by Manasseh Egedegbe

Definition of Money: Something generally accepted as a medium of exchange, a measure of value, or a means of payment. ~ Merriam-Webster Dictionary

So I spoke a word about Bitcoin a few weeks ago. You can read it here. It was actually more than a word, it was just an introduction into what Bitcoin was all about. Since that time, I have received a lot of requests to say a little bit more about Bitcoin. And so I will.

Bitcoin is money. It is a digital currency, that is backed by, well, not gold, or US dollars… it is backed by computer codes. Yeah, I know that sounds scary. Computer codes can be hacked. Did you receive your salary by cash or by “alert”? Do you think your employer carried cash with a bullion van to the bank to deposit the “alert”? No. Your “alert” was sent using a computer code. So, your “alert” can also be hacked. But guess what? Bitcoin is safer than the “alert”. We will get to that soon. But before we get there, let’s take a closer look at what money truly means.

What is Bitcoin really used for? Why all the noise about it?

Bitcoin has been gaining in value for a while now. It used to be a currency that was restricted to the world of the dark web, but the technology behind it, Blockchain, is so robust that it is now becoming acceptable. As more people use it, the currency will continue to gain in value. There is also something about the difficulty in mining (or creating) Bitcoins — at a certain stage, mining for the currency becomes more expensive, which in turn reduces the rate of supply. So as supply reduces, and demand increases, the price can only go in one direction. Except something drastic happens. And since Brexit happened, I stopped joking around with black swans. So anything can happen. I am not a prophet.

Bitcoin is a store of value, but a risky one.

Just like fiat money. This means, the way you save money for future use, you can also store Bitcoins for future use. You cannot store a Ponzi scheme, for example, and keep it somewhere until you are ready to use it. So, if anyone tells you Bitcoin is a Ponzi scheme, just keep walking.

 

Storing Bitcoin for future use is risky. This currency is still less than a decade old and it has experienced a lot of volatility in its short life. From the fall of the Silk Road to different bitcoin exchange hacks, and sudden price movements for no reason whatsoever. You need to define your risk appetite before saving in Bitcoins. Know yourself. Understand the role you want Bitcoin to play in your total portfolio before you buy and keep.

For me, the risk is worth it. But I do not speak for everyone. And I certainly do not speak for you. If the currency drops to zero today, I can dust myself and keep moving. I also believe in the currency because of the increasing acceptance and the strange monetary policies that keep coming out of emerging economies such as Nigeria and Venezuela. There is a serious debate between controlling currencies and letting currencies go. Letting currencies go means that some people can take advantage of it and mess up a whole economy, just like George Soros did to the British Pounds in September 1992. But freeing currencies ensure that demand and supply drive prices. But the difference between Bitcoins and emerging market currencies is not much when it comes to volatilities. High volatility also means that financial controllers of multinational firms will find it difficult to allocate budgets.

Everyone prefers a smooth currency, and it makes sense why the Nigerian Central Bank would do everything to smoothen it. Emerging economies suffer a lot of shocks, which usually affect the currencies, which, in turn, make their central banks fixate on currency controls. Even the Great Britain felt a hit after Brexit. Companies in the US also suffered some damage in 2014/2015 when the US Dollar became really strong and earnings from oversea subsidiaries suddenly became peanuts when they were converted to US Dollars.

I have dwelt a lot on currencies and how volatile they can be. These are controlled currencies. Now imagine a digital currency with no central control. So, if you are going to hold Bitcoins, think really hard about the risks so you do not get carried away with the glorious stories of how much money a couple of people have made from holding it.

Bitcoins can be used as a means of payment.

 

You do not have to store Bitcoins like I do. You can simply use it as means of payment. You can restrict it to transactional purposes. Let’s say you want to buy some goods and services, and you are lucky that the merchant accepts Bitcoins. You can simply buy some Bitcoins and then use it to pay the merchant. That way, you do not expose yourself to its volatility. You buy at current market price and then collect your goods and services and you are done with it until next time. That is the beauty of Bitcoins. That is how money is spent.

Bitcoins has left the underground, and several merchants all over the world are now accepting Bitcoins. You can use Bitcoins to pay for your international flights using www.abitsky.com, and you can also pay for hotel rooms using www.expedia.com. You don’t need to buy dollars to be able to travel out of the country. Yes, you heard right. Not everyone accepts Bitcoins, but you don’t have to go to mallams to buy Dollars anymore whenever you want to travel. You can simply buy Bitcoins, sell it for Dollars on a Bitcoin exchange (we will still talk about Bitcoin exchanges), transfer your money to your domiciliary account and spend away. Just ensure you have a Dollar debit or credit card that is linked to your domiciliary account. Not only do you bypass mallams, you escape the wrath of the DSS. Another perk is that when you get to the international airport and customs ask you how much foreign currency you are holding, you can tell them $1 because you are holding nothing.

By the time Nigerians start adopting Bitcoins as money, it is likely to reduce the pressure on the Naira. When all else fails, open a Bitcoin Wallet, open a domiciliary account, get a dollar debit or credit card, open a bitcoin exchange account and the world will be at your feet. As long as you have some good Naira.

