In Summary
  • Will digital currencies represent the next generation of borderless financial capability and value transfer for an individual, one that brings independence from five centuries of banks and credit systems?
  • Whether in the US or Kenya, bubbles have patterns in which late investors rush in and buy off what early investors have hoarded to sell to new arrivals.
  • For some users, bitcoin has come to be seen as a potential safe spot for citizens living in volatile currency markets such as Zimbabwe and Venezuela.

Is bitcoin the next wave of technology or is it a 'quail' investment? Many Kenyans must be wondering and there is a lot of discussion about the digital currency, whose price has gone up from less than $1,000 at the beginning of the year to pass $11,000 last week.

Bitcoin is the most celebrated variant of blockchain, and the world community is still divided about it and others like Ethereum, and LiteCoin. Will they represent the next generation of borderless financial capability and value transfer for an individual, one that brings independence from five centuries of banks and credit systems? Will bitcoin cause upheaval to the financial sector as Uber has done to the taxi business in different cities across the globe and as Tesla plans to do to the automotive business?

Or is it a flash in the pan? One which people are only buying into because they expect bitcoin will double and triple in value and then they will sell it for a profit?

There is a long history of such financial speculation, from Dutch tulips, British railways, the Asian Flu, silver in South America, housing in the US, and the dot-com bubble, and the current screaming headlines about bitcoin, and constant tracking and announcements of each new high bitcoin price has echoes of past bubbles.

BUBBLE PATTERNS

Nobel laureates such as Joseph Stiglitz and Robert Shiller have suggested that bitcoin’s rise is unsustainable and a collapse is inevitable.

Whether in the US or Kenya, bubbles have patterns in which late investors rush in and buy off what early investors have hoarded to sell to new arrivals. Kenya itself has seen its share of speculative bubbles. There were the high-return-paying pyramid schemes in which thousands of Kenyans threw millions of shillings to double or triple their money in a month.

There were quail and fish farming ventures. There were IPO shares, plots of land by the SGR, and right now the country is making millionaires through sports betting and lottery draws. But the ability of blockchain and distributed ledgers to do good things like clean up land records in Kenya and end the practice of land parcels having two or more titles and being simultaneously sold to numerous innocent buyers is something to look forward to.

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