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Meet the Kenyan man hoping to rival the wild bitcoin

WORK LIFE
By Moses Michira | January 20th 2018
For majority Kenyans, electronic currencies are too complex and at times, impossible to keep up with [Courtesy]

Isaac Mwendwa has been bitten by a mysterious bug which he believes would change the global financial market as we know it.

Amid an ongoing wild swings in value for the established digital currencies, he is emphatic about his newest project.

Mwendwa is developing Africa’s second cryptocurrency, which he calls the Nurucoin, and is seeing the possibility of overtaking Bitcoin in global acceptability.

“Crypto currencies are the future for all transactions, which is the reason I could not wait to build one for Africa,” Mwendwa told Saturday Standard. A Nurucoin is currently priced at Sh10. Senegal has already established its own kind of the digital currency but has been frowned upon by regional financial regulators.

For most people, the electronic currencies are too complex to be understood, especially after turning out as the World’s best assets for investors despite the level of volatility.

It is now almost impossible to keep up with the value of the Bitcoin whose price fell more than 30 per cent on a single day in the recent week.

The currency was trading at Sh466,000 on November 10 before soaring nearly four-fold to 1.9 million in less than a month and plummeting to Sh1.4 million on Thursday. Until 2011, a bitcoin was priced at about Sh90 ($1) after rising from Sh3 in March 2010 - representing nearly a 600,000-fold growth in eight years.

Raging debate

News of plans by South Korea, one of the World’s largest economies, to ban trade of the cryptocurrency caused the bloodbath. Other similar digital currencies such as Ripple, Ethereum and Litecoin also suffered in the turmoil.

Volatility is the price of the currencies, and whether they should be assets in the first place, is at the centre of the raging global discourse on their place in future.

Mwendwa thinks the digital currencies will define all future transactions, replace money as we know it today and cause major disruptions to banking.

His dream is inspired by the possibility of digital currencies gaining global acceptance, a proposition that has informed the values of cryptocurrencies.

So what are these digital currencies and how are they used? In trying to understand what they are, start from appreciating what money is.

A banknote is precisely a promissory bill giving assurance that it will be accepted in exchange of a service or product. It is issued by the Central Bank with the guarantee of the government.

Use of the banknote is however restricted to specific jurisdictions, in the Kenyan case the Shilling. A holder would typically be required to exchange it at the prevailing rate when they want to spend it outside of their jurisdiction. Exchange rates are determined by complex international economics.

It is the one hurdle that cryptocurrencies such as the Bitcoin want to circumvent in transacting. Developers of the digital currencies imagine how all goods and services can be digitised in virtual certificates stored in a pool that everyone can see but cannot steal.  

Transactions involve the exchange of these digital certificates which are envisaged to replace cash.

The technology involved is such that the transfer of the digital currency is guaranteed to be safe and secure, everyone within the network knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer.     

But there is the challenge of ensuring once a digital certificate changes ownership, it cannot be ‘spent’ again by the previous owner.

A comprehensive list of all transactions is available in a ledger to everyone for all to track.

Bitcoin runs on blockchain, a public, permanent, decentralised ledger where all transactions are recorded in bundles of multiple transactions, called “blocks”, Yahoo finance explains. The blocks are added to the chain (hence “blockchain”) by “miners” who mine, or verify, the blocks.

Mining requires large, expensive machines that compete to solve complicated math problems in real time. The computations get continuously harder, and so the machines are getting more advanced and more expensive. The best ones cost thousands of dollars.

More demand

Eugene Mutai is among the most notable cryptocurrency miners in Kenya and has in recent months caught the attention of international media. He was ecstatic with the price surge of Ethereum – a digital currency he is mining. “Ethereum’s, the global super computer, built in cryptocurrency, Ether, walks boldy (sic) into $1000 per digital unit...well deserved,” Mutai wrote on his Facebook wall recently.

He believes his wealth is tied to his present activity - leaving his computers mine the currencies for him.

What makes the price of the currencies volatile?

Founders of cryptocurrencies have a definite number of units they want to be in circulation. A mysterious developer of the Bitcoin designed the currency to have only 21 million coins.

So far, over 16.7 million coins have been discovered and are in circulation. A growing acceptability of the currency means more demand for the coins hence the rising values.

Mwendwa told Saturday Standard that the current prices of the Bitcoin are exaggerated, driven by speculation that has created a bubble that will likely burst. Since mining Bitcoins is a very expensive affair that many people cannot afford, one can opt to buy the coins as an easier alternative.

The rush to buy the coins, whether Bitcoin or any other cryptocurrency, is the driver for price rallies witnessed in major markets.

Normal forces of demand and supply mostly determine the price, which however exposes values of the digital currency to manipulation by speculators.

Considering that the digital currencies are only as valuable as they are acceptable, setbacks such as bans in certain countries would inevitably hurt its prices- if not cause a collapse.

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