Bitcoins in Kenya : How To Get StartedPosted on 2018-01-22
Citibank analysts are a worried lot and it has everything to do with bitcoins in Kenya. In a recent report, they have warned that Kenyans have accumulated holdings of bitcoin estimated at more than Sh163 billion, which could cause widespread disruption to the economy were the cryptocurrency to collapse.
According to them, Kenya is among the countries with the highest number of Bitcoin holdings at approximately 2.3 per cent of the gross domestic product (GDP) or the annual national output. We are actually at number 5 behind Russia, Nigeria, New Zealand and Ukraine.
This is not the first time this type of warning has been issued. Central bank has constantly been insisting not be held liable for any losses incurred by consumers using digital currencies to settle transactions, as the digital currency is not a legal tender in the country.
This however has not deterred many Kenyans who continue to make massive investments in Bitcoins. Actually two Nairobi-based exchanges of the cryptocurrencies have already been established to cater for this group.
Question is however, how do you get started? But before we answer that, I would like to delve a little deeper as to what the bitcoin is all about. Bitcoins are a form of Cryptocurrency which is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.
History and Rise
Bitcoin is a form of cryptocurrency founded by a little known man called Satoshi Nakamoto in 2008. His sole aim was to create a Peer-to-Peer Electronic Cash System that many people failed to establish before the revolution of digital cash.
Initially he wanted to created a currency which has become of the most astounding phenomenons in the banking industry. Right now 1 bitcoin in Kenya is almost equivalent to 1.2 million Kenyan shillings. It runs on a high technology service referred to as blockchain. For more about Bitcoins history, read our article on the history and rise of Bitcoins.
Look like something worth trying out? This is how you go about getting started.
But just a disclaimer, it’s very important to educate yourself on it before you get started rest you find yourself in a compromising situation. One of the most important things to note is the recurrent fluctuation which are mostly unpredictable. By the time of writing this article, its value had gone down by $1,000 in a matter of hours.
How to get started?
There are two ways to get bitcoins- to mine them or to buy. I would suggest you go with the latter because the former is next to impossible. To get a sense of understanding, if you choose to mine with your normal laptop, lets say worth Sh50,000, you’ll need to keep it running every second, every minute, every hour of every day, for many many years, to get just 1 Bitcoin. By some 2017 estimates, it would take you 435 years on a high end laptop to mine 1 Bitcoin.
The main reason is because the normal computer graphics card is not designed for this job, no matter how powerful it may be.
Since Bitcoin has become a big business, majority of the coins are mined by just a few individuals/company, who have huge data centers with insane amounts of computing power, and millions of dollars in electricity bills.
Buying Bitcoins in Kenya
Which brings us to our second option, buying. And the first thing you need to have is a Bitcoin wallet to trade. And there are many options for this suitable for offline, desktop and mobile. You can download a wallet application like mycelium or any from this list. Research more on all these options before making a choice.
After getting a Bitcoin wallet, then you can look up for some exchanges to buy from. However you need to be sure that the exchanges you are buying from are legitimate. It’s also recommended you obtain the real-world identity of the operator transferring your funds in case you need to take some legal action in the future. You can never be too careful when dealing with money. There is however a twist to this, Bitcoin exchanges are not heavily regulated so it might be a bit hard to bring someone to book.
For the Kenyan market, there are a couple of common choices like Remittano, Belfrics, LocalBitcoins, most of these will allow you to pay using convenient methods like MPESA and bank transfers.
Once you have secured the Bitcoins in your wallet, there are three approaches you can take.
Number 1 is keep the Bitcoins in your wallet and hope that the price increases so that in future, you are able to sell off these Bitcoins at a hefty profit.
Number 2 is for you to use these Bitcoins to do trading on cryptocurrency exchanges similar to Forex trading which most Kenyans are familiar with. This is in altcoins described below.
Number 3 is participating in cryptocurrency ICOs.
These are other cryptocurrencies, which came after the Bitcoin, they use slightly different blockchain technology and promise a different value proposition in fields like healthcare, online advertising, e-commerce, audit, etc. Using exchanges like Bittrex, Binance and more, you can use your Bitcoins to dabble in trading these altcoins.
Initial Coin Offering (ICO) was the sensation of 2017. This is a way for cryptocurrency startup projects to raise funds by selling ‘shares’ in the project to the public. The participants are given these tokens at a discounted price in exchange for their contribution. These tokens can then be resold later on cryptocurrency exchanges at a hefty profit depending on the viability and success of the project.
For most Kenyans, it’s a quick high return investment. Question is, is it?
Well, this example put across by popular blog Nairobi Wire breaks it down for you in the simplest way possible: Assuming you bought some government bond like M Akiba. These are much better since you will earn 10% interest in 1 year. If you started with Sh100,000 in January 2017, you’ll have Sh110,000 in December 2017. Of course if you had invested Sh10 million, the returns would be much better.
However, let’s assume you used the Sh100,000 to buy some Bitcoins in the same period January 2017. By December 2017, your investment would have peaked at just over 2 Millions shillings and closed the year at about 1.4 Millions shillings!
But as we highlighted earlier, the gains are as risky as the losses so invest wisely and never invest more than you can afford to lose
Note: This blog is not to be taken as financial or investment advice.