savvy anarchists, the digital currency is gaining momentum fast. After several major businesses started accepting the currency at the beginning of the year, the price of Bitcoins topped $1 000 on Mt.Gox, one of the largest Bitcoin exchanges in the world. I should probably note here that dramatic price fluctuations are not uncommon when dealing with Bitcoins.

Despite this, the general appetite for this digital currency is increasing - even thirsty citizens in the US can now use Bitcoins to buy something to drink from humble sidewalk lemonade stands.

According to Sonya Kuhnel of Cape Town-based Bitcoin Payments, the South African market is still warming up to the Bitcoin concept. She does note, however, that the Bitcoin community in Cape Town holds regular meet-ups and the group has grown significantly from just a handful of people at the end of last year, to well over 100 attendees at the group's most recent meeting in January 2014.

But the alternative money system is not without its flaws. Because of its freedom from regulation, the currency has been linked to illicit online activity. Most recently, the CEO of a Bitcoin exchange was arrested for alleged involvement in online black market, Silk Road. And in October last year, a similar Silk Road-linked bust saw the price of the digital currency fall as low as $110.

So will you and I soon be trading in our "Randelas" in favour something a little more virtual? Fed up with sky-high bank charges and depressing exchange rates, could we soon abandon our credit cards and the financial institutions championed by the likes of Steve and Eugene in favour of the promise of a simpler, faster, more open money market?

Only time will tell.

* A former ITWeb journalist, Joanne Carew now resides in the Mother City, where she is admiring the mountain and completing her Masters studies at UCT.

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