Bitcoin, an open source, peer-to-peer digital currency is frequently referred to as ‘anonymous’ currency. It is unique because it is the first decentralized digital payment method. Bitcoin transactions are much cheaper and quicker than traditional payment networks because there is no third intermediary needed for these transactions. Further, it tends to reduce the transaction costs for small business and small medium enterprises, which in turn help to reduce poverty by increasing access to capital, protect people from capital controls and censorship. In addition, it enhances financial privacy and encourages innovation of new equipment and structures.
As a cheap form of money remittance, Bitcoin also holds promise for future low cost remittance. In 2012, immigrants sent over $401 Billions to their relatives in third world countries. This we expect to increase to $515 Billion this year. These remittances made mostly through traditional wire transfers like western union and money gram. The global average fees for this transaction is around 9.05 percent of the amount while with Bitcoin it is only 1 percent of the amount. The entrepreneurial opportunity to improve money transfer has catapulted even western union and money gram want to incorporate bitcoin into their business models, says Jose Pagliery, author of Bitcoin: And the Future of Money.
Bitcoins provide relief for people living in Africa with strict capital controls. The total numbers of Bitcoins mined are capped and therefore cannot be manipulated. There is no special authority that can reverse transactions or prevent exchange of bitcoins between countries, they therefore offer an escape hatch for people who desire an alternative to their country’s devalued currency.
According to Jose Pagliery, Bitcoin has the potential of improving lives in Africa by improving basic financial services. In an estimate 64% of residents in developed countries lack access to this services because they are too expensive. Therefore because of the impediment of opening branches to offer this traditional banking in rural areas, people in developing countries have turned to mobile banking for their financial needs. In so doing, the closed-system mobile payment service M-Pesa has been very successful in countries like Kenya, Uganda, Tanzania, Nigeria and Afghanistan. The program that exploded into popularity right off the bat, has been a success because it has effectively banked the bankless. This type of digital payment does not only change how people access their hard-earned money but it also affects how people spend. We see that mobile banking services in developing countries can benefit further by incorporating bitcoin.
Indeed, one need only rely on making tragedies to make the point that Africa is ill equipped to bank for its 1 Billion people. In sub-Saharan Africa, only 29 percent of roads have tarmac and only one in four people can access electricity. This in itself increases the difficulty of installing ATMs. Yet 60 percent in these regions have mobile phone coverage that encourages development of electronic money that is underway at a very high rate.
Consider the many experiences of many immigrants who make their way to United States or Canada. It is customer for the person who makes the move and secures a steady job to send financial help to parents and siblings struggling at home. A single US dollar goes a long way in a place like Eritrea or Ethiopia. However, there are significant fees for sending money back home via wire services and transfers between banks. Banking the unbanked and easing the delivery of money to those who need it the most are the two strongest cases for a digital currency. Moreover, with more people gaining access to the internet, online money transfers are becoming more and more popular.
In Midrand area of Johannesburg, there are plans to install Africa’s first Bitcoin ATM. The ATM will allow local people to insert local cash and change it into the crypto-currency on the internet, which in turn utilized in businesses that have joined the scheme. The shortfall here is that the pioneers will face anti money laundering and cash security, which will drive the transfer fees higher. However, they are a step closer to entering the formal economy according to the Economist.
According to Brito, J., and Castillo, A. authors of Bitcoin: A Primer for Policy Makers, LocalBitcoins.com, a listing and escrow service for small bitcoins businesspeople, publicizes trade information in over 150 countries including Pakistan, Bangladesh, India, Libya, Zimbabwe, Romania only to mention but a few. It also plans to penetrate local markets in countries that do not have it in the near future.
Buyers and sellers have to share identifiable information about each other except for their digital wallets addresses. However, the system’s public accounting book, the block chain records all transactions for all to see. It might be counter-intuitive for a system of money that is traceable and has the highest privacy levels. Nevertheless, it all comes down to who knows which digital wallet is yours. Which in essence give the law enforcers effective tools for hunting down criminals should they ever connect the dots between the digital wallet and the real life owner.
As a digital currency, bitcoins presents some specific challenges. If a person is not careful, they can advertently delete or misplace their bitcoins. Once the digital file is lost, the money is lost just like paper money. If someone does not protect their private Bitcoins addresses, they leave themselves open to theft. If a user does not encrypt their wallet, their bitcoins are stolen through malware.
In conclusion, Bitcoins is a great improvement that has the potential to greatly improve human welfare and jump-start beneficial and potential developments in payments, communication and business in Africa. Bitcoins clever use of public-key encryption and peer-to-peer networking solves the double spending problem that had previously made decentralization digital currency impossible. These properties combine to create a payment that could lower transaction costs in business and remittance, alleviate poverty in Africa, provide an escape for capital controls and monetary mismanagement, allow for legitimate financial privacy online and spur innovations all over Africa according to Brito, J., and Castillo, A.