Why Kenya’s Bitcoin Embrace Is Mostly A Mirage

January 4, 2016 20:30 UTC

The hype in the Western media about Kenya being a pioneering laboratory for bitcoin is largely a mirage, according to a Motherboard reporter who recently visited the country in hopes of documenting bitcoin’s success there. Accompanying the reporter was Kenyan writer Daniel Nairo, who offered his insights on bitcoin’s hype versus its reality in his country.

Upon visiting Bejo’s Bar and Grill in Nairobi, which payment processor Bitsoko has featured on its website, the reporter found no one using bitcoin. Allen Juma, who founded Bitsoko with his brother Gibson, said they tried to partner with Bejo’s and other merchants until they realized there were not enough merchant candidates for them to continue in this effort. They then switched their focus to developing a microtransaction app for bitcoin.

Bitsoko recently won a $100,000 challenge grant from the Bill and Melinda Gates Foundation.

False Advertising?

The picture that appears on Bitsoko’s website was actually from another Nairobi establishment, Juma acknowledged.

Juma has changed direction before, from dogecoins to bitcoin. When founding Bitsoko two and a half years ago, he worked at a cyber café part time. While he maintained and repaired computers, he did not have the necessary Internet access for his business.

Juma now has a new website with new pictures. He said he is experimenting with other blockchain applications. He said he loves bitcoin but does not believe it will change everything.

Bitcoin supporters in Kenya are hopeful about the technology’s future, but Few Kenyans have adopted bitcoin.

Media Flocks To Kenyan Startup

Native New Yorker Elizabeth Rossiello worked in microfinance in Kenya before launching Bitpesa, a startup that connects local currency to digital currency. Within one month of launching the service in 2013, she was inundated with reporters inquiring about how bitcoin would transform remittances, the transfer of money from foreign workers to their native countries.

A Bloomberg story about Bitpesa in November made a big splash as the price increased saying bitcoin for remittances in Africa would kill Western Union, Rossiello noted. Other articles followed, focusing on the $1.5 billion annual remittance flow to Kenya.

But the remittances did not catch on as predicted. One startup called Beam in Ghana launched in 2014 and attempted to undercut competitors in the remittance market. In August, that company switched from using bitcoin for remittances due to insufficient uptake related to the cost of exchanging bitcoin into local currency, too few merchants accepting bitcoin, and bitcoin’s price volatility, according to Disrupt Africa, a news site.

Remittance Rewards Are Limited

Remittances have been part of Bitpesa’s business, Rossiello said, but it is not the only segment and it cannot sustain the full business. Bitpesa currently splits its efforts among e-commerce, speculators and remittances.

Shortly after Bitpesa’s media splash in Kenya, several startups emerged only to disappear quickly or change direction.

Bitcoin investors who came to serve the African poor and unbanked sometimes blended their sales pitches with an amount of evangelicalism. Rossiello noted she needs to remind people she is running a small business and not vaccinating orphans.

“We cannot tell you we believe we’re going to raise people out of poverty,” she said. Rossiello stresses this point since some investors see Kenya as a place in need of western technology. She added that investors don’t understand or don’t want to understand the country.

In Kenya, simple things take longer, Rossiello said. When you say you get “tremendous traction,” for example, they don’t know what “traction” means.

She said she has seen requests among local technology entrepreneurs for “a local Kenyan with a Western mentality.”

Westerners Don’t Know Kenya

One American that the writer Nyairo chatted with online never had been to Kenya but wanted to establish an NGO (non-government organization) in Kenya.

Nyairo remembered listening to news about Kenya on the BBC and wondering why the Kenya in these reports did not resemble the place in which he lived. When reports about bitcoin began, they struck him as a modern echo. The Western audience does not want to hear about people making money; they want to hear about how people are helping Africa with pain and poverty, Nyairo said.

After covering digital currency for bitcoin.com, Nyairo said he believes in the blockchain. Kenya’s bitcoin community is small but growing, he added. He pegged the number at a few hundred, mostly traders. Bitpesa recently stated in a local daily that it has more than 5,000 active customers in Kenya.

Stephen Gornick, a developer interviewed in a recent documentary about bitcoin in Kenya, said there is very little bitcoin activity in that country. He said the actual volume of bitcoins trade in Kenya is about 50 bitcoin per week at its peak. He said bitcoin has potential but right now there is not a lot going on.

Widespread Adoption Not There Yet

Widespread adoption will not happen soon, Nyairo said, unless there is a killer app. Meanwhile, there are many obstacles. The government has been unclear about how it will regulate bitcoin. The government has cautioned about using the digital currency.

Global wallet Kipochi in 2014 promised users the ability to send and receive bitcoin through the Safaricom M-Pesa network. Safaricom is Kenya’s dominant telecom service while M-Pesa is a mobile money transfer service. But within 12 months, the project died. The magazine Fast Company reported that insiders said the media coverage indicated one-third of Kenyans had access to a bitcoin wallet when in reality far fewer were using the currency.

Pelle Braendgaard, the founder of Kipochi, said M-Pesa used its power as a gatekeeper to keep startups out of the market. M-Pesa’s decision to stop bitcoin transactions on its platform is the subject of a legal challenge between Bitpesa and Lipisha, another mobile platform, CCN reported.

Braengaard, who is no longer active with Kipochi, said the parties are concerned with protecting existing markets and complying with global anti-money laundering rules that prevent them from reaching unbanked migrants and international traders.

Nyairo said people initially get excited thinking that Africa is a place that needs help. While a person might believe they are helping, they are an entrepreneur like any other.

Humility And Respect Are Needed

Such narratives are dangerous when they obscure the complex realities of African countries. Teju Cole, a Nigerian-American writer, critiqued America’s reaction to the Kony 2012 video about how Africa has been seen as a playground for Western adventurers. Cole said the solution begins with humility and respect for the people affected.

Africa offers real opportunities for the digital currency, but top-down narratives may not be the best way to find such opportunities. In reality, this method can create a bubble. Africans are busy working to adopt digital currencies for their needs with their own timelines and without outside direction from well-meaning Westerners.

Images from Shutterstock.

Last modified: January 4, 2016 22:27 UTC

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