Any person who has not been living under a rock or who has had constant access to articles and wifi, has heard of bitcoin. Bitcoin has permeated through discourse both in the public and private sector, with the Zimbabwean Reserve Bank Governor going as far as issuing a statement warning citizens against its scourge. What is clear is that, bitcoin is here for a while. The next logical step is to try and understand what bitcoin is, which this article will attempt to do.

Throughout history, economies have used currency which is backed by value, that is, gold and silver, and with the fall of Bretton Woods in the 1970s, fiat currency, which is currency backed by nothing more than trust and faith in a system. The most popular example of a fiat currency is the United States Dollar. This might very well be about to change with the introduction of

Cryptocurrency is a virtual digital currency created and stored electronically using encryption techniques that control how monetary units are created and valued and how any transactions are verified. Normally, a country’s central bank determines and controls all the transactions within a financial system but with cryptocurrency, the role of the bank of last resort is removed. This can explain the resistance that cryptocurrency has faced particularly from Central Banks. Bitcoin is one example of a cryptocurrency.

Within a cryptocurrency system, there has to be consensus on how monetary units are valued and every peer must add a new unit to the data base of every other transaction they have made before known as the “block chain”. There are hundreds of thousands of transactions that take place, but within a bitcoin network, a transaction is deemed confirmed after a miner has verified the transaction. A miner, as I myself first thought, is not someone who goes 100m below ground to mine for coal/gold, but is anyone/any entity that have the ability to verify a transaction. Once they verify it, it then must be published across the chain and join other transactions in the blockchain. This ensures that a transaction can never be reversed or forged.

The benefits of bitcoin are the following:

• Fast and global

Transactions are instantaneous and are not limited by national borders. Immediately, the benefits of such a currency are better related to any Zimbabwean who has grown to learn of depletion of nostro accounts, which have resulted in the lack of the USD. One can transact anywhere, and at any time.

• Secure

Cryptocurrency are insulated from manipulation by central banks, global or national politics. Anyone who has had the value of their currency depreciated as a result of politics can appreciate why the security from manipulation of bitcoin is very attractive.

• Supply is controlled

Supply of bitcoins is limited and the last date of transacting any cryptocurrency is usually known. The supply of cryptocurrencies can be calculated as a result.

• Permissionless

One does not need permission to transact in or use bitcoin. Once someone downloads the mobile application, they can immediately begin to transact. This moves away from the red tape associated with the financial sector and the ever present nature of the Central Bank in policy determination.

Currently, the Zimbabwean banking and financial law system does not support cryptocurrencies. Section 40 of the Reserve Bank Act only refers to coins and notes as legal tender that can only be created by the RBZ. As such, cryptocurrencies shall have to operate outside out legal framework, which is one of the very reasons why they were created in the first place. It will be interesting to see if government’s position shall change as bitcoin grows in popularity and adds to the systemic risk of the Zimbabwean financial system. As for now, this writer has seen that global investment entities like JP Morgan, Amazon and Goldman Sachs have started investing in cryptocurrencies which hints towards a new era. It is undeniable that in the short-term, bitcoin symbolises our generation’s future, whether that is a good or bad thing still remains to be seen.

By Rutendo Muchinguri & Tafadzwa Mafura