Mohamed Ralsan is the banking & finance Partner at Levari LLP, prior to founding Levari, Mohamed Raslan had spent 10 years as in-house legal counsel for major Egyptian financial institution including CIB and Ahli United Bank.
What is Bitcoin and when was the first time it was used?
Bitcoin has been in existence since January 2009. It was used by a small segment of the population, mainly tech companies. However, over the last couple of years the use of Bitcoin has grown massively. Bitcoin is the normal progression of the e-payment revolution. It is a digital electronic currency with no physical manifestation. Bitcoin is the creation of a computer programmer using the name of “Satoshi Nakamoto”. It is an open source invention where the controlling computer code is open to public view. It is peer to peer transaction that does not involve or require a third-party intermediary such as PayPal or Visa.
How does the Bitcoin system work?
Bitcoin relies on the principles of cryptography. It is a communication system that is secure from view of third parties to validate transactions and govern the production of the Bitcoin itself. Each Bitcoin and each user is encrypted with a unique identity, and each transaction is recorded on a decentralized public ledger that is called “blockchain” this is visible to all computers on the network. However, it does not reveal any personal information about the involved parties.
On the other hand and from a user perspective, Bitcoin is a mobile app or computer program that provides a personal Bitcoin wallet that allows each user to send and receive Bitcoins.
What is Bitcoin based on?
Bitcoin is not backed by any government or any other legal entity, and this is why its supply is not determined by a central bank. The Bitcoin network is totally decentralized, where all parts of transactions performed by the users of the system; it is a private system that does not involve any financial institutions in the transactions. With these factors, the requirement for a form of money to hold value is trust and adoption. This can be measured by its growing base of users, and merchants. As with any currency, Bitcoin’s value comes only and directly from people willing to accept them as payment. Bitcoins have value because they are useful as a form of money.
Why does Bitcoin exist?
Bitcoin has a number of features that make it unique and create the excitement in certain communities. Bitcoin transactions cost is low in comparison to credit card companies that impose a transaction fee of around 3%, which allows individuals and merchants to transact
directly with each other.. Bitcoin is unlike other official currencies (such as the Dollar) because it cannot be printed. The Bitcoin protocol limits the total number of coins that can be created to 21 million Bitcoins and as such, there is no erosion of purchasing power due to inflation. It is not controlled by governments that can exert control on the value of their currency, for example by reducing or increasing interest rates. Bitcoin does not afford this possibility. Furthermore, no bank account is required as users can transact in Bitcoin without a bank account. All that is needed is a digital wallet, which ease and facilitate crossborder transactions. Bitcoin is inherently global, and has the potential of cutting in the market for international money transfer, due to its features.
BY MOHAMED RASLAN, PARTNER AT
Is Bitcoin Legal?
Bitcoin has proven to be a controversial issue for regulators and law enforcers, both of which have targeted the digital currency in an attempt to control its use, and many legal authorities are still struggling to understand the cryptocurrency. However, the answer is yes-bitcoin is legal, depending on what you are doing with it and in which country, as some countries have clearly band Bitcoin transactions such as Iceland, Bolivia, Ecuador, Kyrgyzstan and Vietnam. Bitcoin is legitimate in the European Union, Canada, USA, UK, and Israel. In China, banks and other financial institutions or any payment processors are prohibited from transacting or dealing in Bitcoin, but individuals are free to deal in Bitcoins between themselves.
Overall, many countries still do not have explicit systems that restrict, regulate, or ban the cryptocurrency. The decentralized and anonymous nature of Bitcoin has challenged many governments on how to legalise it. Most countries are still analysing ways to properly regulate the cryptocurrency. Bitcoin remains in a grey area as the fast technological development has left legislators too far behind. It is still unknown in many Middle Eastern countries as the case in Egypt.
Mentioning Egypt, do you think that the current regulations in Egypt allows Bitcoin as a currency?
Bitcoins are unknown for Egyptian legislator and in my opinion, Bitcoin cannot be classified as currency under the current Egyptian law.I can say that it could be classified as a commodity that is easy to be monetarized. It is money, and therefore individuals and companies in Egypt can start to use it, but it is not currency as under the Central Bank law-currency must be backed by the government and controlled by the Central Bank of Egypt.
Do you see a future for the Bitcoin in Egypt?
The answer is of course, yes, especially with the current foreign currency shortage due to the economic situation. To transfer 300,000 EGP to the UK, for example, your company has to be registered or listed in the bank’s transfer queue and wait from 3 to 5 weeks until they
can arrange Sterling pounds for the transfer. However, with Bitcoin, the funds arrive anywhere across the world in seconds and this is why I see the potential of Bitcoin. It is real and accepted payment method even if some countries may have trouble recognizing this. In addition and due to the current fluctuation of the Egyptian currency as well as inflation factors, Bitcoin users noticed that no matter what your country or region is going through, no matter how corrupt your government is, there is no way your “currency” (Bitcoin) will inflate. It is business friendly.
In your opinion, what are the main risks facing the Bitcoins?
There are many risks for the Bitcoin as it is still at the experimental phase. The concept introduced by Bitcoin is novel but because of it being a recent invention, there is no proven record to back it up. It is not regulated globally, which is a concern to government authorities as they are worried about the use of Bitcoin for speculative trading, money laundering, and crimes such as buying and selling drugs and other illegal items.
As for the users there is theft, consumer protection and fraud as the major risks from a legal point of view as there was 19,000 Bitcoins (valued at about $5 million) in a digital security breach lost. As for financial risks, the value of a Bitcoin is determined by supply and demand, and therefore it canfluctuatrapidly. In December 2013, the value of a Bitcoin was as high as $1,100, then hit a low of $177 in January 2015, and this is why I see it as a commodity. This dangerous fluctuation is a characteristic of a commodity rather than a currency.
Finally, as a lawyer, do you think that law firms could accept Bitcoin as a payment method in the future rather than actual money?
This has already happened. In August 2013, the Israel Bar Association ruled that Bitcoin is an appropriate form of payment for lawyers and authorized its member to accept it. Bitcoin future is coming anyway, but I cannot see it as a payment method for lawyers in Egypt in the near future as the majority of Egyptian lawyers still get paid in cash.