- Financial Institutions in the MENA region remain skeptical about bitcoins, despite a slow but steady growth in bitcoin adoption.
- Small groups and Entrepreneurs are developing platforms to promote the digital currency, which can address the long-standing problem of financial inclusion in the region.
- Low credit card penetration and difficulty to acquire a credit card or a bank account in the MENA region will drive the demand for the Bitcoins in the region. However, cultural and technological challenges exist.
Bitcoin was created in 2009 by an unknown person, or group of people, using pseudonym Satoshi Nakamoto. It is a decentralized (digital) currency, without any authority, company, website or symbol.
Bitcoins are created by a slow and highly iterative computing process called ‘bitcoin mining’, enabling individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoins. Besides mining, bitcoins can be obtained in exchange for fiat money, products, and services, and users can send and receive bitcoins electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application. Bitcoins can also be bought from bitcoin exchanges by paying through other payment methods including cash.
Currently, 50 bitcoins are generated every 10 minutes; however, the mining process will get slower and complex with time. However, this payment method is getting increasingly popular, especially in the developed world. According to Coindesk.com, as of 26 June, one Bitcoin is worth about USD 570 and on average, 80,000 Bitcoin transactions worth over USD 100 million occur daily. In Dec 2013, daily value of Bitcoin transactions crossed Western Union transactions.
Global Bitcoin Transactions
Large number of financial remittances, low level of financial inclusion, and high mobile penetration rates in the Middle East creates a good market for the Bitcoins.
MENA region is home to large number of expats who send significant amounts of salaries back home. The region accounts for nearly 15% of global remittances and the bitcoin being a low cost money transfer option (compared to average 8% transfer fee for other money transfer modes), help save significant amounts of remittance fee.
The low levels of financial inclusion in the MENA region has led to limited access to any sort of financial services. According to Findex, MENA has the lowest percentages of adults with a formal bank account (18%) and of poor people with formal access to financial services (9%). The recent success of mobile banking is an example of how alternative payment methods can make their place in the market.
The mobile and internet penetration is high when compared to the global average. As per the Global Media Intelligence Report by eMarketer, at 525.8 mn, the Middle East and Africa had the second largest mobile phone population in 2013. Also the internet penetration is 37%, which is above the global average. These two channels can facilitate the use of Bitcoin and can help the region address the issue of poor financial inclusion.
Some groups are continually working on new platforms for Bitcoins in the region to make them popular and easy to use. In June 2014, BITBOX launched the Middle East’s first bitcoin ATM in Tel Aviv (Israel). The vending machine allows both purchase and sale of Bitcoins. Although Bitcoin is witnessing significant growth trend in Israel, however, at present all the transactions have to be through a bank, involving lot of bureaucracy. With the launch of the Bitcoin ATM, it will help the users to transact without being hassled by the bureaucracy of the banks. This will encourage the users to exchange Bitcoins for local currency and also create a wallet to store Bitcoins. This platform will enable sending Bitcoins via email and phone and redeeming them at any of the similar ATMs. The ATMs are priced at about $15,000 and includes biometric features which may be activated depending on the local requirements.
Iranians got a Bitcoin Marketplace, CoinAva, which allows people to buy and sell Bitcoin. Bitcoin Exchange is similar to a traditional exchange except that it is entirely online.
Lack of innovation, knowledge and skepticism are the main hindrances for the Bitcoin growth in the region. Although with lot of potential for growth of Bitcoins available in MENA, it is one of the toughest regions to operate and acquire Bitcoins. Some of the reasons that may be pulling down the potential are:
- Absence of incentives to use bitcoin
- Lack of innovation as the environment is still more reactive than proactive
- Lack of confidence in the security and trustworthiness of the currency
- Broader community in Middle East is still in the early learning phase about bitcoin
- It was difficult to find options to exchange other forms of local digital money with Bitcoins till Bitcoin Nordic recently introduced CashU as a payment option
The central banks in the region have issued warnings against the usage of the Bitcoins making it tougher for the people to trust this digital currency.
- According to the Central bank of Jordan, the virtual currencies are not legal tender and there is no obligation on any central bank in the world or any government to exchange its value for real money issued by them.
- According to the Lebanese Central Bank, due to its relatively small user base, the value of Bitcoins is subject to intense volatility and as the money is not backed by any central bank, the value of Bitcoin is not stable, and the price can drop to zero.
However, people in favor of Bitcoin argue that the technology is desirable as there is no issuing authority making it a borderless currency on Internet. Anyone having access to the Internet or a phone can access Bitcoin and leverage the financial services around it.
Combined efforts by governments and businesses is needed to drive the growth in the region. There is a lack of trust in online payments in the region leading to low credit card usage and growing but comparatively small e-commerce sector. It has to be tackled by educating people about bitcoin and related terms like wallets and exchanges and addressing issues with the conventional online payments. Bitcoin entrepreneurs in the region are focusing on education and outreach which will include:
- Showcasing at events like ArabDigital;
- Building contacts at other tech start-ups; and
- Reaching out to the region’s merchants and consumers.
Another challenge is incentivizing the use of the digital currency. However, it is a catch 22 situation because there is a need for more users to incentivize businesses to use it, and more businesses to incentivize users to use it. The region needs more innovators and risk takers, more ideas and solutions as the market is more reactive than proactive.
Bitcoin appears to be destined to grow big in MENA, however, it remains to be seen how long the cultural barriers and lack of technological integration stopping it from penetrating deeper in the region.
Cases of acceptability of Bitcoins in the Region and Warnings issued by Regional Banks
Despite being a favourable market, Bitcoin has a very low presence in MENA region with only two merchants accepting Bitcoin in the entire region: a restaurant in Dubai and a coffee shop in Jordan.