Tag: Bitcoins

In this interview with Omolara Akintoye, the Chief Executive Officer, Cowry Asset Management Company Limited, Mr Johnson Chukwu speaks on the pros and cons of bitcoins. Excerpts:

What is Bitcoin all about?

Bitcoin was invented by Satoshi Nakamoto, who published the invention on 31 October 2008 in a research paper called “Bitcoin: A Peer-to-Peer Electronic Cash System”. It was implemented as open source code and released in January 2009. Bitcoin is often called the first crypto currency although prior systems existed. Virtual currency is described as “a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically. Though it was developed recently, but it is now gradually creeping into the premium system. Surprisingly, it is beginning to compete with some traditional payment method. The only thing is that there is no single treasury or regulator, it is a peer group payment. There is no Central Bank and no special authority in charge of the issuance or control divisibility as we have in other conventional currencies.

What are its advantages?

The only key advantage is that is not subject to the authority of a capital financial regulator so it allows for exchange between pairs unlike when you have a conventional currency. In the case of conventional currencies, every currency has an issuing authority. For instance, naira is issued by Central Bank, dollar is issued by the Federal Reserve Bank while Euro is issued by European Central Bank. In the case of Bitcoin, it is not subject to any conventional currency or any particular financial entity or financial authority. It is a virtual payment instrument and gradually, we are beginning to see some retail outlets accepting Bitcoin as a means of payment. Also, it is possible to send and receive bitcoins anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money. Another advantage is that here is no fee to receive bitcoins, and many wallets allow you control how large a fee to pay when spending. Higher fees can encourage faster confirmation of your transactions. Fees are unrelated to the amount transferred, so it’s possible to send 100,000 bitcoins for the same fee it costs to send 1 bitcoin. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants’ bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks. In addition, Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargeback, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs. Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.

Is it true that it has generated a lot of controversies in the past, if yes why has it now become acceptable?

it is true that it has generated lots of controversies because several countries have found it difficult to place bitcoin, some countries have considered it as Ponzi Scheme and it is believed that the death of Bitcoin is very near. Another reason is that it has gone through a lot of vulnerability from 10% to 32 cent then from 32 dollars in November, it moved as high as 1,242 dollars before it went down to 600 dollars. So the level of vulnerability that it has experienced has also created lots of controversies. Also the value of Bitcoin is neither here nor there and before a currency is considered as a means of exchange it must have value which to some extent Bitcoin lacks. Its store of value and vulnerability has been of a great concern to those who have adopted it as a means of currency or means of payment.

Is there any country that has adopted it as means of currency?

Well some countries have accepted it as a means of payment but no country has adopted it as its own currency. Countries that are using it are also attaching different interpretation to its usage. ‘While some countries have accepted it, some Countries have banned its usage because they consider it as fraudulent. This is because there has been a high risk of fraud involved particularly as it relates to the mining of Bitcoin. Though it is very complex because it has to do with electronic device and the complexity involved has minimised the risk involved. Also, there are concerns that it could be s channel for money laundering. The fact that no country has adopted it because of the complexity involved, in Nigeria, the Nigerian Deposit Insurance Company (NDIC) have said that the Central Bank and NDIC are looking for ways to encourage or to accept bitcoin as means of exchange in the country. These duos have decided to come up with appropriate regulations to ensure that it is used in an orderly manner within the country. That is so far the best we’ve seen in any countries of the world. Countries that are technologically advanced have considered it as a form of exchange and i believe that is the direction that Nigeria is looking at.

What are the pitfalls to watch out for when considering the acceptance of Bitcoin?

The major pitfall is the issue of money laundering because it is a virtual payment system, there is no depository and no authority in charge of the issuance of its currency, so tracking the flow becomes difficult, fraudsters who are engaged in illegal activities or illegal transactions use it as a means of circumventing the conventional payment system. This no doubt is of a great concern to those who are opposed to Bitcoin that could be an avenue for money laundering. So the regulator having considered the dangers of money laundering should now come up with regulations around it to prevent the abuse of Bitcoin by those who have ulterior motive.

