Security, knowledge gap hinder cryptocurrency

Though the Central Bank of Nigeria (CBN) is yet to give its nod to trading in virtual currencies in form of cryptocurrencies, such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, and exchanges, such as NairaEx, it is a growing business in neighbouring countries. In Kenya, the value of trade in crypto has risen up to $1.5million, LUCAS AJANAKU writes that security and dearth of knowledge militate against its potential.

Despite a $1.5million trading in crypto-currency in Kenya, according to the Blockchain Association of Kenya, lack of education is hindering its progress, report has said.

Titled: “Kaspersky Africa’s Cryptocurrency Report 2019”, it was based on feedback from respondents, and highlighted several risks, including volatility in value, lack of regulation locally, taxation issues and cyber fraud.

Enterprise Sales Manager at Kaspersky Africa, Bethwel Opil, said: “The survey found that there is a desire among many consumers to use cryptocurrency, but a knowledge gap is getting in the way of taking the plunge. In addition, many people who thought they knew what they are dealing with later decided against using cryptocurrency.”

What is cryptocurrency?

According to online resources, cryptocurrency is a digital currency built with cryptographic protocols that make transactions secure and difficult to fake.

Blockgeeks, an online platform, said the most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralised nature of blockchain makes cryptocurrency theoretically immune to the old ways of government control and interference.

Cryptocurrencies make it easier to conduct any transaction, for transfers are simplified through use of public and private keys for security and privacy purposes. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions, it added.

This introduction explains the most important thing about cryptocurrencies. After you‘ve read it, you‘ll know more about it than most other humans.

Today, cryptocurrencies have become a global phenomenon known to most people. While still somehow geeky and not understood by most people, banks, governments and many companies are aware of its importance.

How miners create coins

 A cryptocurrency like Bitcoin consists of a network of peers. Every peer has a record of the complete history of all transactions and thus of the balance of every account.

A transaction is a file that says, “Bob gives X Bitcoin to Alice“ and is signed by Bob‘s private key. It‘s basic public key cryptography, nothing special at all. After signed, a transaction is broadcast in the network, sent from one peer to every other peer. This is basic p2p-technology. Nothing special at all, again.

 CBN’s position

The CBN has warned Nigerians against cryptocurrencies.

In a circular titled: Virtual Currencies not Legal Tender in Nigeria – CBN, it said: Further to the circular issued by the Central Bank of Nigeria (CBN) on January 12, 2017, to banks and other financial institutions on virtual currency operations in Nigeria, the bank wishes to reiterate that cryptocurrencies, such as Bitcoin, Ripples, Monero, Litecoin, Dogecoin, Onecoin, etc and exchanges, such as NairaEx are not licensed or regulated by the CBN.

“For the avoidance of doubt, dealers and investors in any kind of crypto currency in Nigeria are not protected by law. Virtual currencies are traded in exchange platforms that are unregulated, all over the world. Consumers may therefore lose their money without any legal redress in the event these exchangers collapse or close business.

“Members of the public are hereby warned that virtual currencies are not legal tender in Nigeria. Accordingly, we wish to caution all and sundry on the risks inherent in such activities.”

The report also provided insight into the South African market and stated that nearly a fifth of South African respondents (14 per cent) stopped trading in cryptocurrency because it became too technically complicated.

“This lack of understanding could be leading to mistrust in cryptocurrencies’ ability to keep consumers’ money safe. For instance, 35 per cent of South African respondents stated that they believe cryptocurrencies are quite volatile and they need to be stable before they are prepared to use them,”  Opil said.

The void in education in keeping cryptocurrencies safe has seen fraudsters take advantage of the situation and more people are being scammed. Fraudsters can use cryptocurrencies to their advantage, with around five per cent of those surveyed in South Africa saying they have experienced hacking attacks on exchanges.

“Criminals also create fake e-wallets to attract people to unwisely invest their money, and 16 per cent of South African consumers have been victims of cryptocurrency fraud,” Opil added.

At the global level, over 80 per cent of respondents have never used cryptocurrencies underlining the low penetration for digital currencies. Only 10 per cent  said they understood how these digital currencies work, with 35 per cent viewing it as a fad.

Despite the slowly growing trend on digital currencies, Opil sees cyber security as very important to adoption.

He said it was commendable for government to set up a task force to understand the space and also help in curbing criminal activities fuelled by the use of digital currencies.

“Always verify a web wallet’s address and not following links to an online bank or web wallet. “Double-check recipient addresses, the amount being sent, and the size of the associated fee before sending a transaction,” Opil said.