NAIROBI - It’s been declared dead countless times in the West, but in Kenya's start-up scene Bitcoin is all the rage. Kenyan companies have been attracting funding lately to build cheap Bitcoin-based remittance services that some think could give Western Union a run for its money, though others say it’s still got a long way to go.
In the Western world, to say that the crypto-currency Bitcoin has a publicity problem is to put it mildly. Bitcoin’s value dropped 43 percent in the first few weeks of this year, and was declared the worst-performing asset of 2014. For years journalists covering the tech industry have been proclaiming that Bitcoin, as a currency, is dead.
But in Africa, Bitcoin’s future is looking up. A number of start-up companies in Kenya have been attracting investment in the hopes that Bitcoin could be a new answer to an old problem: the high cost of sending remittances.
Bitcoin uses its own network to carry out money transfers without any central authority or banks.
And that is why Michael Kimani, who heads the African Digital Currency Association, said this was useful for Africans abroad who pay higher rates than the rest of the world to send their money home.
“I know people who pay 17 percent, imagine, for moving money from one country to another. Here the rates are so expensive, it makes sense to start here,” he said.
Kenyan start-up BitPesa claims it can send Bitcoin to Kenya for a mere three percent - considerably cheaper than a company like Western Union.
The company taps into Kenya’s extensive mobile money network, so recipients see their money arrive on their mobile phones. Kimani says this could make East Africa an ideal market for the crypto-currency.
“In the US, when people want to buy bitcoins they have to wire their money using a bank, and it takes a couple of days to get your funds into an exchange. But in Kenya I don’t have to use a bank - I just use my mobile phone,” he said.
But not everyone is convinced Bitcoin will have an easy time breaking into the African remittances market. Bitcoin can be a difficult concept to understand, Kimani acknowledges, and its global reputation does not inspire confidence.
Gareth Grobler, CEO of the South African Bitcoin exchange ICE3X, pointed out that well-established companies like Western Union still had a major advantage when it came to trust.
“What they provide is 100 percent security. They provide confidence. They’ve been around for longer than most people have been alive. So that’s a massive barrier,” said Grobler.
Bitcoin’s lack of liquidity right now, he added, would make it difficult for a start-up to scale up. It also makes the currency notoriously volatile.
But Grobler also saw potential in Bitcoin. His own company recently expanded into Nigeria, whose infamous internet scams mean that few vendors will accept Nigerian bank cards. Bitcoin could help Nigerians pay for things online, said Grobler, allowing international companies to safely tap into a vast market.
“No company in the rest of the world is going to say no to someone paying them with Bitcoin, if they’ve got a payment processor like BitPay," said Grobler. "If they can now go and actively pursue those markets and do so knowing that they don’t have to deal with credit card fraud, why wouldn’t they do it?”
Whether or not Bitcoin remittances became the next big thing, Africa presented a host of possible uses for the crypto-currency, said Grobler. Its value may be falling alarmingly, and its legion of supporters dwindling. But the idea behind Bitcoin, he insisted, was far from dead.