Kenya could be considered the crucible for Bitcoin consumer uptake in Africa. Citizens already use mobile to send and receive micro-payments in everyday life, bypassing the need for bank accounts.
Kimani: ‘Legislative Environment Favorable’ for Bitcoin
As startups wake up to the possibilities offered by shunning legacy finance, Bitcoin is getting a foot in the door early. BitPesa, which offers an alternative to the ubiquitous mobile money transfer service M-Pesa, has been advancing Bitcoin usage in Kenya for several years.
Bitcoinist spoke to Michael Kimani, a former consultant at BitPesa and now CEO and co-founder of his own Blockchain startup, Umani Blockchain Ltd. Kimani explains in more detail how Bitcoin is changing Kenya, its implications further afield and the state of cryptocurrency perception in Africa today.
Bitcoinist: How is the legislative environment treating BitPesa? What new or existing hurdles are you attempting to overcome?
Michael Kimani (MK): The legislative environment is favorable. Having a new technology that is not defined by law (unregulated) is an opportunity. Similar to M-Pesa in 2006. When it launched, there was no legal precedence and this, in a lot of ways, is what allowed it to thrive and do the unimaginable – payment wallets for the unbanked. So legally, it is an opportunity to build new stuff whose impact is as yet unknown.
The existing hurdles are the legacy infrastructure for moving value and payments – Banks and Telcos. The Central Bank of Kenya issued an internal circular 14 in December 2015, along with its notice telling banks not to work with Bitcoin companies.
Our company Umati for example, had our bank account closed by I&M bank right after this notice. This was odd, because the circular was not made public. This was right after Safaricom cut off access to its payment infrastructure for BitPesa. Both banks and mobile money companies are crucial for any bitcoin as an asset or bitcoin as a currency service or business model in Kenya.
You kind of need to have some way of accepting payments from masses at scale – banks and telcos on board, else, there is no business.
It is commendable that Airtel is open minded about working with Bitcoin companies. But their payment wallets have a low market share of 20%. So in this market, if you want to build a bitcoin business that scales, you kind of need to have some way of accepting payments from masses at scale – banks and telcos on board, else, there is no business.
Bitcoinist: How has BitPesa usage changed over the past year? How are you educating mobile money users on the benefits of switching to Bitcoin?
MK: As a payments analyst, I have noticed BitPesa has shifted its focus to other markets – like Nigeria. I have also noticed they have pivoted to a different business model which has known KYC’d parties on both ends of a bitcoin transaction, a B2B model.
BitPesa also no longer allows individual users to buy or sell bitcoin through them and this has pushed buyers and sellers to p2p Bitcoin marketplace, localbitcoins.com and online informal agents who exchange online currencies for bank and mobile money currencies.
BitPesa also no longer allows individual users to buy or sell bitcoin […] this has pushed buyers and sellers to p2p Bitcoin marketplace
Before working on bitcoin full time, i traded soybeans derivatives at Futures First, a prop trading firm. I tell everyone i meet that bitcoin is gold 2.0 and it’s worth investing in some for the future. I have had success with this. This is what Umati Blockchain Ltd. is about, taking bitcoin to the masses of East Africa as a new asset class for millennials.
In this market, Bitcoin is more of a complementary payment technology.
Kenya has a great payment infrastructure locally, but it only works within the confines of Kenyan borders. I often encourage online freelancers and entrepreneurs to take up Bitcoin as a bridge when getting paid for online work, making payments to online merchants that accept bitcoin or topping up e-wallets like Neteller that accept deposits in bitcoin.
Umati has also set up an information portal site bitcoinkenya.info , a facebook group, Bitcoin Traders Tenya and a community group on Whatsapp, Bitcoin Markets Training.
Bitcoinist: BitPesa was down recently. Are you seeing any issues with security or similar? How do you ensure the service is watertight more generally?
MK: It was not about security. BitPesa was working great as a secure service before Safaricom and the Central Bank of Kenya came out with public notices. We all loved it, and it’s a shame what happened.
Generally, to ensure watertight services, we do not hold customers funds. We have also had to work with Bitcoin software engineers from the US, Germany and the UK. Few Kenyan developers have a good grasp of working with the Bitcoin Blockchain. I have not met any.
Bitcoinist: Tell us more about Umati Blockchain. You mention colored coins as a basis for issuing Blockchain-backed loyalty points – what could these be used for? What kind of infrastructure exists in Kenya to allow conversion and/or spending of points via e.g. mobile?
MK: In Kenya, mobile money is basically issued electronic money on a SIM card. Telecommunication companies own all the SIM cards on phones in Kenya. Safaricom owns 65% of all SIM cards in Kenya.
