Kenya Should Lead The World In Adopting Bitcoin As Legal Tender
What is Money?
Money is defined by as anything of value accepted by people for the purpose of exchange of goods and services. Although every country has its own system of coins and paper money, other things can and have often been used as money.
There is no known record about when or who first invented money. Historians however believe metal objects were first used as money as early as 5,000 B.C. Around 700 B.C., the Anatolian people living in Lydia, a region in western Anatolia, who spoke the distinctive Lydian language, an Indo-European language of the Anatolian group are thought to became the first Western culture to make coins. Other countries and civilizations soon began to mint their own coins with specific values.
Early Forms Of Money
Bartering was the way people exchanged goods and services from the earliest days of human beings on Earth. A rice farmer, for instance could trade or barter bags of their farm produce for other goods and services they needed. Over time, though, bartering wasn't always possible.
Sometimes people couldn't agree on what goods were worth in exchanges. In other situations, people simply might not want to trade for what you had available These drawbacks led to the use of alternative forms of money such as commodities. In the past, popular commodities included salt, cattle, seashells and seeds. Using these items of money alleviated some of the problems of bartering. However, using commodities raised other problems. Commodities weren't always easy to transport and often they were perishable or difficult to store.
Money Today
Societies moved away from using precious metals as a form of or to make money in the 19th century. Today all over the world, we use representative money, the paper bills and coins made of non-precious metals represents certain values that everyone in a societies can agree upon. Before 1971, Governments or banks could promise to exchange representative money for a specific amount of silver or gold also known otherwise as the gold standard.
Today, most modern currency is not backed by silver or gold. Instead, today's money is known as fiat money. Fiat is a Latin word that means “let it be done." Money has a certain value today because it’s been given that value by government decree. Legal tender laws now make it illegal to refuse legal currency in favor of some other form of payment in almost all jurisdictions.
Mobile Money Revolution In Kenya
M-pesa is the biggest and most successful social monetary experiment in the world. It offers a more accessible 'banking' option that is simple to use, less discriminative and fit right in with the liquid requirements of many Kenyans.
The M-pesa mobile application does all the essential financial transactions: transfer money to other M-pesa users and non-users, withdraw and deposit money, pay utility bills, purchase airtime and data bundles. M-pesa agents are as ubiquitous pavement airtime kiosks, whose owners have been duly trained and are incentivized by clipping a commission per M-pesa transaction. This is a kind of distribution network that most ATM-driven banks can only dream about.
A decade after its launch, M-pesa has transformed economic interaction in Kenya. Its success has reshaped Kenya’s banking and telecom sectors, extended financial inclusion for nearly 30million people, and facilitates the creation of thousands of small businesses. It has been especially successful in reaching low-income Kenyans.
M-pesa has been a resounding success in Kenya, where over half of adult consumers have an account and a huge share of the country’s GDP passes through the system. Yet it experienced slower take off in Tanzania, and an outright failure in South Africa. Closed systems and a lack of interoperability has broadly hampered cross border transactions. Interoperability between ISPs and countries is only just beginning to become a reality. M-pesa is offered by Safaricom, Kenya's biggest service provider. This means if you are using any other Telco apart from Safaricom you can't it use M-pesa.
Making mobile money or a payments system sustainable means getting past the “chicken-and-egg” trap of matching consumer uptake and merchant acceptance. If the mobile money is ever going to succeed, the ecosystem has to consolidate much like the credit card ecosystem did 40 years ago. The credit card industry moved from a fragmented landscape of closed, proprietary systems to an open, consolidated one.
Safaricom has pursued the agent model so successfully, though it has its limitations, it’s still way cheaper than maintaining a formal bank branch or ATM. Agents must process a certain volume of transactions each day to make a profit, which has kept the average M-pesa transaction as high as $ 0.27. This means serving low-income rural areas is just not so economical for the agents. Not great news if you’re living on a few dollars a day and wish to make sub-$2 transactions.
