A number of local and African start-ups have so far had mixed results in encouraging virtual currency uptake, including Bitcoin, and still face an uphill battle amid an unregulated climate.
Mobile marketing and technology company Mahala Mobile recently introduced Madibacoin, aiming to encourage local crypto currency uptake by allowing users to exchange coins for airtime purchases. However, the venture is now set to shut down, owing to system imbalances that emerged as soon the currency was made available.
Neil Croft, owner of Mahala Mobile, says there are "big players" who "simply take over your network with their hundreds of thousands rands' worth of hardware rigs, designed to mine [Secure Hash Algorithm] SHA256 and Script or Script-N". The algorithms result in mining patterns, which Croft notes are not fair to other users on the network and have prompted the company to turn its focus to establishing crypto currency exchange platforms instead.
Madibacoin was launched based on the principles of Bitcoin, which allows users to send payments within a decentralised, peer-to-peer network, without the need for a clearing house such as a bank.
Bitcoin enthusiast Haroun Kola says the fact that anyone can mine coins globally means any crypto currency is at danger of falling victim to a "51% attack", as has been seen with Madibacoin. One of the major flaws in the Bitcoin model, a 51% attack is when an entity contributes to the majority of the network's mining hashrate and, therefore, has control over the network, allowing it to manipulate the public ledger at will.
Kola says virtual currencies are vulnerable to these attacks - and in danger of losing value as new miners are launched. "Application-specific integrated circuit miners for Script code - the alternative to Bitcoin's SHA algorithm - are being launched and, while Bitcoin mining is not viable for the ordinary person, Script allows users to use GPU or CPU to mine coins.
He says any company that wants to compete in the virtual coin market must steer clear of thinking local. "You can start local, but ultimately you need to think global. Any coin that is likely to compete in the market will be one that was created with the world in mind."
Localised solutions
Kenyan start-up BitPesa aims to ensure its long-term survival by competing with established remittance payment providers. The platform encourages expatriates to send any amount of Bitcoins to recipients in the east African nation using BitPesa, which converts the crypto currency into Kenyan shillings.
The company says money transferred through BitPesa is available in the recipient's mobile money wallet "within minutes".
But the ever-present question of trust in a largely unregulated crypto currency sector has again reared its head, with the European Banking Authority (EBA) last week advising financial institutions to shun such currencies until clearer regulations are in place. "The EBA identified in particular more than 70 risks across several categories, including risks for users, market participants, risks related to financial integrity, such as money laundering and other financial crimes, and risks for existing payments in conventional (so-called fiat) currencies," the authority said.
The EBA added that individuals validating transactions - or miners ? can remain anonymous, and so can payers and payees, meaning IT security cannot be guaranteed and the financial viability of some market participants remains uncertain.
Long way to go
SA has 31 companies which accept crypto currency payments, according to Coinmap - a Web site that tracks and maps businesses trading in such currencies. While that number has shown marginal growth in recent months, commentators note it has some way to go to show growth comparable to markets such as the US and Europe.
Sonya Kuhnel, marketing director for local Bitcoin exchange BitX, says building trust for the currency is one of the major challenges. "People are sceptical of the unknown. If one of the major retailers in SA started accepting Bitcoin, then other retailers would also follow suit as this would set the precedent for others."
BitX launched last year and allows people to securely trade the currency. However, BitX co-founder Marcus Swanepoel says crypto currencies aren't perceived to be easy to use, and the lack of understanding of how they work is also a barrier influencing uptake locally.
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