Bitcoin Seeks New Life In Africa

[Eugen Leitl]

(Rudiger is a good friend of mine, I hope he can make it to the 5th May event
in Munich)

http://www.technologyreview.com/business/39829/?p1=BI

Wednesday, March 21, 2012

Bitcoin Seeks New Life In Africa

A digital currency without a central bank could be ideal for economies where
the mobile phone is king but the banking systems are weak.

By Tom Simonite

Recent months have not been kind to proponents of Bitcoin, the virtual
peer-to-peer currency that soared to a value of over $30 last summer on a
surge of public interest and media reports.

The currency operates over the Internet with no central control. But now its
15 minutes of fame appear to be over. Reports of a $500,000 digital heist
last year were followed by wild volatility in the value of a bitcoin, which
has now dropped to around $5. Last month, the largest exchange where bitcoins
could be traded for dollars unexpectedly closed because of what it called
"increasing regulation."

Now some in the Bitcoin community, a blend of people motivated by libertarian
politics and commitment to open-source software, are beginning to wonder if
their pet currency may have brighter prospects in the developing economies of
Africa. German software developer R|diger Koch, a consultant to the
U.K.-based bitcoin exchange Intersango, recently traveled to speak at the
Mobile Money Africa event in Lagos, Nigeria. There, Koch told the audience of
businesspeople and government officials that Bitcoin could support a system
of robust, low-fee mobile payments for anyone whose cell phone has a camera.

"Many of them were interested in how Bitcoin could be useful," says Koch. His
talk in Nigeria was intended to launch a dialogue that could lead Intersango
or others to launch practical Bitcoin-based mobile payment systems for
Africa. Koch has also visited several African embassies in Berlin to
introduce government officials to the currency.

The system needed to create and exchange bitcoins made its mysterious
appearance on the Internet in 2009 (it remains unclear who wrote the
software). The coins are impossible to fake and can be created and used
without any central authority, such as a central bank. The work of generating
bitcoins and verifying transactions is shared among the users of the
software, all protected by sophisticated mathematics.

In the United States and Europe, Bitcoin's meteoric rise was mostly driven by
speculators; hardly anyone used the currency to actually pay for goods and
services. Koch thinks things could be different in Africa, where a universal,
electronic currency could solve real problems. Fast-growing African economies
such as those of Kenya and Nigeria rely heavily on cash transactions,
particularly in rural areas where there are no ATMs and few people have bank
accounts. In some places, large networks of illegal money changers are used
for cross-border payments.


That situation is part of the reason for the early success in Africa of
mobile-phone payment systems such as Kenya's M-Pesa, which allows users to
send each other money using text messages. Koch believes that mobile payments
built around Bitcoin could be even more useful. "It's interesting to see how
creative Africans can be about transferring money," says Koch. "They really
think seriously about a cashless society."

Open-source technology created by the Bitcoin community could be used to
create simple mobile apps for payments accessible to almost any phone with a
camera, says Koch. Use of smart phones is now growing rapidly in some African
countries, particularly Kenya, as prices for models using Google's Android
software have dropped rapidly. He imagines a design similar to the Bitcoin
for Android app, which allows one person to transfer bitcoins to another by
using a phone to snap a photo of a 2-D bar code or QR code on the screen of
another phone. "People could exchange money when they meet on the street,"
says Koch.

The decentralized design of Bitcoin means a payment system that uses the
currency would easily span national borders and could avoid system-wide
outages like those suffered by M-Pesa in December, which left users unable to
do business. "All centralized systems have the same problem," says Koch. "If
you rely on it and you don't have a way to pay, then you are in trouble."

Tonny Omwansa, an academic at the University Of Nairobi, Kenya, studies
payment systems and recently published a book on M-Pesa. "The low financial
inclusion, low penetration of formal financial services, and uptake and
penetration of mobile phones make mobile payments very valuable," he says.
However, he notes, users currently run the risk of "dependence on a supplier
which is monopolistic."

Mobile payments built on top of Bitcoin's decentralized design could avoid
that risk. But Omwansa says that although he is familiar with Bitcoin, most
in Africa are not. "Hardly anyone I know has heard about it," he says.

Copyright Technology Review 2012.