To help you understand cryptocurrencies, we will take focused look at Bitcoin – the mother of all cryptocurrencies in the world. Bitcoin (BTC) has revolutionized this space and inspired the creation of new and improved cryptocurrencies like Ethereum (ETH), Waves and our own Coin of Africa (CoA).
SO WHAT IS BITCOIN?
There has been a growing buzz surrounding Bitcoin globally and its potential to become of currency of the future.
To simply define Bitcoin (BTC), it is a digital currency can be used as a means of exchange as well as a store of value. Unlike FIAT currency that is printed by a government e.g. USD, Rands, and Bond notes, Bitcoins use a complex technology called cryptography. Don’t let these complex words scare you. Cryptography is just a digital coding mechanism that makes Bitcoin secure and low cost to use.
Think of Bitcoin like mobile money. Imagine your Bank account or EcoCash wallet. Let’s say it has $100. With Bitcoins, your account will have the same value but just in Bitcoins. These coins can be transferred to and received from other people that have Bitcoins (BTC).
In overseas countries including South Africa, Bitcoins can be used as a means of payment in supermarkets, restaurants, and other stores.
The greatest strength that Bitcoin has is the ability to for it to be used as a store of value, therefore if the value of Bitcoins on the global market goes up, this increases the value of the Bitcoins in your wallet.
Bitcoins can be redeemed for hard currency to facilitate for payments in areas that have not adopted Bitcoin (BTC). Those that have adopted it use it as money.
For anything to be recognized as money it has to be able to perform the 3 primary functions of money: 1) Medium of Exchange – there should be willingness from the seller to accept the monetary instrument as payment for goods or services from the buyer, as well as to settle debts. South Africa has over 1,000 merchants that accept Bitcoin. In Zimbabwe, ATA and a few other companies are now accepting Bitcoin.
2) Store of Value – money should be able to represent a certain financial value on a specific date, at a specific time. For example, a dollar bill has to represent the value of US$1.00.
3) Unit of account – money should be able to be used to derive or measure the financial value of something. For instance the unit of account for airtime in Zimbabwe is $1.00, measured in USD value.
HOW DOES BITCOIN WORK?
To understand Bitcoin better, we will use a company equity share as an example (analogy). A share represents a piece of the value of a business. People buy shares with the hope that the company will grow, therefore increasing the market value of their shares as well as the earnings per share. For example:
In 2009, if one (1) share of Company A traded at $0.10 (10c), and in 2017 the same share is trading at $1.00 (100c). This means that the share has grown by 1,000% in value and is worth more now (2017), than what it was bought for (2009).
Now image being able to use part of that same 1 share to transact i.e:
Sending & Receiving Money;
Making & Receiving Payments; as well as
Storing Value (Wealth).
With shares it is not possible to use a fraction of that 1 share without forfeiting the entire share, but with Bitcoin, it is VERY POSSIBLE!
Though there will only ever be 21 million Bitcoins released into the market, what cryptography has done is created a way in which fractions of Bitcoins can be traded to provide market liquidity, as bits. Enabling a person to use some of their Bitcoins (or bits) to transact, without necessarily forfeiting the entire Bitcoin. So imagine being able to use part of your 1 share in ‘Company A’ to transact without having to forfeit the entire share (share certificate).
This means a person can use part of their Bitcoins (bits) to transact, and hold on to the balance in anticipation of growth in value. Likewise a seller can receive Bitcoins (Bits) as payment and hold on to those same Bitcoins (bits) in anticipation of growth. THAT IS THE BEAUTY OF BITCOIN!
Bitcoin and other cryptocurrencies are something to consider, do not let this opportunity to join a growing global financial community.
Coin of Africa (CoA)
Coin of Africa (CoA) is a digital asset innovated by Start-Up Nation (SUN) that ultimately operates as a digital currency. CoA is a ‘hard-to-earn, limited in supply, and easy to verify cryptocurrency meaning it is secure and has an underlying value. CoA rides on the Waves Blockchain. The goal is for CoA to act as a pecuniary resource and can be used as a medium of exchange and store of value owing to the metrics and stabilization mechanisms of this unique cryptocurrency.
To read more on cryptocurrencies, click here and download Cryptocurrencies for Beginners.
For more information, please connect with us on our social media or visit us at Global Business Innovations (GBI) Hub, 336, Hebert Chitepo, Harare.
