The idea of digital currency has been in the making for long. Still, challenges are ever-present in realizing the idea no matter how powerful the digital world has grown throughout the years, especially post-Covid. Recently, however, digital currencies are slowly taking shape to allow transactions across borders and the decentralizing of trading—abolishing the role of middlemen as well as regulations from financial institutions and governments. In similar fashion to the trade of hard currencies in financial markets, digital currencies including Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Tether (USDT), among others, are being traded on online digital currency markets for the end purpose of buying and selling goods and services in the physical world. Ethiopians—though late to the party and with insignificant investment levels and transaction volumes—seem to be slow-walking into this new digital reality. Some are now investing directly in currency trades while many others are mining digital currencies for extra revenue. EBR’s Addisu Deresse overviews and clarifies digital coinage is its transformative power.
On one of the lazy days of 2010, one year after the first digital currency Bitcoin (BTC) was launched, Laszlo Hanyecz wanted to order pizza. After offering 10,000 BTC over the internet to anyone that could deliver two pizzas to his house, he received a knock on his door minutes later and his wish was fulfilled. Hanyecz transferred the promised amount phone-to-phone and continued to enjoy his pizza. The existing exchange rates of 2010—of one BTC digital currency equaling USD0.01—was not a point of contention for Hanyecz as he did not mind the USD100 for the pizza boy.
“It would be good to have food in exchange for something that was worth nothing at that time,” said Hanyecz, talking to Cable News Network (CNN) in 2019.
In mid-March 2022, one BTC was worth well over USD40, 000—had Hanyecz’s pizza been of this time, he would’ve forked USD400,000,000 for just two pizzas. “What else is there than good pizza?” said the joking Hanyecz in the interview in a move that has now become so historic that the crypto community around the world has started celebrating Bitcoin Pizza Day on May 22 in commemoration of that now famous day.
What are they?
As uncommon as Hanyecz’s decision might have felt in the crypto community, the idea of digital currencies, i.e., cryptocurrencies, remains confusing to the average person throughout most of the world. In the massive space of the financial market, people trade from the comfort of their homes and phones—transacting hard currencies, stocks, commodities, and now cryptocurrencies, with the goal of making profits.
One item traded in the financial market is the inter-trading of the currencies of two countries—mostly likely the USD and ETB in Ethiopia’s case. Stocks and commodities are other tradable items. Now, as of recently, the massive financial market is trading cryptocurrencies—or forms of digital currencies—like the one Hanyecz utilized.
With the growth in the significance of technology, life seems to be happening in two parallel realities—the physical reality and the digital one. Recently, digital reality seems to have gotten strong to the extent of overthrowing its physical counterpart. Once a popular method of playing music, the CD and its players seem to have vanished as the entire world primarily plays music digitally. Further, once the most famous source of information, encyclopedias no longer have a place in the world of Google and Wikipedia. Like CDs and encyclopedias, monetary notes carried by people now have digital equivalents.
Contrary to popular belief, the idea of using digital money did not surface in 2009 when the first cryptocurrency, BTC, was launched by a presumed pseudonymous person/s by the name of Satoshi Nakamoto. Rather, the idea is as old as the internet itself. But, there have always been challenges towards materializing the idea, with one being the issue of the remaining copies during an exchange of information over the internet. As an example, if one sends an email with a Word attachment, the same document can be found in the sender’s ‘sent’ section as well as in the recipient’s ‘received’. But, financial transactions should not work that way—if money is transacted, the same copy of the note should not remain with both the payer and payee. In other words, no copy of the exact same note should remain with the sender and the value due must be transferred with no copies of the same value and currency note remaining with the paying party.
Challenging the realization of digital currency has also been the security of the transactions in the digital space. The possibility of these transactions being hacked has kept investors away from entertaining the idea. That is when blockchain technology came in. This is a digital ledger that keeps a record of every single transaction that happens in the digital world. In the physical world, such records are checked and approved by institutions like banks. Now millions of individuals all over the world with super-powerful computers surf the internet to mine transactions, check them, and approve their authenticity. Each transaction is locked in a block with unique codes of where, when, and what the transaction has been. This chain of transactions will be recorded in an open space like a chain of blocks for anyone to access.
