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.