Nairametrics| Bitcoin is money. It is a digital currency, that is backed by, well, not gold, or US dollars… it is backed by computer codes. Yeah, I know that sounds scary. Computer codes can be hacked. Did you receive your salary by cash or by “alert”? Do you think your employer carried cash with a bullion van to the bank to deposit the “alert”? No. Your “alert” was sent using a computer code. So, your “alert” can also be hacked. But guess what? Bitcoin is safer than the “alert”. We will get to that soon. But before we get there, let’s take a closer look at what money truly means.
What is Bitcoin really used for? Why all the noise about it?
Bitcoin has been gaining in value for a while now. It used to be a currency that was restricted to the world of the dark web, but the technology behind it, Blockchain, is so robust that it is now becoming acceptable. As more people use it, the currency will continue to gain in value. There is also something about the difficulty in mining (or creating) Bitcoins — at a certain stage, mining for the currency becomes more expensive, which in turn reduces the rate of supply. So as supply reduces, and demand increases, the price can only go in one direction. Except something drastic happens. And since Brexit happened, I stopped joking around with black swans. So anything can happen. I am not a prophet.
Bitcoin is a store of value, but a risky one.
Just like fiat money. This means, the way you save money for future use, you can also store Bitcoins for future use. You cannot store a Ponzi scheme, for example, and keep it somewhere until you are ready to use it. So, if anyone tells you Bitcoin is a Ponzi scheme, just keep walking.
Storing Bitcoin for future use is risky. This currency is still less than a decade old and it has experienced a lot of volatility in its short life. From the fall of the Silk Road to different bitcoin exchange hacks, and sudden price movements for no reason whatsoever. You need to define your risk appetite before saving in Bitcoins. Know yourself. Understand the role you want Bitcoin to play in your total portfolio before you buy and keep.
For me, the risk is worth it. But I do not speak for everyone. And I certainly do not speak for you. If the currency drops to zero today, I can dust myself and keep moving. I also believe in the currency because of the increasing acceptance and the strange monetary policies that keep coming out of emerging economies such as Nigeria and Venezuela. There is a serious debate between controlling currencies and letting currencies go. Letting currencies go means that some people can take advantage of it and mess up a whole economy, just like George Soros did to the British Pounds in September 1992. But freeing currencies ensure that demand and supply drive prices. But the difference between Bitcoins and emerging market currencies is not much when it comes to volatility. High volatility also means that financial controllers of multinational firms will find it difficult to allocate budgets.
Everyone prefers a smooth currency, and it makes sense why the Nigerian Central Bank would do everything to smoothen it. Emerging economies suffer a lot of shocks, which usually affect the currencies, which, in turn, make their central banks fixate on currency controls. Even the Great Britain felt a hit after Brexit. Companies in the US also suffered some damage in 2014/2015 when the US Dollar became really strong and earnings from oversea subsidiaries suddenly became peanuts when they were converted to US Dollars.
I have dwelt a lot on currencies and how volatile they can be. These are controlled currencies. Now imagine a digital currency with no central control. So, if you are going to hold Bitcoins, think really hard about the risks so you do not get carried away with the glorious stories of how much money a couple of people have made from holding it.
Bitcoins can be used as a means of payment.
You do not have to store Bitcoins like I do. You can simply use it as means of payment. You can restrict it to transactional purposes. Let’s say you want to buy some goods and services, and you are lucky that the merchant accepts Bitcoins. You can simply buy some Bitcoins and then use it to pay the merchant. That way, you do not expose yourself to its volatility. You buy at current market price and then collect your goods and services and you are done with it until next time. That is the beauty of Bitcoins. That is how money is spent.
Bitcoins has left the underground, and several merchants all over the world are now accepting Bitcoins. You can use Bitcoins to pay for your international flights using AbitSky and you can also pay for hotel rooms using www.expedia.com. You don’t need to buy dollars to be able to travel out of the country. Yes, you heard right. Not everyone accepts Bitcoins, but you don’t have to go to mallams to buy Dollars anymore whenever you want to travel. You can simply buy Bitcoins, sell it for Dollars on a Bitcoin exchange (we will still talk about Bitcoin exchanges), transfer your money to your domiciliary account and spend away. Just ensure you have a Dollar debit or credit card that is linked to your domiciliary account. Not only do you bypass mallams, you escape the wrath of the DSS. Another perk is that when you get to the international airport and customs ask you how much foreign currency you are holding, you can tell them $1 because you are holding nothing.
By the time Nigerians start adopting Bitcoins as money, it is likely to reduce the pressure on the Naira. When all else fails, open a Bitcoin Wallet, open a domiciliary account, get a dollar debit or credit card, open a bitcoin exchange account and the world will be at your feet. As long as you have some good Naira.
Another attractive thing about Bitcoin is its divisibility. Most currencies truncate at two decimal places, but Bitcoin terminates at about eight decimal places. When you do a lot of transactions, many $0.001 that is usually rounded down to $0.00 can stack up over time. Bitcoins reduce this rounding to the barest minimum. That is why you can see people trade as low as 0.0o123345 Bitcoins. For those of us who like tracking down our money, this is a great advantage. You pay exactly what you spend and receive exactly what you earn.
Nobody tampers with Bitcoin transfers.
