Adoption of Bitcoin in Kenya, a Case Study of Bitpesa

Abstract

Bitcoin first appeared in January 2009, the creation of a computer programmer using the pseudonym Satoshi Nakamoto who invented an open source, peer to peer, digital currency. The Bitcoin system is private, but with no traditional financial institutions involved in transactions. Unlike earlier digital currencies that had some central controlling person or entity, the Bitcoin network is completely decentralized, with all parts of transactions performed by the users of the system. With a Bitcoin transaction there is no third party intermediary. The buyer and seller interact directly but their identities are encrypted and no personal information is transferred from one to the other. However, unlike a fully anonymous transaction, there is a transaction record stored in a global Bitcoin general ledger that is used to validate transactions. For this reason Bitcoin transactions are thought to be pseudonymous, not anonymous. Although the scale of Bitcoin use has increased substantially, it still remains small in comparison to traditional electronic payments systems such as credit cards and the use of dollars as a circulating currency. There are concerns about Bitcoin's use in illegal money transfers and concerns about the protection of consumers and investors who might use it which raises the issue of the regulation surrounding Bitcoin. Furthermore, there are also a number of disadvantages that could hinder wider use. These include sizable volatility of the price of Bitcoins, uncertain security from theft and fraud, and a long term deflationary bias that encourages the hoarding of Bitcoins. On the other hand Bitcoin offers users the advantages of lower transaction costs, increased privacy, and long term protection of loss of purchasing power from inflation. This research found out that Bitcoin is unregulated in Kenya with no regulation within the CBK Act outlining how it should be handled. Secondly, the research found that use of Bitcoin reduced the cost of international funds transfers and that users have challenges adopting the Bitcoin technology in understanding it and how it works.