Although ‘bitcoin’ has recently been a worldwide buzzword and gaining more popularity than ever, the Central Bank of Egypt (CBE) has issued an official warning statement against utilizing virtual currencies, mainly bitcoin, due to the high risks involved, describing it as volatile and unstable in value due to unregulated transactions. Concerning this, Invest-Gate sits with Ahmed Mansour, Information Technology Consultant and Blockchain Expert, who gives an insight about the investment and utilization of cryptocurrencies, such as bitcoin, in addition to where Egypt stands on the rollercoaster ride.

Can You Explain How Are Bitcoins Utilized For Payments And Transactions?

Bitcoins rely on blockchain technology. In other words, if we are saying that both of us are on the same blockchain, so how we are going to do any transactions between each other? First of all, each one of us should have a digital wallet registered on the blockchain. Blockchain relies on a term called ‘consensus’, which means the general agreement from everyone on the blockchain that I have sold you something in bitcoin. There should be consensus that data is correct, and if one party mentions any faulty data s/he will be out of the blockchain.

Besides consensus, any transaction occurs is recorded on each of those registered wallets; and this is called the distributed ledger technology (DLT), which is used instead of recording transactions on personal ledgers in the mainstream system.

But since the transaction details are something private between the parties involved only, blockchain also relies on cryptography. Instead of encryption, cryptography is a one-way form for the security chain, in which any transaction is recorded in a form of a code and the users’ consensus occurs when they verify this transaction’s code against a given formula – without knowing any further details regarding any transaction; only the parties involved have the right to know such information. This makes hacking the blockchain impossible since it cannot be encrypted as there is no key to decrypt it.

But What Are The Disadvantages Of Using Or Investing In Bitcoins?

Most of the time there are controllers that list and clarify the reasons for any trading currency’s escalation or downturn; economics exist -in these currencies’ case- where there is supply and demand. But in bitcoin’s case, no one understands what is going on.

The central banks of each country, or regulators, are the ones guaranteeing traded currencies all over the world since they are the issuers of these currencies; and that is why banks do not issue money. They trade with money that is issued by the government. So what will happen if such cryptocurrencies are not issued by anyone and no bank is committed to it? An instability in bitcoin’s value.

This instability is the result of: offering extreme privacy since the determination of the identity of the wallet’s holder is impossible, providing a very complicated and strong system, and consensus. Accordingly, bitcoin has been ushering illegitimate transactions.

What Do You Mean With “Illegitimate” Transactions?

Recently, ISIS, the terrorist organization, has launched a bitcoin funding campaign as it posted an advertisement on the internet with its bitcoin address and wallet’s QR code. Surprisingly, the FBI found that a number of people worldwide have actually funded the organization. However, FBI could not reach neither the funders nor the wallet’s holder since all transactions are crypted. Regularly, if you want to fund a campaign, you would transfer the money through the bank and you would be spotted easily, but this was not the case with ISIS’ campaign.

Another example could be ransomware – a type of malicious software from cryptovirology through which hackers develop software attacks that render computer systems inoperable until a digital ransom, namely in bitcoins, is paid. They would ask a victim to transfer a bitcoin amount that is equivalent to, for example, USD 300 to a certain wallet address. At this juncture, bitcoin shifted from being a trading currency to a trading asset and this is why bitcoin’s value is unstable as it became a form of speculation rather than an investment – where bitcoins are not utilized for transactions anymore.

Money laundry is another example for the rise in bitcoin’s value; some people would have a sum of money coming from the black market, whether through selling drugs, prostitution, and so on, and they want to engage in the market with clean cash. Today, they can exchange it into bitcoins and that is it. Besides, the dark web nowadays is only working on cryptocurrencies, with all its transactions including weapons trade, organs trade, children trade, drugs, terrorist campaigns, and prostitution.

It is being also used for bribery. Since bitcoins are stored on a wallet with a simple QR scan, one can transfer the money needed for bribery, and there will not be any physical evidence that such illegal transaction occurred. Cryptocurrencies became a fertile ground for everything that is illegal, correspondingly, this increased its value.

So How Can Bitcoins Be Useful?

However, an advantage for investing in bitcoins or utilizing it in general is to make payments easily and without extra fees. For example, if you are going to buy an apartment, you should normally go to the bank, submit a request and the official contract, and then transfer the money to the dealer’s bank account. Using bitcoins in this case will avoid you all that.

How Do Individuals Utilize Cryptocurrencies In Egypt? And How Does The Government View Such Currencies?

The truth of whether individuals are actually trading in cryptocurrencies or not in Egypt cannot be proved. Bitcoins are earned as users create wallets, and thus, verify the transactions that occur, and then against those verified transactions an amount of free bitcoins is acquired – this is called mining. That is why the blockchain security chain is constantly upgraded to avoid penetration. Miners, who verify transactions to earn bitcoins, exchange their bitcoins to dollars, which they use in buying assets from abroad and then selling them in Egypt.

