Bitcoin in Kenya has in the recent past generated a lot of controversy with the Central Bank of Kenya issuing a public notice warning against the use of bitcoin as a currency within the country. While currency regulation and monetary policy is within the purview of the Central Bank, it is important to dig deeper into what could be the most revolutionary technology of our age and how best we can we move forward with ensuring Kenya and indeed the African continent exploits fully the opportunity that is now within our grasp.
Make no mistake Bitcoin and its underlying Blockchain technology will disrupt the current financial order that currently has Banking institutions sitting at the top of the food chain. Incumbents who fail to understand and implement strategies risk being rendered irrelevant akin to the manner in which Kodak was rendered irrelevant by the advent of Digital Cameras. Indeed Kenyan Banks have already had a taste of this with the arrival in 2004 of M-Pesa the Mobile Money platform that revolutionized the way Kenyans transfer money and pay for services within the country. Already it is estimated that 40% of Kenya’s Gross Domestic Platform is transacted on this platform. Banks and other financial institutions will need to evolve once again to keep up with this global trend.
Bitcoin the World’s first Decentralized Digital Currency is quickly positioning itself as the Internet of Money; a platform that will allow for instantaneous, immutable and secure exchange of value almost for free and at any given time.
Bitcoin possesses 4 key distinct characteristics that will allow for this transformation to occur namely:
- Bitcoin the Blockchain; the distributed open ledger maintained and safeguarded by the network of miners i.e. Computers that ensure transactions cannot be forged.
- Bitcoin the Currency; the digital token used for transactions and to reward miners who secure the network and Blockchain.
- Bitcoin the Protocol; the digital network used to carry bitcoin currency transactions across the network.
- Bitcoin the Software; the open source code allowing for extensible and evolution of the platform in the future. Read the Bitcoin Whitepaper here.
What is Bitcoin?
It is important to note that bitcoin the currency is the first successful application of Bitcoin the Platform. African Regulators should take time to asses the potential of Blockchain technology to reduce costs and enhance transparency within multiple sectors of the economy. For example Blockchain technology could eventually provide mechanisms to seal corruption loopholes and track illegal activity such as money laundering at very low costs.Indeed The Central Bank has a Constitutional role to manage the country’s fiscal and monetary policy and as such regulating entities that utilize bitcoin the currency is well within their role. This is important to enhance safeguards that ensures consumer protection, prevents money laundering and also monitor transactions for any terrorist activity. This can be done without stifling the technological potential of bitcoin the protocol that is already self regulating and trustless.
Blockchain technology has in the recent past become quite popular with Western Banks and Financial Institutions seeking a way to decentralize storage of information away from traditional databases like the dominant SQL technology. Indeed a number of banks in the United States have formed a Consortium called R3 CEV that intends to develop its on intra-bank blockchain protocol for secure settlement of money transfers between themselves. The World Economic Forum in Davos recently hailed the Blockchain technology as a revolutionary platform that will dis-intermediate costs associated with middlemen in the remittance space, saving the consumer billions in transfer and other associated costs.
What is Blockchain?
Other industries such as the Music industry can also benefit from Blockchain technology by creating a distributed ledger that allows for the permanent recording of Copyright of music created by artistes for both tracking and collection of Royalties and Purchase payments of these work of art. Such solutions can help resolve problems associated with existing institutions such as the Music Society of Kenya(MSCK) which artistes claim is not a transparent institution and is failing to disburse royalty payments to member artistes.
Elani on Corruption at MSCK. Can the Blockchain solve this problem?
Furthermore Blockchain technology will also be critical in addressing corruption in the Land sector. Issues such as duplication of Title Deeds as well as unlawful transfer of land properties will become difficult if not impossible should a decentralized and distributed ledger that is public be used to permanently record these transactions. Existing centralized systems allow for intermediaries to tamper with records as their databases can be interfered with quite easily.
Bitcoin and its underlying Blockchain technology offer huge promise in solving many problems across Africa by creating trustless systems that remove the power from centralized intermediaries that could otherwise be corrupted or influenced by power.African countries have already been able to leapfrog legacy systems like Banks and Landline telephony through the adoption of mobile technologies like M-Pesa and the Internet as well. Bitcoin or Blockchain technologies are no different provided they provide a much needed solutions like cross border money transfer or microloans. These technologies can be deployed across many sectors to reduce costs and enhance efficiency. People should not look at Bitcoin as a currency alone as that is really only its first application similar to the manner in which email was the first pervasive application of the Internet, which has since developed to include other applications such as Web, Mobile and even Social media applications.
In conclusion Bitcoin and other Blockchain applications are creating an Internet of Value where individuals will become even more empowered. Prudent regulation that protects consumers by ensuring third parties that build solutions on top of this technology do not act unfairly is needed. As smartphone technology becomes cheaper we should expect the opportunity for bitcoin and blockchain solutions to disrupt incumbents to grow not just in Africa but Worldwide as well.
To channel President J.F.Kennedy, “Ask not what Bitcoin can do for you BUT what you can do for Bitcoin”.
Kenya and Africa, once again have the opportunity to lead World in utilizing innovative and disruptive Blockchain technologies such as Bitcoin.
NB: This article was first published on Bankelele, see here.