Bitcoin – Why it may not go big in developing countries

Kenya has the fifth highest holding of Bitcoins per capita according to Citi posing significant threat if it bursts. Here are my thoughts on why Bitcoin may actually burst

1) Scalability – Two of the core pillars of bitcoin is that

i) Its a distributed ledger. Bitcoin security model is that you don’t have to trust anybody- It’s like a bank where everyone keeps his copy of transaction history so you know what everyone started with, what they have received and paid out and if they still have money in their accounts

ii) It uses blockchain technology with its emphasis on provenance (each transaction block has to be linked to the previous up to the very first transaction block in the right order)

What the two points above means is that to securely participate in bitcoin transactions you will need to have the entire bitcoin blockchain in your wallet (the only other alternative is to trust your coins with a broker which negates the bitcoin concept). Its currently stands at around 20GB and growing fast. Few people will have the storage, processing power and bandwidth required to make bitcoin an everyday payment solution

2) Transaction clearing time,cost and finality. Since everyone has a copy of the ledger, transactions are cleared by adding every single transaction in everyones ledger, and everyone agreeing with it. The consensus protocol bitcoin uses is proof work (that is what bitcoin mining is, sort of processing transactions). This at the moment takes 10 minutes plus or minus and is free. Miners (the processors) are rewarded with new bitcoins, with the reward halved every 4 years. This means at 21 million bitcoins there will be no more reward for the expensive, power consuming mining process. It is yet to be decided what happens but likely you will have to attach a transaction reward with your transaction with highest rewarders being prioritized by the (the anonymous) miners. The mining constraint means bitcoin can currently only handle 7 transactions per second (visa can handle 24000 transactions per second).

That said, the blockchain technology is full of potential and promise in various fields (including cryptocurrencies where new entrants are trying out new implementations). I am especially keen on hyperledger being incubated by the linux foundation.

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