Bitcoin: a beginner’s roadmap

I often get the question a lot, ‘What is bitcoin?’ even from people I should think will know. What that means is although transaction in bitcoin continues to grow in Nigeria, the level of awareness is very low. The significant ignorance cuts across individuals, businesses and government institutions.

Notably was the “no show” of bitcoin transactions in the recent report from the National Bureau of Statistics (NBS) on the volume and value of e-transactions in the month of October. People knowledgeable on bitcoin told BusinessDay recently that the worth of transactions in Nigeria involving bitcoins hit N363 million and grew by 50 percent in the first week of November to N154 million.

Bitcoin is simply an e-currency – digital money, created and which you can hold electronically. It is not created by any central bank, but by people and increasingly businesses. It is the first example of a growing category of money known as cryptocurrency.

At the heart of bitcoin is the blockchain, a public ledger of all transactions in the network whereby any transaction is verified within 10 minutes. In comparison with the lengthy, verification times of credit card transactions or domestic and international wires, blockchain stands as immediate, incontestable proof of all transactions and creates a permanent, immutable database.

The first bitcoin was created in 2009 by an anonymous software developer with the alias Satoshi Nakamoto. Recently, a few people have come up to claim they are Nakamoto.

Bitcoin shares some similarities with conventional currencies like naira, dollar, euro, pound, yen etc in that it can be used to buy things electronically. Already we are beginning to see more and more companies and retailers in countries outside Nigeria accept bitcoin. Metrobank a financial institution in the UK recently announced it will soon start blockchain payments. In addition, because of the prominence bitcoin is gaining in France; the authorities have approved the use of bitcoin ATMs in parts of the country like Paris.

However one major characteristic which separates bitcoin from the conventional money is that it is completely decentralized. No single institution controls the bitcoin network. It is not physically printed by a central bank that is unaccountable to the population and dictating the rules.

There are no middlemen in bitcoin transaction. In essence, you do not need a bank or any financial institution to broker transaction in bitcoin. Also you are not required to pay transaction fees or give your name when dealing in bitcoin.

It uses peer-to-peer technology to operate with no central authority or banks. Managing transactions and the issuing of bitcoins is carried out collectively by the network. Since no one owns bitcoin and rules are determined collectively, everyone can take part.

There are only 21 million bitcoins that can ever be created by miners. However, these coins can be divided into smaller parts. The smallest divisible amount is one hundred millionth of a bitcoin known as ‘Satoshi’ after the founder.

Presently in Nigeria, it is mostly individuals that are using bitcoins as an investment. Mostly companies are waiting to see the direction it will go. For the individuals using it, the reason is not farfetched. It is easy to set up; you are not required to take the tedious bank route of setting up an account, bitcoin account can be set up in seconds with no questions or fees attached. It is efficient; you do not need to go through the usual bank process that may take days before transaction gets from point A to B. You simply send money to any part of the world and it can be converted to any currency you choose. It has speed; it takes about 8 minutes to receive a bitcoin transaction from any part of the world.

It is completely transparent; bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger we earlier defined as blockchain. Furthermore, if you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address; they just would not know that it is yours. It has no transaction fees like your bank will charge for any transaction you make. However if you intend converting the bitcoin to naira, you may be liable to pay N50 stamp duty.

Bitcoin is increasingly emerging as a viable alternative asset class for institutional and retail investors. It has an enormous amount of investment potential and is unlike any investment product in the world today.

Investing in bitcoin is not the same with investment in other assets or currencies. For one thing, it is an extremely volatile currency. Because of the limited number of bitcoins in existence, though each bitcoin like we mentioned can be broken down to a hundred million decimal places, it means any major announcement about the cryptocurrency can produce wild movements in price. However, traders are far more familiar with that volatility.

For anyone that desires to invest in buying bitcoin, there are online exchanges that you can use such as localbitcoins.com, ideypay.com which provide the platform for people to buy or sell their bitcoins. To start you off you will need to download a bitcoin wallet app. Follow the instructions and within a few minutes you could be buying your first bitcoins.

As at the time of writing this article, the rate of one bitcoin to a dollar was $738 and N228, 637.50 for the naira. The price can fluctuate – upwards or downward.