Bitcoin is more divisible than fiat money.

Another attractive thing about Bitcoin is its divisibility. Most currencies truncate at two decimal places, but Bitcoin terminates at about eight decimal places. When you do a lot of transactions, many $0.001 that is usually rounded down to $0.00 can stack up over time. Bitcoins reduce this rounding to the barest minimum. That is why you can see people trade as low as 0.0o123345 Bitcoins. For those of us who like tracking down our money, this is a great advantage. You pay exactly what you spend and receive exactly what you earn.

Nobody tampers with Bitcoin transfers.

 

I just got wind that Nigerian banks are now restricting foreign currency transfers, backed by cash deposits, to $10,000 per month per person. If you have ever tried transferring money outside Nigeria, you probably have an idea of how painful the process can be. Not only is the process painful, they also charge you like they are doing you a favor.

But with Bitcoin, all you need is the other person’s wallet address, and the amount you want to send. No need for signature. There are no stamp duties, no telex charges, no commission on turnover (COT), and no one can pressurize the CBN to raise COT or give it another name just because they want to make more profits. You transfer money anywhere and receive it anywhere within the twinkle of an eye.

Bitcoin transfers are democratic. They rely on the power of Blockchain. Blockchain is like NIBSS or SWIFT that allows you to move money from one account to the other, but for a very very small amount. While it can cost you as high as $100 just to transfer $5,000 using banks in three to five days, it may cost you less than $1.00 to move $15,000 worth of Bitcoins from Nigeria to China in less than two minutes.

Bitcoin exchanges.

Bitcoin exchanges are where people buy and sell Bitcoins for fiat money. Since the US Dollar is the global reserve currency, all Bitcoin exchanges accept US Dollars. The most popular Bitcoin exchange is www.bitstamp.net. It is regulated by the financial authorities of Luxembourg. They trade in US Dollars, Euros and GB Pounds. The fact that this exchange is regulated by one of the most dynamic financial authorities in the world is a testament of the future potential of Bitcoins. Governments are now taking notice. Other popular exchanges are www.cex.io, www.coinbase.com, www.okcoin.com, etc.

There are a couple of Bitcoin exchanges that actually allow you to buy and sell Bitcoins in Naira. Some of them include www.bitx.co, www.bitpesa.co, www.winkpayment.com.ng, www.nairaex.com. While it is recommended that you open an account with an exchange (anyone can), it is not mandatory. And whatever you do, do not keep your Bitcoins on an exchange platform. Your Bitcoins must stay with you. Some of the largest exchanges have been hacked and brought down by hackers who steal Bitcoins.
So how do you protect your Bitcoins?

Open a personal Bitcoin wallet.

That’s pretty much it. Once you have your personal Bitcoin wallet, you are good to go. It is one of the easiest process you can imagine. It is much more easier than even opening an email address. If you want to get started with saving in Bitcoins or transacting with it, then this is a must. Even if you have no intention of dealing with Bitcoins, there is no harm in having a wallet. You may need it someday. It costs nothing. Nobody needs your driver’s license, international passport, signature, home address, your grandmother’s name, where your third cousin was born and all those silly things bankers are always asking us to supply. It is a democratic process.

The simplest and most accessible way is to download a Bitcoin wallet on your phone. On Android Play Store or iPhone App Store, just search for Bitcoin wallet, and you will see a lot of options. You can use any one of them. I personally use the Bitcoin Wallet by Blockchain. You can also download a Bitcoin Wallet for your desktop or laptop — a popular one is Multibit. But I will be very careful with using it on Windows OS because of the vulnerabilities.

After you have downloaded your preferred Bitcoin wallet, just register it and you are good to go. Your wallet, depending on the type, will either have a unique address or generate an address for every transaction. An address is like a bank account where your money goes to. It is a very simple process.

But that is not all. When you start doing a lot of transactions in Bitcoins or you have a lot of Bitcoins, you need to take it a step further. Phones can be lost and laptops can be stolen. If you lose any one of them, all your Bitcoins may be gone, except you have an advanced level of storage, which I will not talk about here.

So because Bitcoin is democratic, some tech gurus came up with some kind of hardware where you can store your Bitcoins. They are like flash drives that you can connect to your laptop or mobile phone and transfer Bitcoins from and into them. They are like flash drives. Some of the most popular ones are Trezor, Ledger, BitLox, KeepKey, and Pi-Wallet.

 

I use Trezor.
The good thing about these hardware is that you can hang $10 million worth of Bitcoins around your neck and walk to Oshodi and nobody will know. Robbers may steal phones and laptops, but people hardly ever steal flash drives. Except they are fancy looking. So, buy the ugliest hardware you can see. If you mistakenly drop it, a good samaritan is more likely to run after you with it, so you don’t litter our streets with your ugly-looking flash drive.

Good luck with your adventure into the world of cryptocurrencies. If you need to know more about Bitcoins, contact me. This is not a revolution. It is an evolution.

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Op–ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija