“Bitcoin for remittances” has been a catchphrase of digital currency evangelists on the continent for some time now. But with this particular dream starting to sour, is there still scope for bitcoin to prove its worth and inspire uptake among Africans?
At Disrupt Africa, we might well have counted among those evangelists ourselves, writing earlier this year that “booming bitcoin” may prove the “perfect fit” for Africa. Now, however, both on the continent and globally, the digital currency is in the doldrums and it is unclear how bright the future is.
A perfect fit?
Our contention that bitcoin may find its natural home in Africa was based on a number of factors. Firstly, global interest in bitcoin was on the rise, with the State of Bitcoin Q1 2015 report released by CoinDesk reporting the first quarter of this year saw a record amount of venture capital ploughed into Bitcoin companies globally.
This interest was also evident in Africa, not least given the sizeable round raised in February by African bitcoin remittance startup BitPesa. In July, Kenyan digital currency wallet and development provider Bitsoko was also backed, receiving a US$100,000 grant through the Grand Challenges Explorations (GCE) initiative of the Bill and Melinda Gates Foundation.
Bitcoin appeared to be booming in Africa, with the continent’s first bitcoin conference taking place in Cape Town, followed by the launch of the first Bitcoin Academy in the same city. A number of bitcoin startups started attracting attention, especially in the remittance space.
Remittances appeared the perfect area for bitcoin to prove its worth. PayPal is inactive. Credit card penetration in Africa is below three per cent. Bank charges on international payments are high. Most people aren’t banked at all. And the duopoly of money senders Western Union and MoneyGram was described by Kofi Annan’s Africa Progress Panel as a “super racket”. The more than 30 million diaspora Africans sending home US$40 billion per year were paying an average of 12.3 per cent to send US$200. Bitcoin could change this.
Bitcoin in remittances scuppered by lack of uptake
Confidence was dented in August, however, when Disrupt Africa reported much touted Ghanaian bitcoin startup Beam, launched in October of last year to facilitate remittances, had pivoted. The startup is still alive and well, now allowing Ghanaians abroad to pay for gifts and bill payments back home, but what was key from a digital currency perspective was the scrapping of bitcoin as a means of payment.
Beam co- founder Falk Benke would not be drawn into too much detail on why the company had moved on from bitcoin, but suggested it was due to lack of uptake related to the cost of exchanging bitcoin into local currency, limited merchants accepting bitcoin as a means of payment, and price volatility.
Though he said he was not saying that bitcoin would not work in Africa, it is not on Beam’s agenda for the time being. There have been indications that a number of other companies operating in the space are moving away from remittances for these same reasons.
What has hindered uptake of bitcoin in Africa? Africans have traditionally proven willing to adopt alternative payment methods, with mobile money a case in point, but bitcoin is still so new that as yet it remains unpopular as a means of sending money. The biggest challenge the digital currency faces is educating people that bitcoin is safe and reliable for money transfers.
Gilles Ubaghs, financial services analyst at Ovum, says understanding of the technology is one factor that is crucial if adoption is to increase, but bitcoin is still too complex to explain to many people. Given the negative press it has received, as well as high profile controversies such as the collapse of the Mt Gox exchange, there are also fears over security.
“While the bitcoin network itself is secure, exchanges and digital wallets where you store bitcoins can be stolen, and this has been high publicity where it happens,” Ubaghs said.
He said bitcoin still has a reputation as being used by online thieves, and must deal with these reputational issues before it is to progress.
There are those, however, that believe bitcoin still has a part to play in remittances. David Ajala is co-founder of Nigerian bitcoin remittance startup Bitstake, which is still working on establishing bitcoin as a viable option in remittances. He believes there is still potential for it to have a huge impact on the sector, in spite of companies like Beam giving up for now.
This is because it is cheaper and faster than sending traditional currencies, and looks to tackle the fact that Africans are paying the highest money transfer remittance fees in the world due to lack of market competition.