As Nigerians literally catch the bug of bitcoins, the virtual currency which is gradually gathering momentum, experts warn that patrons and regulators alike should be on their guard, report Ibrahim Apekhade Yusuf and Omolara Akintoye

As a means of exchange, the coin is no longer a fad in Nigeria but it is still being accepted in a few other countries both within the continent and beyond.

However, it does appear that the coins are staging a comeback. But this time around, they’re coming as virtual currencies: bitcoins.

Still curious about bitcoins? Well, a penny for your thought! Bitcoins as the name implies, are not just coins in bits, but they are much more!

All you need to know about bitcoins

According to Wikipedia, Bitcoin was created by Satoshi Nakamoto, who published the invention on 31 October 2008 to a cryptography mailing list in a research paper called “Bitcoin: A Peer-to-Peer Electronic Cash System.”

Bitcoin is a digital asset designed by its inventor to work as a currency. It is commonly referred to as digital currency, digital cash, virtual currency, electronic currency, or cryptocurrency.

The question whether bitcoin is a currency or not is still being disputed. Bitcoins have three useful qualities in a currency.

According to The Economist in January 2015, they are “hard to earn, limited in supply and easy to verify.”

Economists define money as a store of value, a medium of exchange, and a unit of account and agree that bitcoin has some way to go to meet all these criteria. It does best as a medium of exchange. As of February 2015 the number of merchants accepting bitcoin has passed 100,000. As of March 2014, the bitcoin market suffered from volatility, limiting the ability of bitcoin to act as a stable store of value, and retailers accepting bitcoin use other currencies as their principal unit of account.

Classification of bitcoin by United States government is to date unclear with multiple conflicting rulings. In 2013, Judge Amos L. Mazzant III of the United States District Court for the Eastern District of Texas stated that “Bitcoin is a currency or form of money.”

In July 2016, Judge Teresa Mary Pooler of Eleventh Judicial Circuit Court of Florida cleared Michell Espinoza in State of Florida v. Espinoza in money-laundering charges he faced involving his use of bitcoin. Judge Pooler stated “Bitcoin may have some attributes in common with what we commonly refer to as money, but differ in many important aspects, they are certainly not tangible wealth and cannot be hidden under a mattress like cash and gold bars.” In September 2016, a ruling by Judge Alison J. Nathan of United States District Court for the Southern District of New York contradicted the Florida Espinoza ruling stating “Bitcoins are funds within the plain meaning of that term- Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment.”

In a 2016 Forbes article, bitcoin was characterised as a member of a new asset class.

The first bitcoin ATM was installed in October 2013 in Vancouver, British Columbia, Canada. With about 12 million existing bitcoins in November 2013, the new price increased the market cap for bitcoin to at least US$7.2 billion. By 23 November 2013, the total market capitalisation of bitcoin exceeded US$10 billion for the first time.

The bitcoin exchange service Coinbase launched the first regulated bitcoin exchange in 25 US states on 26 January 2015. At the time of the announcement, CEO Brian Armstrong stated that Coinbase intends to expand to thirty countries by the end of 2015. A spokesperson for Benjamin M. Lawsky, the superintendent of New York State’s Department of Financial Services, stated that Coinbase is operating without a license in the state of New York. Lawsky is responsible for the development of the so-called ‘BitLicense’, which companies need to acquire in order to legally operate in New York.

Cautious optimism over bitcoins

As to be expected, the belief in some quarters is that bitcoins are not as secured as they are being made to seem.

Little wonder the Securities and Exchange Commission, on Thursday warned the general public against investing in crypto currencies, such as Swisscoin, OneCoin, Bitcoin and such other virtual or digital currencies.

Recall that the Mavrodi Mondial Movement, otherwise known as MMM had last week introduced Bitcoin, said to be the world’s best performing currency in 2016, as part of its mode of payment in its comeback plans.

However, the SEC has advised the public to exercise extreme caution with regard to digital (crypto currencies) as a vehicle of investments.

The commission stressed that none of the persons, companies or entities promoting crypto currencies had been recognised or authorised by it or by other regulatory agencies in Nigeria to receive deposits from the public or to provide any investment or other financial services in or from Nigeria.

“The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be of a risky nature with a high risk of loss of money, while others may be outright fraudulent pyramid schemes,” the regulator noted.

