Money 2.0 a huge, huge deal!

GLOBALISATION, innovation and technology have not only changed the way people live but also impacted consumer trends. Consumers now have new tastes, are more mobile than ever and are targeting new markets and asset classes.

Piggy’s Trading & Investing Tips:Batanai Matsika

Increased mobility and new technological trends are demanding that consumers be in full control of their money and have a good degree of payment freedom. In our view, a digital currency such as Bitcoin will soon become more appealing not only to the high net worth individuals (HNWIs) but also to an emerging generation of tech-savvy individuals.

Bitcoin exists outside the institutional banking system and the control of governments. It is possible to send and receive any amount of money instantly anywhere in the world at any time. There are no bank holidays, no borders and no imposed limits when it comes to Bitcoin. It is worth evaluating Bitcoin as an emerging digital currency from two perspectives: (i) Bitcoin as a payment system, and (ii) Bitcoin as an investment asset.

Bitcoin as a payment system
Bitcoin is a form of cryptocurrency or digital currency that facilitates both a secure, decentralised payment system and a tool for the storage, verification and auditing of information, including digital representations of value.

The unit of account of the Bitcoin system is Bitcoin. The symbols used to represent Bitcoin include BTC and XBT. Small amounts of Bitcoin used as alternative units are millibitcoin (mBTC), microbitcoin (µBTC, sometimes referred to as bit), and satoshi (named after Bitcoin’s creator).

A satoshi is the smallest amount within Bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin. Bitcoin was introduced on October 31, 2008 to a cryptography mailing list and released as open-source software in 2009.

Shifting the centre of power
Satoshi Nakamoto, a software developer proposed Bitcoin as an electronic payment system that is based on mathematical proof. The idea was premised on creating a currency independent of any central authority and that is transferable electronically, instantly, with very low transaction fees. The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account.

The advantages over traditional payment methods are lower costs and speed. It is possible to send and receive any amount of money instantly anywhere in the world at any time. The following are some reasons why Bitcoin has the potential to work in Zimbabwe;

Zimbabwe cannot “bring back” its lecturers, engineers, medical practitioners (doctors and nurses), bankers and accountants from the United States of America, United Kingdom, Australia,

South Africa, Namibia and Tanzania at this stage but can make it easier for them to send money home. Most of these professionals are being paid sufficiently well to make family
remittances from overseas. Bitcoin can facilitate much faster and cheaper flows of value;

A large share of the diaspora community is educated enough to easily adopt Bitcoin. There are several reputable Bitcoin exchanges or wallet companies in UK and South Africa such as Luno that facilitate Bitcoin and Ethereum (another digital currency) payments; and
Bitcoin can provide electronic payment services for users who lack access to traditional financial services in remote parts of Zimbabwe. The good news is that some non-governmental organisations (NGOs) and impact investors have already adopted Bitcoin as a payment system.

Bitcoin wallets
Bitcoins can be bought and sold both on and offline. Participants in online exchanges offer Bitcoin buy and sell bids. According to a study published in April 2013, using an online exchange to obtain bitcoins entails some risk. However, exchanges have since implemented measures to provide proof of reserves to convey transparency to users. Offline, Bitcoins may be purchased directly from an individual or at a Bitcoin ATM. Bitcoin kiosks are machines connected to the internet, allowing the insertion of cash in exchange for bitcoins. Bitcoin kiosks do not connect to a bank and may also charge transaction fees as high as 7%. A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold or store bitcoins, due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A better way to describe a Bitcoin wallet is something that “stores the digital credentials for your bitcoin holdings and allows you to access and spend them”.

Bitcoin as an investment asset
While the holding of Bitcoins does not have any financial history such as precious metals, Bitcoins are easily divisible, transferrable and fungible and appear to command a positive value relative to their cost of production (cost of mining).

Despite its digital rather than physical existence, Bitcoins also share several characteristics with gold bullion; (i) both can act as a store of value, (ii) there is a limited quantity of each available and therefore an infinite supply will never be created, (iii) bitcoins are difficult and expensive to “mine” or generate and (iv) their market prices are volatile.

Like other currencies, the price of a bitcoin is determined by supply and demand. There are only a limited number of Bitcoins in circulation and new bitcoins are created at a predictable and decreasing rate. This means that it does not take significant amounts of money to move the market price up or down, and thus the price of a bitcoin is still very volatile.

There is also an opportunity that exists for traders who understand the complexity and the inherent volatility of this digital currency to trade Bitcoin through contracts for differences (CFDs).

In fact, Bitcoin is a good addition to a financial portfolio from a risk diversification perspective. One may trade Bitcoin in long and short positions against a range of currency pairs such as XBT/USD, XBT/GBP, XBT/EUR and XBT/JPY. Another approach would be to speculate on the value of Bitcoin using a BINARY.

In conclusion, the digital revolution is fast changing the way individuals, households and businesses are transacting and investing. We believe that a virtual currency such as Bitcoin holds a long-term promise for a much faster, secure and efficient payment system.

Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. He can be reached on +263 783 584 745 or batanai@morganzim.com/ batanai@piggybankadvisor.com

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