Ubaghs also believes bitcoin has huge potential in remittances, which could prove as a key use case for the innovative technology. Again, cost is the key factor, with Ubaghs believing people will eventually vote with their wallets. Allen Scott, chief editor of bitcoin news site CoinTelegraph, is another who believes it still has a part to play.
“Pending adoption by a sufficient number of people, bitcoin will provide liquidity and facilitate economic activity in Africa but, perhaps more importantly, weaken the grip on the continent of international loan shark organisations such as the IMF and the World Bank,” he said.
Are people turning off bitcoin?
There are some suggestions that bitcoin is losing some of its appeal across the world, not only in Africa. Scott believes, looking at the technology adoption curve, the industry is currently in the “trough of disillusionment”. It continues to be shunned by banks, and it faces an uncertain future.
“Whether bitcoin will continue to grow or whether a more popular alternative pops up is another question,” Scott said.
“But a decentralised system of exchanging value directly across borders has tremendous value – not especially for big banks – but more so for individuals and communities that have been historically excluded from the global economy.”
Ubaghs, in fact, says bitcoin is really taking off, but in a different way to how people thought it would.
“A few years or even months ago the talk was of using bitcoin as a total replacement for standard currencies. That looks increasingly unlikely anytime soon, as it is still too complicated for most people,” he said.
“But bitcoin as a service, as a means to send money, or build other services on the bitcoin blockchain network, is showing huge growth and development at quite a staggering pace. The NYSE recently traded its first full regulated cryptosecurity. Bitcoin won’t replace existing money, but it might just replace the existing infrastructure.”
Where else could bitcoin work in Africa?
Some hope for bitcoin in African remittances, then. But African startups are utilising bitcoin in other ways too, suggesting there is hope of an appropriate application of the digital currency away from the sending and receiving of money.
One such company is South Africa’s Bankymoon Bankymoon, a bitcoin integration startup primarily focused on providing bitcoin payment gateways to smart metering vendors. This allows vendors to accept bitcoin payments for utilities. The self-funded startup, which is currently seeking capital to take the product to market, also recently launched a crowdfunding platform that allows public schools in Africa to use blockchain technology to gain electricity credits.
Founder and chief executive officer (CEO) Lorien Gamaroff told Disrupt Africa education was the most important factor hindering uptake of bitcoin.
“Most people have not yet heard about bitcoin and for those that have it is only in the context of hacked exchanges, illicit dark web sites and money laundering. Mainstream media has largely been negative about the prospects of Bitcoin which casts doubt about its utility and stability in the minds of people,” he said.
Another South African startup that has found an innovative way of employing bitcoin and blockchain technology is Custos Media Technologies, which is employing bitcoin bounties as a means of cracking down on piracy of various types of digital media.
Founded by staff at Stellenbosch University and based at the LaunchLab, Custos Media Technologies is currently focused on producers of videos and movies. The startup embeds bitcoin bounties as watermarks within videos, which can still be watched normally.
However, if the media passes out of the control of the intended recipient – usually a reviewer offered a pre-released version of the movie – there is a small bitcoin reward that can be collected by one downloader using a free tool.
Co-founder G-J van Rooyen says Custos is using bitcoin in a “surprising” way, but he still believes bitcoin has “tremendous potential” in Africa from a fintech perspective, but adoption is mostly hindered by the youth of the technology.
“If you earn fiat currency, and you can easily spend fiat currency, converting it to bitcoin to spend it somewhere where you could have spent your rands or shillings or dollars doesn’t make much sense. This is likely to improve as the ecosystem matures, and more bitcoin starts passing hands,” he said.
Regulatory approval also remains a future risk.
“If governments make it difficult or illegal to transact in bitcoin, law-abiding business will avoid it, and the ecosystem shrinks and goes underground. I believe it’s critical for industry and academia to continually engage with regulators and legislators to ensure that the technology and its potential is understood well.”
And therein lies the key. There is still hope for bitcoin in Africa, both in remittances and elsewhere. But time and education remain pivotal. Watch this space.