Bitcoin has been a buzzword worldwide recently, with the cryptocurrency gaining more popularity than ever. The value of the digital coin has skyrocketed over the last year, roughly quadrupling since the start of 2017 to reach over $17,000 per coin in December, raising eyebrows and capturing the interest of speculators and technology enthusiasts around the world.
In early 2016 a bitcoin was worth just over $430, and as low as $1 in 2011.
Egypt is no exception to the speculative fever that has hit the world since, with many bitcoin aficionados jumping on the bandwagon to benefit from this digital gold.
Bitcoins are one of many cryptocurrencies introduced to the world in 2009. It is virtual and decentralised, meaning that no single financial institution or government manages the currency’s digital network. It is not the official currency of any country and does not represent an equivalent amount of gold or silver.
It is stored electronically in a “digital wallet”, which exists either in the Cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money.
Reports of bitcoin trading in Egypt came into the limelight in August 2017, when two founders of a startup called Bitcoin Egypt announced that they would launch the country’s first bitcoin exchange, in what was supposed to be the country’s first platform for buying and selling bitcoins.
However, Egypt’s Financial Regulatory Authority (FRA) has denied the news and repeatedly warned people from trading in bitcoins and other cryptocurrencies as they are not legal or supervised by the authorities. It said that enticing investors into dealing with cryptocurrencies is considered a “form of deception that falls under legal liability”.
Head of the FRA Mohamed Omran has warned of calls to invest in cryptocurrencies, highlighting the fact that such dealings are not regulated by any official body in Egypt and are not part of the monetary authority.
This month, the Central Bank of Egypt (CBE) issued a warning against trading or transacting in bitcoins and other cryptocurrencies, saying that they were unstable because they were not backed by a government entity or any regulatory authority around the world.
“In that context, the CBE confirms that transactions in Egypt are confined to currencies accredited by the bank. The bank calls on traders in the Egyptian market to be extra careful and not to deal in these high-risk currencies,” the CBE said in a January statement.
Moreover, in an official fatwa (religious edict) this month, Egypt’s Grand Mufti Shawki Allam said that trading in bitcoins was unlawful under Islamic Sharia Law. He said that trading in such a virtual currency was not permissible because it was not considered by legitimate bodies as an “acceptable interface of exchange”.
Allam said that cryptocurrency trade was like “gambling”, which is forbidden in Islam for its “direct responsibility for the financial ruin of individuals”. However, such warnings seem to have done little to kill off the interest of many people in Egypt in trading in the cryptocurrency. “Interest in cryptocurrencies in Egypt has soared in the recent period,” said 27-year-old Mohamed Hani, who has lately started trading in bitcoins.
“When I started expressing an interest in tapping into the digital currencies market a year ago, only one in 50 friends shared that interest. Now, the rate has surged to 20 in 50,” he told Al-Ahram Weekly. Hani said that cryptocurrencies were “the future” and that almost every person of his age had thought about entering this market, driven by a desire for “quick gains”.
Besides bitcoins, other cryptocurrencies that possess big opportunities, according to Hani, are Ethereum, Ripple and Litecoin.
Hani explained that trading in the currency can take three forms, firstly through international exchange websites such as Bitstamp, an exchange based in Luxembourg that allows trading between dollars and the bitcoin cryptocurrency.
Bitcoin price (Reuters)
But due to the surging demand for bitcoins worldwide, it is now difficult to register with the exchange, Hani said. He said that his registration was not yet complete, although he had registered 45 days ago, whereas the process used to take 24 hours.
Another difficulty is that Egyptian banks do not accept transferring money to any company involved with bitcoins, Hani said.
Therefore, a second way to get bitcoins is by directly buying them from someone through online platforms that connect buyers with sellers, Hani said. There are a handful of Egyptian traders listed on these websites, from which one can buy bitcoins through bank transfers at local banks.
One seller on one website was selling one bitcoin for LE228,569 (around $13,000).