So, for a while, only Telecommunication companies could issue electronic value on mobile phones, and this is what has led to their dominance. Today, utility companies, microfinance institutions, SACCOs and non banking financial institutions have to go through these Telcos and have to pay a gatekeeper fee. Yet, everyone has a mobile phone and agent points are not exclusive.
The emergence of blockchain technology and an increase in use of smartphones by young east africans, is a watershed. An opportunity for firms to use this open technology to start front running mobile money issuers. Why can’t a utility company issue its own electronic value tokens on some form of digital wallet that runs on a smartphone? Or even blockchain SIM card?
The marginal cost of introducing digital currencies is nearing zero thanks to ubiquitous mobile phones and an expansive agent network for cashing in and out into electronic values. Agent networks are also non-exclusive and anyone can tap into them for cash in cash out service.
There are plenty of non banking financial institutions in Kenya that have clients, with mobile phones, but only lack the technological capacity to build their own digital prepaid wallet.
Bitcoinist: India’s cash crackdown is ostensibly aimed at cutting tax evasion in a cash-based society. Do you think the government’s actions could set a precedent for other cash-based economies?
MK: It has. Some mobile money professionals are talking about the cash ban as a good thing because it forced people to start using mobile payments as an alternative.
[I]t will depend on the politics of each country. Kenya is not like India.
But ultimately, it will depend on the politics of each country. Kenya is not like India. I cannot see such an action happening in Kenya any time soon. Already, the Central Banks of Kenya’s actions to minimize cash transactions by placing limits on cash withdrawals is causing friction between the Central Bank Governor and the political class (and vested interests) in Kenya. There are a lot of powerful people in Kenya who would not approve such actions.
Even a recent announcement by the Kenya Revenue Authority (US version of IRS) to track people’s electronic Mpesa funds for tax purposes ignited an uproar.
Bitcoinist: Both Nigeria and Zimbabwe have recently seen spikes in Bitcoin trading, which some are chalking up to duped consumers interested in getting on board with ponzi scheme MMM. Do you agree with this theory?
MK: Yes. I agree that some of bitcoin’s demand observed on p2p exchanges is due to ponzi schemes such as MMM. Some people call them MLM, mid level marketing, which kind of puts such schemes in a grey area.
But there is also a lot of bitcoin demand that is genuine and driven by real use-cases. This I have observed first hand, and is not debatable. Generally, the problem with the bitcoin industry is it is difficult to track exactly why an individual is buying bitcoin. So there are no solid statistics that we can all point to as the ultimate truth of why people are buying bitcoin.
Bitcoinist: You recently mentioned Zarfund as a likely ponzi scheme. How do you think it is best to protect consumers from viral schemes like this and OneCoin?
MK: Reputation, trust and clear governance models.
I think we need people and companies that are publicly open about what they do, and put their reputation on the line for scrutiny. Who are the founders of Zarfunds? What does it do? From what I can tell, it’s a cross between a ponzi scheme and multi level marketing. A grey area.
Consumers also need to be educated and warned about the potential scams that proliferate the bitcoin/cryptocurrency world. Who will do this? We do our best, at Umati, but we can only do so much.
Bitcoinist: What would you say are key factors in influencing government to be more accommodating of cryptocurrency business in Kenya?
MK: External pressure: clearly cryptocurrency is here and its happening across the world. So there is pressure to catch up with trends;
Thought leaders like myself;
Real need for blockchain technology and cryptocurrencies: Kenya is a great market for trialling blockchains and cryptocurrencies for payments, identity management, cross border transfers, and the as of yet imagined. Banks, regulators, policy makers and entrepreneurs realize this;
[E]veryday, there’s someone new sending me a text or a call to ask – what is this Bitcoin?
Living up to its claim: Kenya often touts itself as Silicon Savannah and the home of mobile money, Mpesa. There are lots of us entrepreneurs in Nairobi who question whether we even deserve this praise. It seems foolish to say we are Silicon Savannah and turn round and ignore what’s arguably the greatest invention of our lifetime – Bitcoin blockchain. Since Mpesa, which is not a true Kenyan invention, we haven’t had any big innovation we can lay claim too;
Visionaries who can see what the future holds and would like to put Kenya on the map like the Minister of ICT, one of the few entrepreneurs with a successful exit of a tech company in Kenya;
Bitcoin community in Kenya and Nairobi: the Bitcoin community has been growing and their passion is infectious. Back in 2014, we used to gather for meet ups on Ngong road. Today, the community has grown beyond any physical space. Even i find it difficult to pin exactly how many people are involved now. But, everyday, there’s someone new sending me a text or a call to ask – what is this Bitcoin?
That tells me people are talking, and there is organic growth.
Bitcoinist: Are there other African jurisdictions you consider are leading the way in this respect?
MK: Perhaps South Africa.
What do you think is the best use-case for Bitcoin in Sub-Saharan Africa? Let us know in the comments below!
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