In light of its monitoring of trading in all kinds of cryptocurrencies in Egypt, whether legitimate or not, CBE has issued a warning statement against any cryptocurrency transaction since they are characterized by fluctuations and considerable price volatility, as it is not issued by any central bank or any centralized authority, thus unregulated; which makes investments in them risky and highly speculative, and are likely to lead to sudden losses of their whole value. According to the statement, they lack the official governmental guarantee and support enjoyed by the other official currencies issued by central banks. And it is absolutely true because according to the bitcoin’s market price, its value dwindled from around USD 20,000 last December to nearly USD 6,000 in February.

Yet, there are other countries that had other point of views towards cryptocurrency transactions. For instance, the US adopted cryptocurrencies as an asset and anybody involved in cryptocurrency transactions should be paying taxes on them. In this regard, the initial coin offering (ICO) has emerged and it is exactly the same as the initial public offering (IPO). There are countries that are in the green area (adopting cryptocurrencies), others in the red area (banning cryptocurrencies), and some in the grey area (considering cryptocurrencies) – like Egypt.

Most of the experts are saying that it is some kind of a bubble that will at some point fade and others say it is the future currency. However, other experts say that blockchain, as a platform and idea, is more vital than bitcoin.

What Is The Current Status For The UAE As It Is One Of The Leading Middle Eastern Countries That Is Adopting Bitcoins?

The UAE has a special status since it has its own legal means of testing the application of such digital strategy. However, no official representative of the state announced its adoption so far, yet a few within the state are adopting its utilization, including shops, companies, stores, etc.

Generally speaking, no country till now has completely adopted bitcoins or encouraged collaboration with the public to utilize it in the market. Particularly in Egypt, adopting bitcoins is not possible due to various reasons: its negative impact on the country’s financial stability, hidden identity of the users involved which eliminates trust among all parties, fluctuation in bitcoin’s value which leads to economic instability, promotion of criminal practices, no consumer protection, and the possibility of tax evasion.

What Could Be An Alternative To Bitcoins And Usual Payment Means?

Legalizing or outlawing the utilization of bitcoins is a very hard decision. An alternative can be giving people something they can rely on to legally have all the advantages they can find in bitcoins -which can be a digital currency for the country’s official currency. A digital currency is something generated by the regulator in each country, it is only a tangible change to the banknote. Actually, the wallet concept is becoming trendy among banks and other entities, in which a user creates a wallet that allows digital payment through it but it still needs to be generalized.

As regulators, digital currencies will make our lives easier since it will help in reaching individuals that were not reachable before and offer them financial services, in addition to financial inclusion, investment development, ease of economic dealings, and less banknotes, and thus, less forgery.

Can You Elaborate On How Digital Currencies Can Help In Investment Development?

Considering investments at a micro level, people in Upper Egypt have investment ideas that can help them develop themselves and the living efficiency of others around them as well, but banks in this area are not easily accessible because this kind of audience is not the target clients for some banks. But, if we have a digital currency on a digital wallet, the state’s financial support can reach them through those wallets directly, this will certainly help in developing the investment climate in Egypt.

Another usage can be assigning a specific QR code for each store that is linked to the user’s bank account and will only be scanned through the phone to transfer the money.

It is easy to be applied here since the digital wallet is a very simple and easy interface as it relies on clicking and just needs a smartphone which I think almost everyone in Egypt has today. The only challenge here is gearing the market to undergo transactions through digital wallets.

In Your Opinion, Do You Think That Digital Currency Is The Future In Egypt?

I think it should be. The people will trust the digital form of the Egyptian currency since it is already regulated by the government.

Bitcoins and cryptocurrencies should not be our focal point right now, we should be focusing on the blockchain technology itself as it can simplify and innate things, as well as it costs less and is more efficient, secure, and trustworthy. Besides, we should focus on simplifying the use of QR codes for the merchants to have an overall end-to-end solution. The digital currency will be the way of communication and blockchain is the platform where transactions occur.

The application of the blockchain technology and digital currency is what the CBE is currently considering and studying in the financial sector. However, such strategies are only three years old; they are still maturing and need more studying to be applied efficiently. Blockchain is the future revolution in technology, but it still needs more time to evolve.

Is Egypt Maintaining Pace With Technological Changes Happening Worldwide?

As in Egypt, I think that there is a digital transformation happening in the country right now and it includes other things besides bitcoins like fintech, innovation labs, and digital wallets – all those things are happening nowadays in the Egyptian market. Accordingly, this will surely affect the investment climate in a positive manner. There are various digital strategies that are being introduced to the market worldwide and Egypt is one of the leaders in this field. It started from a year ago when Egypt hosted ‘Seamless North Africa’ FinTech Conference, where the CBE’s governor announced that Egypt will invest EGP 1 bn in innovation labs and startups, open the market for the digital transformation, and embrace the blockchain technology and fintech solutions. I affirm that there is a transformation happening in Egypt’s financial sector and we should all learn and know how to benefit from it properly.