Safaricom launched M-pesa a decade ago as an African innovation to solve African problem, but the job remains half done. While the last mile of payments is uncovered, the people that would really benefit the most from mobile money services are denied. A whole new level of innovation is therefore required for the true potential impact of mobile money to be felt by all.
Bitcoin
I first heard about bitcoin several years ago. At that time, one bitcoin had a dollar value of $15, as I write this article the value is over $7000. Bitcoin is a form of digital currency, created and held electronically. No one controls it.
Bitcoins are produced directly by the people and increasingly businesses, running computers all around the world. These computers run on decentralized internet network using software that solves complex mathematical problems. It was first introduced in 2009 just two months after the global financial crisis that wiped out nearly half of global GDP.
Bitcoin is the first generation of a growing category of money known as cryptocurrency. Bitcoin can be used to buy things electronically. In that sense, it’s like conventional Kenya shillings, dollars, Euros, or Rand, which are also traded digitally.
Bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This makes it ‘cheap’ and put some people at ease, because it means that a large bank or telecom company can’t control their money.
Bitcoin is a floating abstraction for most people, their initial objection is that it is not backed by anything and therefore has no value. Aristotle defined the five characteristics of good money in the 4th century B.C. And his analysis is as accurate now as it was then. It must be durable, divisible, convenient, consistent, and have use value in and of itself. Aristotle was convinced that gold and silver were best suited for use as medium of exchange in a market place.
Bitcoin and other cryptocurrencies are definitely durable, unless we have an electromagnetic pulse (EMP) or a significant solar flare that wipes out all the internet and connected computers.
They’re infinitely divisible. Better than the physical metals such as silver or gold, although the metals can be accounted in tinier fractions too.
Convenient, yes as long as you have a Smartphone, bitcoin is very convenient. But your Smartphone, or something like it, may not always be with you. And your counterparty also has to have one. And it’s not very convenient if someone doesn’t know or trust bitcoin. Right now, that’s probably 98% of humanity. Around 26 million people around the world own bitcoin today.
Consistent, absolutely. Every bitcoin is exactly like another one. It’s at least as good as .999 fine gold that way. Bitcoin is certainly a currency like the KES. But it’s also an excellent transfer device. You can move wealth from one country to another, or to another person, securely, cheaply, quickly and privately. I’d say secretly, but you’re not supposed to say “secret” anymore, you can only say “private.” Part of the politically correct corruption of 21 century lingua franca. You can do all this outside the banking and telecom mobile money systems.
The use value of bitcoin is that it allows you to transfer something that is accepted as money outside of the banking system, telecom system as well as outside of central banks issued fiat money currencies.
The basic definition of money is “a medium of exchange and a store of value”. So, virtually anything with these features can be used as money. Some things are just much better than others. This argument is supported by the fact that humanity come from a history of using commodities like salt, seashell and even cattle as money.
Anything therefore can be used as money as long as it is acceptable as a medium of exchange and bitcoin is increasingly becoming acceptable. It will become more and more accepted as most government fiat currencies approach their intrinsic values which is essentially zero since the abolition of the gold standard.
The commodity currencies are physical commodities. You know they have use value. Fiat currencies, on the other hand, are just made up. They’re totally arbitrary.
Bitcoin is a technological innovation. There might be bitcoin 2.0 and 3.0. What will the current bitcoin then be worth is open to debate. There’s a reason the expression “High tech, big wreck” is true. Just because so far it’s been a great speculation, doesn’t mean it’s the best store of value. Technology, a solar flare, or even government action could wipe it out completely.
The bottom line, bitcoin passes the medium of exchange test and store of value test for the moment. So you can definitely say it is money for the moment. But so is the Kenyan shillings or M-pesa. I have a lot of confidence bitcoin or cryptocurrency will be here, say, five to ten years from now.
Apollo Eric CEO and Founder Point50Capital ([email protected]||@point50capital)