Despite sad stories of people losing their savings to fake digital currencies trade, Kenyans continue embracing cryptocurrencies.
Inside Kenya’s Cryptocurrency Trade: Tales Of Pain And Promise
NAIROBI, Kenya — The months of February and March were difficult for Carol Maina, 38, a mother of three from Langata, an estate within Kenya’s capital, Nairobi.
First, she lost her job and then fell into an online scam where she lost savings meant to cushion her in hard economic times.
“I had saved Sh4.2 million ($39,485),” she told Zenger News. “A friend who knew I had lost a job connected me to people who said they were cryptocurrency traders. They convinced me to invest Sh3 million ($28,212) to buy something they called Bitcoin.”
She said the “Bitcoin gurus” convinced her that she would reap a 50 percent profit within two weeks. However, she lost all the cash.
“I planned to withdraw all the money if I got Sh1.5 million ($14 107) on top of my Sh3 million ($28 212). I would use Sh2 million of the Sh4.5 million ($42 322) to invest in an online cloth business.”
Her story is similar to hundreds of Kenyans who have lost their savings to cryptocurrency scammers who cannot be traced.
“Anything that has characteristics of Ponzi, a high yield investment program where they ask you to invest your money and earn some amounts daily or weekly, should be avoided,” said George Mwakisha, the business development manager for Kenya at the Chinese cryptocurrency platform Binance.
Despite a government advisory by the Central Bank of Kenya against the use of cryptocurrencies by citizens, more Kenyans have used the stay-at-home government directives to contain the spread of the Covid-19 pandemic to try their luck in the crypto market. Still, not all have a success story to tell.
“I can’t believe I lost Sh90,000 ($846),” Joel Ondieki, a father of two from the Umoja estate in Nairobi, told Zenger News. “Money meant for rent, school fees, and home shopping to invest in a field I knew nothing about.” He was conned when Bitcoin hit an all-time high of $64,000 last month.
Nairobi-based author of “Understanding the Blockchain,” Benjamin Arunda, told Zenger News that the rate at which Kenyans are being scammed has soared, with Bitcoin’s price appreciating more than 1200 percent since March 2020.
“Ninety percent of my crypto clients, who consult me on how to invest, are people who have been scammed or a person they know has been scammed,” he said. Kenyans are hungry to make quick extra income, and this makes them vulnerable to get-rich-quick schemes.”
He said that Kenyans fall prey to huge promises of profits from third parties because they do not understand how blockchain and crypto trade work.
“The case of Kenicoin, which scammed Kenyans especially in Central Kenya, capitalized on lack of information in the rural areas of the country. If Kenyans can be wise enough to seek knowledge first, they can escape most scam traps,” he remarks.
Scams have thrived on gaps in digital financial literacy. They promise to guarantee returns and tend to have highly persuasive models of risk-free investment, which is never realistic even with conventional investments.
“We will be conned until we create locally regulated sandbox exchanges,” Bitange Ndemo, chair of the Distributed Ledgers and Artificial Intelligence Taskforce in Kenya, told Zenger News. “Our people are searching online for exchanges where fraudsters pounce on vulnerable customers. The Internet has as many fake people as there are genuine ones.”
According to Betty Wambugu, whose café in Nyeri town accepts crypto payments, Kenyan youth who are unemployed or earn little embark on crypto trading due to its flexibility to trade from anywhere, anytime.
“Before investing their hard-earned money, let them invest in education through verified online platforms or subscribing to online courses,” she said.
Kenya’s elite have a soft spot for crypto business because they have disposable income. They have seen the trade rise despite regulatory hindrances.
Consequently, with increased unemployment and the hunger for extra income, cryptos are seen as an alternative option to get rich quickly. But even the middle-class have helplessly watched their money go down the drain.
“What Kenyans should know is that the person who holds your wallet’s private keys is the owner of the crypto, so insist on holding your private keys. That can only happen if you learn first before you invest,” said Arunda.
In 2020 alone, despite the economic hardships caused by the Covid-19 pandemic, a survey by African crypto marketplace firm, Paxful, indicates that there was more Bitcoin trading in Kenya than ever before, with trade volumes reaching Sh5.1 billion ($47,963,913)—a 472 percent increase from 2019.
Kenya has traded a total of 5,895 Bitcoins between 2015 and 2020, with Nigeria exchanging Sh63.15billion ($593,911,933) worth of Bitcoin in 2020. South Africa is third at Sh2.1billion (19,749, 040), with Morocco fourth at Sh229.8 million ($2,161,261), Paxful data shows.
Many Kenyans are ready to buy, sell and trade using cryptocurrencies, according to the Mastercard New Payments Index published on May 6. The cryptos include Bitcoin and other digital currencies such as Ethereum, Binance Coin, Bitcoin Cash, Litecoin, and Ripple.
“As global interest in digital currencies continues to accelerate, four in ten people in Kenya say they plan to use cryptocurrencies in the next year. Sixty-nine percent say they are more open to using them than they were a year ago,” the report said.
But dangers still exist as digital currencies trade remains unregulated, leaving consumers vulnerable.
“High risk, complexity, and uncertainties in regulation deter the mass market from testing their disposable income on crypto investments,” said Roselyne Wanjiru, the blockchain consultant at Pesabase.
The fact that cryptocurrencies run on a blockchain makes it more difficult to regulate an industry worth over Sh200 trillion ($18,799,952,045), according to the specialist site, Coinmarketcap. The site lists more than 9,000 different cryptocurrencies.
The loss of private keys has led to the loss of over 4 million Bitcoins globally by people who cannot remember their passwords.
Despite the volatility of digital currencies, individuals and companies have made tremendous gains from the trade, while central banks of some developed economies are working on their digital currency projects.
“Every developed country is in the process of creating a national cryptocurrency referred to as the stable currency or Central Bank Digital Currencies. This is a clear indication that virtually everybody is moving towards blockchain-based currencies. Our focus should be on building capacity now rather than behaving as we would forever live in a cocoon,” said Ndemo.
But to make cryptos mainstream in Kenya, a friendlier regulatory environment with a supportive financial services sector is needed. Currently, it is impossible to purchase cryptos without using fiat currency payment channels like MPesa, which is owned by Safaricom, Kenya’s biggest telecommunications firm.
“Mass education should continue. There is a need for the corporate world to delve into research and fund incubation of crypto and blockchain ideas,” said Arunda.
Ndemo advised those who want to invest in cryptos to start small and understand every digital coin.
“Gain some knowledge of the exchanges you use. Some cryptos have a clear utility; assets back others, and of course, some are just garbage in the market.”
Amos Kinuthia, the training lead at Distributed Ledgers, Blockchain & Research Technologies, advised Kenyans to get a custodial service provider if they commit their money to a crypto business.
“Custodial bank services should be implemented in Kenya just like in the United States to enable customers to preserve their crypto holdings,” he told Zenger News.
Alice Anangi, chief executive of Zeden Technologies, said collaboration is required between banks, financial technologies, crypto exchanges, and the Central Bank of Kenya to form a proper regulatory framework that can enable fiat to crypto conversions in a fast and efficient way. This move, according to her, would benefit the clients, institutions, and investors while protecting their funds and their assets.
“A huge hurdle crypto traders face right now is fiat to crypto conversion and vice versa because most banks do not currently support the trade,” she told Zenger News.
(Edited by Kipchumba Some and Sarika Kumar. Map by Urvashi Makwana.)