It takes less than five minutes to sign up for a Kipochi wallet, a service which should link an M-Pesa account to the volatile world of bitcoin.

Kipochi is a service that was launched last year with the aim of using the virtual currency, bitcoin, for remittance and money transfer across borders.

In Kenya, Kipochi’s selling point is that subscribers can use their M-Pesa accounts to purchase bitcoin. People living abroad can also transfer the value of bitcoin to M-Pesa accounts in Kenya.

However, on Friday last week, Smart Company could not buy any bitcoin via the platform. The reason given was on-going upgrades to the service which “should be available again soon”.

Despite the technical hitches, Kipochi is in the vanguard of services that may be offered increasingly to Kenyans as bitcoin entrepreneurs turn their eye to markets in the developing world.

BitPesa is another bitcoin money transfer service eyeing East Africa. In the run-up to the expected launch, the company declined to comment on its progress in Kenya.

In response to questions from Smart Company, the Central Bank of Kenya (CBK) said there had been interest from firms looking to link Kenyans and local payment systems to bitcoin.

“The Central Bank has been contacted by some entities that are proposing to use bitcoin. The entities have been informed of the laws, regulations and procedures required to offer remittance services in Kenya. However, no applications have been received by the Central Bank for approval to transact in bitcoin,” said the regulator in a statement.

Bitcoin is a virtual currency whose use and value has grown exponentially since its inception in 2009, putting to question the traditional roles adopted by governments in regulating the flow of money.

Unlike traditional fiat currencies which partly derive their value from the faith that users put in the issuing governments, bitcoin is not created, regulated or backed by any Central Bank. Instead of being minted or printed, bitcoin is digitally-mined.

Using computers, miners solve complex math problems online. For each solution, bitcoins are awarded. This stands in contrast to state-backed currencies whose circulation is determined by central banks.

Bitcoins exist wholly in the digital realm. Users can buy them, store them in electronic wallets and use them to buy goods and services. An increasing number of merchants globally are coming to accept bitcoin as a valid form of payment.

Although the conversation surrounding bitcoin is just taking off in the developing world, commentators say that bitcoin entrepreneurs could find a niche in these markets.

Remittance transfer services such as Kipochi have hit one of those niches. Money transfers are increasingly becoming vital to economies in Africa and Asia. The cost of sending money, however, remains punitive.

In Africa, the World Bank estimates, the cost of sending money is equivalent to 10 per cent of the transaction. Bitcoin money transfer services have tried to compete with firms such as Western Union by offering significantly lower fees.


Bitcoin has also proven particularly attractive in that it seems to be inflation-proof. The value of fiat currency is often at the whims of central banks. Bitcoin, which is outside this regulatory fold, is not similarly affected by inflationary pressures.

Further, bitcoin enthusiasts point out that the finite amount of currency that can be mined (produced) is in-built immunity against inflation. The limit for the number of bitcoins that can be mined is 21 million. As of Friday, 12.3 million bitcoin had been mined.

“Inflation is the one of the blights of frontier markets. Investors are often hit by collapsing currencies and bitcoin could provide a more secure alternative,” said ABC Capital’s manager of corporate finance and advisory, Mr Johnson Nderi.

The currency’s volatility is, however, a cause for concern. The price of a bitcoin rose from $13:40 in January 2013 to peak at $1,120.40 in November last year. Since then, the price has been on a general downward trend. (SEE: A short history of Bitcoin timeline)

Mr Patrick Murck, a lawyer for the Bitcoin Foundation, a lobby organisation that standardises and promotes the use of bitcoin globally, has been quoted by Bloomberg saying that it is an “experimental currency” that “should be considered a high-risk environment.”

Nevertheless, growth in acceptance of bitcoin has regulators across the globe scrambling to establish a regime to ensure that it does not subvert the use of state-backed currency or provide an alternative payment mode for criminals.

From the statement sent to Smart Company, the Central Bank seems to have adopted a stance similar to the one taken by the US’ financial regulator, the Federal Reserve Bank.

Although it has not explicitly prohibited bitcoin transactions, the regulator has said that it will require all businesses facilitating bitcoin transactions to adhere to anti-money laundering regulations.

“The operators have been advised of the process to undertake in order to comply with remittance regulations, including compliance with anti-money laundering laws and combating the financing of terrorism laws and regulations,” reads part of Central Bank’s statement.

In a letter to the US Senate last year, the former chairman of the Federal Reserve Bank, Mr Ben Bernanke, said the regulator “does not necessarily have authority to directly supervise or regulate” the currencies or the “entities that provide them to the market.”

However, the Fed has taken to monitoring virtual currencies. Further, the US has insisted that bitcoin entrepreneurs adhere to government regulation regarding the prevention of money laundering.
Mr Owino argues that until bitcoin gains a significant following in Kenya, the Central Bank should have no cause for concern.

“If people start abandoning cash and they start using it exclusively, then the Central Bank will have to look at the implications in terms of the government’s ability to control inflation. If it becomes a significant part of the payment systems in the country, then the government may want to step in, but not yet,” noted Mr Owino.

Over the past one year, the US government has cracked down on players in the world of virtual currencies whom it suspected of engaging in criminal activities.

In the latest move, the former vice-chairperson of the Bitcoin Foundation, Mr Charlie Shrem, was last month arrested by authorities on charges of conspiracy to commit money laundering.

Regulatory hackles rise when it comes to bitcoin because of the near-anonymous nature of transactions carried out using the currency.

Bitcoin was founded by a person or group of persons pseudonymously identified as Satoshi Nakamoto. To this day, Satoshi Nakamoto’s real identity has not been revealed.

Early adopters of the currency included libertarians attracted by the concept of a money system outside the control of the government. Because it is not easy to identify people transacting in bitcoin, the currency also attracted criminal elements.

Not all governments have taken a back seat on regulating bitcoin. In Norway, the government has decided to approach bitcoin not as a currency but as an asset. The implications of this are that the deals will be subject to capital gains tax.

Issues of consumer protection have also raised concern. The virtual unit is traded for fiat currency and vice versa on exchanges that are beyond the control of any government.

“With the anonymity factor, it would be very difficult to enforce any transaction made using bitcoin. Even the legal system would be unable to help duped consumers. I think this is the place for regulation,” said Mr Owino.

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