The SEC in a statement on its website added that, “Given that these instruments and the persons, companies or entities that promote them have neither been authorised, nor any sidelines/regulations developed for them by any of the regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual currencies fail or the companies promoting them go out of business.

“The public and consumers of financial services are further advised that before making any investment or entering into any financial services transaction they should ascertain that the entity with whom the investment or transaction is being made is authorised by the commission or other financial services regulatory authority as applicable to provide such services.”

The fraudsters, SEC said, carried out their illegitimate business via Nigeria.mmm.netportal/platform, and were promising investors a monthly investment return of 30 per cent.

“Please note that anyone that subscribes to this illegal activity does so at their own risk”, it added.?

Growing support for bitcoins in Nigeria

It is however instructive to note that some few discerning Nigerians have mooted the idea that bitcoins should be encouraged within the nation’s financial landscape.

Also speaking in an interview with The Nation, the immediate past National President of the Institute of Chartered Accountants of Nigeria (ICAN), Chief Femi Deru said regulators of Bitcoin should develop efficient solutions while not impairing the growth of new emerging markets.

“A government that chooses to ban Bitcoin would prevent domestic businesses and markets from developing, shifting innovation to other countries. The challenge for regulators, as always, is to develop efficient solutions while not impairing the growth of new emerging markets and businesses,” he said matter-of-factly.

Bitcoins according to Deru, is money and money has always been used both for legal and illegal purposes.

Cash, credit cards and current banking systems widely surpass Bitcoin in terms of their use to finance crime, he maintained.

Pressed further, the chartered accountant said bitcoins can bring significant innovation in payment systems and the benefits of such innovation are often considered to be far beyond their potential drawbacks.

“Bitcoin is designed to be a huge step forward in making money more secure and could also act as a significant protection against many forms of financial crime. For instance, bitcoins are completely impossible to counterfeit. Users are in full control of their payments and cannot receive unapproved charges such as with credit card fraud,” he s aid.

“The use of Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems, and Bitcoin is not likely to prevent criminal investigations from being conducted,” he said.

In general, it is common for important breakthroughs to be perceived as being controversial before their benefits are well understood. The Internet is a good example among many others to illustrate this.

Speaking on the possibility of regulating the use of Bitcoin, Deru said it is however possible to regulate the use of bitcoin in a similar way to any other instrument. Just like the dollar, bitcoin can be used for a wide variety of purposes, some of which can be considered legitimate or not as per each jurisdiction’s laws.

In this regard, Bitcoin is no different than any other tool or resource and can be subjected to different regulations in each country. Bitcoin use could also be made difficult by restrictive regulations, in which case it is hard to determine what percentage of users would keep using the technology, he stressed.

One of those convinced that Nigerians should adopt bitcoins is the Managing Director of the Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim.

The NDIC boss hinted recently that the Corporation and the Central Bank of Nigeria (CBN) have set up a committee to look into the possibility of legalising the use of the digital currency, the Bitcoin, for transactions.

According to the News Agency of Nigeria (NAN), Ibrahim made the remark on the use of bitcoins for digital transactions at a workshop for Financial Correspondents in Kaduna.

He said: “On our part, we have constituted a committee together with the central bank to have an in depth study of this phenomenal bitcoin.

“We will look at its advantages and disadvantages, what it means for the payment system and what it means for the safety and security of customers. We will also look at what it means for money laundering, anti-corruption, crime and measurement of money/near money instruments for the economy. But we need a lot of education to do this and I’m calling on you (the media) to educate yourselves about all of this so you can educate the public.”

While revealing that a lot of Nigerians had already started patronising bitcoin, he confessed that “it had started to creep in and nobody could stop it”.

He said that in Europe and the United States, it had gained currency and some of the leading banks in Europe had also adopted their own versions of bitcoin.

NDIC boss added that “Some of the central banks have also adopted it and are seriously doing everything possible to bring in the emergence of this invisible product.

“The owners do not need any central bank; they do not need any physical bank. If you are a subscriber, you only know yourselves and they give you a bit of the bitcoins and in some countries you can convert it to cash. You can make payments with it because it has been recognised and one of the famous ex-chief executive of Barclays PLC, Antony Jenkins, has joined the group’s board of directors,” Ibrahim said.