The people who track these transactions and check their validity, miners, earn BTC for their services. These are not the only miners though. Other miners simply allow their computers and internet connections to be used as a host for transactions all over the world. These miners, too, earn bitcoins for their service. Others, including most miners in Ethiopia, mine cryptocurrencies as payment for their various activities in the digital world. These miners may spend their time playing video games to earn these currencies.
But, BTC is not the only digital coinage. Just like physical currencies, there are many other transactional cryptocurrencies supported by various technologies offering a range of features. In addition to BTC, online transactions are currently undertaken using Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH), Stellar (XLM), Dogecoin (DOGE), Binance Coin (BNB), Tether (USDT), and Monero (XMR).
The difference between any two of these currencies, however, is not the same as that between monies in the physical world. Rather than state ownership or boundaries, cryptos vary by their technological aspects. BTC was invented on an open-source platform—allowing public access to its codes. Coders then began taking bits of BTC’s coding to launch their own digital coins after making few adjustments.
Are Africans catching up?
According to the African Report, the use of cryptocurrencies has grown by 1,200Pct between July 2020 and June 2021. Even though Africa is still catching up in terms of overall values traded, it has the fastest adoption rate in the entire world. Kenya, Nigeria, South Africa, Tanzania, and Uganda are experiencing the highest rates of crypto trading and transaction. Remittances using these digital currencies are growing as the cost of transfer is significantly low to nil. Other forms of peer-to-peer transfers are also growing faster than ever.
“I check my BTC every day [on my mobile phone] and any chance I can get. Any minute, any hour, anytime, as often as I can,” Peace Akware, a Ugandan millennial and crypto fanatic told the British Broadcasting Corporation (BBC) in a 2018 interview.
Africa is witnessing its own versions of crypto-based projects. The South African-based Luno Exchange, established in 2013 and the first to be based in Africa, has now registered millions of customers in over 40 countries worldwide. Others, particularly cryptocurrency-based remittance services, are popping up in various countries. These services include Abra operating in Malawi and Morocco, GeoPay in South Africa, BitMari in Zimbabwe, and London-based Kobocoin. Launched in 2013, Kenya’s BitPesa facilitates virtual remittances transfers to both African and international locations, to and from individuals’ mobile wallets, where cryptocurrency is stored.
Prime Minister Abiy Ahmed (PhD) brushed off the idea of cryptocurrencies in his speech at the inauguration of the Commercial Bank of Ethiopia’s (CBE) new headquarters in February. Even though the government is yet to catch up, there are some platforms making early attempts to facilitate trade between groups of cryptocurrency buyers and sellers of. One such platform is paxful.com where Ethiopians mainly transact in BTC, ETH, and USDT.
When visiting the platform in mid-March, the value of one BTC was more than ETB2 million and one ETH equaled ETB141, 629. There were about 20 offers for BTC, one for ETH, and no offers for USDT. The platform allows Bank of Abyssinia, Abay Bank, CBE, Cooperative Bank of Oromia (CBO), Awash Bank, and TeleBirr, among others, as options for bank transfers.
Even though there are not many Ethiopians on crypto trading platforms, a lot of young boys and girls have been introduced to the practice of mining bitcoins. When Covid hit and educational institutes were closed, Yared Abebe, then an architecture student at Unity University, resorted to spending a lot of his time on the internet. He signed up for a gaming website and started spending his time playing games. He spent a lot of those days playing games along with his younger sister, mining bitcoin.
“I did not earn a single BTC, but rather a Satoshi—100 millionths of one Bitcoin,” Yared told EBR. Even though he abandoned the practice when he returned to a ‘real’ job, he recalls earning crypto worth USD11.