A transaction does not necessarily involve a whole coin, as there is the option of purchasing any fraction of a bitcoin.
There are also several Facebook pages that connect sellers with buyers, where each seller sets the price for their bitcoins, and both buyer and seller agree on a method of payment. One of these pages is Bitcoin Egypt, which defines itself as a “licensed company that works on completing any transaction between the company and individuals in a legal manner.”
It provides a telephone number and a local address. The page posts news and updates about bitcoins worldwide and answers questions concerning the cryptocurrency. The page has around 3,500 followers. The Weekly tried to contact the page-owner, but without success.
Hani said that these pages or companies, working as brokers, often take a high commission, amounting to 10 per cent, of the transaction, which he considers “too high”. However, many people in Egypt are using this method to get their bitcoins, Hani said.
The third way to acquire bitcoins, according to Hani, is through “mining,” which is the process of creating a bitcoin. Bitcoin mining adds transaction records to the cryptocurrency’s public ledger of past transactions known as the “blockchain”. Anyone with access to the Internet and suitable hardware and software can take part in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle in return for a certain number of bitcoins in exchange. The amount of new bitcoins released with each mined block is called the “block reward”.
This does not mean that any number of bitcoins can be created. Although bitcoins are not regulated, there are rules known as the Bitcoin Protocol, which states that a maximum of 21 million bitcoins can be created.
Therefore, the block reward is halved every 210,000 blocks, or roughly every four years. It started at 50 in 2009, became 25 in 2014, and will continue to decrease, slowing down the generation rate. There are reports that claim that globally bitcoins are now approaching 17 million.
“There are many people who are mining in Egypt, not only for bitcoin, but also for other cryptocurrencies,” Hani said.
Though interest in bitcoins in Egypt seems to be surging, there is no information on the volume of trading in the country, professor of economics at Cairo University Nagwa Samak said. However, the trend is there and thriving in many countries around the world despite the warnings and risks, she said.
Bitcoin’s risk, according to Samak, stems from the fact that it not accepted or recognised by any state. But aside from the risk, the technology represents a “revolution” in financial services that Egypt should take notice of, she said.
“We should think deeper and look beyond bitcoins. We should look at the system and the technology, which will revolutionise the banking and monetary systems if adopted,” Samak told the Weekly. “It’s not about the bitcoins. It’s really about the blockchain,” she added.
Samak said that despite countries around the world warning against the cryptocurrency, many have started to study the technology and how it is implemented. Some countries have even taxed transactions in the virtual currency, she said.
Many governments around the world are still mulling over how to regulate and classify bitcoins. National authorities across the globe, and particularly in Asia, have attempted to put the brakes on a global boom in the trading of bitcoins and other cryptocurrencies.
Egypt has not followed in the footsteps of countries that are digital-currency friendly, despite a lack of regulations, among them Sweden. Neither has it followed Thailand and Bangladesh, among others, in barring cryptocurrency trading.
Amid the lack of technology in Egypt, Samak said it could take the country a long time to positively study bitcoin technology and mull over how it could benefit from it.
Bankers and financial analysts also differ on how the future of bitcoin will unfold. Some are convinced it is a bubble that will eventually burst, while others think it will prevail in the long term.
“The value of bitcoin is a bubble, yes, but not the technology. It’s no longer in our hands; it’s something that has imposed itself, and it is better for governments to see how they can benefit from this technology,” Samak said.
Bitcoins have been falling in value recently. They dipped 20 per cent last week, dropping below $10,000 on investor fears that regulators could clamp down on the currency in an effort to curb speculation. On Monday, a bitcoin was trading at $10,474 on Luxembourg’s Bitstamp.
Despite sharp fluctuations in its value and the recent drop, the currency’s enthusiasts are not overly concerned. “These crashes have happened a lot before, and they will continue to happen,” Hani said. “I am 100 per cent sure bitcoin’s value will soar again,” he added.
* This story was first published in Al-Ahram Weekly