“I opened a wallet on one of the platforms, and changed my fractions of Bitcoin into USD11,” he remembers. “From the wallet, I then ordered airtime from Ethio Telecom to take advantage of the 50Pct bonus they offered when airtime is purchased with foreign currency.”
In 2020, when Yared was earning crypto by playing games, one BTC was being sold for USD7,188.46. His 0.0015302303970531 BTC would have been worth about USD62.7 in mid-March 2022, as one BTC is being sold for USD40,958.00. The highly volatile digital coinage has grown by more than 470Pct in the two years, with many rises and falls in between.
It is not only by playing games. Lending one’s computer and internet to be used as a transaction host, or participating as a checker, validator, and transaction recorder are ways of earning cryptocurrencies. Further, one can buy cryptos with hard currency to flip them for profit. Once accessed, cryptos can be used to buy goods and services across borders.
Why digital currencies?
As the creator/s of Bitcoin as the first digital currency remain anonymous, one cannot pinpoint the exact intention of the digital currency that is so powerful today. However, the theory of decentralizing ownership of currency for global transactions has been entertained by individuals, experts, and even regimes for quite some time now. Experts and governments have been criticizing how the American government has been given far-reaching political and economic influence over the rest of the world as the sole proprietor of the dollar—the dominant currency of global transactions.
The late Muammar Gaddafi and Saddam Hussein were allegedly entertaining the idea of selling their oil for gold or euros. Both regimes ended tragically. The shakeup to global supply and ensuing skyrocketing of oil prices worldwide owing to the Russia-Ukraine war has caused governments to once again challenge the dollar’s undue influence and lack of currency alternatives for global trade. The Saudi government is reportedly undergoing high-level talks with authorities in Beijing on possibilities of accepting the yuan for oil sales to China. In a way, the idea of digital currency is parcel to this long-time attempt to disperse global transactions’ dependency on the United States’ dollar.
But, walking away from the single global currency is not the end in itself for crypto. The digital currency also attempts to abolish financial institutions and any other middle players between buyers and sellers. Hence, absolute decentralization between the two points of any financial arrangement anywhere in the world, is the aim.
According to advocates, cryptos are also inflation-proof. One BTC has the same value in 2009 and now. The only reason its value grew from USD0.01 to 40,958—in mid-March—is due to the dollar’s loss of value. Traditional currency notes used to be printed based on the amount of gold central banks owned. As governments worldwide have abandoned that trend and are printing money to the tune of just how much is needed to address their needs, paper money has consistently been losing its value over the years. Crypto advocates argue it is time for a currency with sustainable value.
What took them so long to take over?
From inception to implementation, digital currencies are not without challenges. Earning public trust is top of the list with most considering them as a Ponzi scheme. The global public is not without evidence—much trust has been broken by thieves from all over the world. A lot of early investors have lost their hard-earned cash trying to catch a digital illusion.
Governments have also been reluctant to recognize the new transaction schemes as they allegedly encourage illicit transactions and criminal activity. In 2011, BTC was widely used by drug dealers, according to the US Justice Department, which seized almost USD48 million worth of illegal items that year, and discovered that the criminals involved had made transactions totaling 150,000 BTC—approximately USD130 million.
The volatility of cryptos is another factor giving investors and the general populace chills. Comparing stocks and cryptocurrencies, the ups and downs of the latter is very extreme and drastic. Hacking of crypto transactions has been reported even though one of the strongest aspects to these digital currencies is their security. However, the same technology that protects their security has also been used to hack their surety.
For Ethiopian crypto advocates, there is fear that their compatriots may not embrace digital currencies as fast as the rest of the world. “There is this story about the advent of TVs and how they were considered the work of bad spirits,” says Dawit Driba, an Ethiopian crypto advocate based in Dubai. “We have missed so many buses carrying opportunities, we should not miss this one.”
EBR 10th Year • Apr 2022 • No. 106