I just got wind that Nigerian banks are now restricting foreign currency transfers, backed by cash deposits, to $10,000 per month per person. If you have ever tried transferring money outside Nigeria, you probably have an idea of how painful the process can be. Not only is the process painful, they also charge you like they are doing you a favor.
But with Bitcoin, all you need is the other person’s wallet address, and the amount you want to send. No need for signature. There are no stamp duties, no telex charges, no commission on turnover (COT), and no one can pressurize the CBN to raise COT or give it another name just because they want to make more profits. You transfer money anywhere and receive it anywhere within the twinkle of an eye.
Bitcoin transfers are democratic. They rely on the power of Blockchain. Blockchain is like NIBSS or SWIFT that allows you to move money from one account to the other, but for a very small amount. While it can cost you as high as $100 just to transfer $5,000 using banks in three to five days, it may cost you less than $1.00 to move $15,000 worth of Bitcoins from Nigeria to China in less than two minutes.
Bitcoin exchanges are where people buy and sell Bitcoins for fiat money. Since the US Dollar is the global reserve currency, all Bitcoin exchanges accept US Dollars. The most popular Bitcoin exchange is www.bitstamp.net .It is regulated by the financial authorities of Luxembourg. They trade in US Dollars, Euros and GB Pounds. The fact that this exchange is regulated by one of the most dynamic financial authorities in the world is a testament of the future potential of Bitcoins. Governments are now taking notice. Other popular exchanges are www.cex.io, www.coinbase.com, www.okcoin.com, etc.
There are a couple of Bitcoin exchanges that actually allow you to buy and sell Bitcoins in Naira. Some of them include www.bitx.co, www.bitpesa.co, www.winkpayment.com.ng, www.nairaex.com. While it is recommended that you open an account with an exchange (anyone can), it is not mandatory. And whatever you do, do not keep your Bitcoins on an exchange platform. Your Bitcoins must stay with you. Some of the largest exchanges have been hacked and brought down by hackers who steal Bitcoins.
So how do you protect your Bitcoins?
Open a personal Bitcoin wallet.
That’s pretty much it. Once you have your personal Bitcoin wallet, you are good to go. It is one of the easiest process you can imagine. It is much easier than even opening an email address. If you want to get started with saving in Bitcoins or transacting with it, then this is a must. Even if you have no intention of dealing with Bitcoins, there is no harm in having a wallet. You may need it someday. It costs nothing. Nobody needs your driver’s license, international passport, signature, home address, your grandmother’s name, where your third cousin was born and all those silly things bankers are always asking us to supply. It is a democratic process.
The simplest and most accessible way is to download a Bitcoin wallet on your phone. On Android Play Store or iPhone App Store, just search for Bitcoin wallet, and you will see a lot of options. You can use any one of them. I personally use the Bitcoin Wallet by Blockchain. You can also download a Bitcoin Wallet for your desktop or laptop — a popular one is Multibit. But I will be very careful with using it on Windows OS because of the vulnerabilities.
After you have downloaded your preferred Bitcoin wallet, just register it and you are good to go. Your wallet, depending on the type, will either have a unique address or generate an address for every transaction. An address is like a bank account where your money goes to. It is a very simple process.
But that is not all. When you start doing a lot of transactions in Bitcoins or you have a lot of Bitcoins, you need to take it a step further. Phones can be lost and laptops can be stolen. If you lose any one of them, all your Bitcoins may be gone, except you have an advanced level of storage, which I will not talk about here.
So because Bitcoin is democratic, some tech gurus came up with some kind of hardware where you can store your Bitcoins. They are like flash drives that you can connect to your laptop or mobile phone and transfer Bitcoins from and into them. They are like flash drives. Some of the most popular ones are Trezor, Ledger, BitLox, KeepKey, and Pi-Wallet.
I use Trezor.
The good thing about these hardware is that you can hang $10 million worth of Bitcoins around your neck and walk to Oshodi and nobody will know. Robbers may steal phones and laptops, but people hardly ever steal flash drives. Except they are fancy looking. So, buy the ugliest hardware you can see. If you mistakenly drop it, a good samaritan is more likely to run after you with it, so you don’t litter our streets with your ugly-looking flash drive.
Manasseh Egedegbe is a medical doctor at the cutting edge of Finance 5.0. You can contact him via twitter @knightofdelta if you want to know more about Bitcoins. You can also follow is Medium Page
How to invest for retirement
Planning for retirement means planning to reduce obligation in the future by investing today.
“If you plan to retire in five years what should you be doing today?” That’s a question I got last week, and talking with the client, a lot came up which I have decided to share.
First off, What is retirement?
Nigeria’s public service has an official retirement age of 60 or thirty-five years of unbroken active working service, but in financial planning, retirement is a financial, not a chronological event. Retirement can occur when your passive income can meet your non-discretionary expenses.
You start to plan for retirement the day you start to earn an income. Your retirement plan will centre on how to generate passive income and reduce expenses. In Financial Planning, Four distinct stages are usually described in a so-called Lifecycle Chart. These are the Accumulation, Consolidation, Spending, and Gifting stages. Chart 1. Financial LifeCycle seeks to segment investing priorities, recommended asset allocation, and risk profile in a chronological timeline as the person gets older. I will take each of these stages and explain how they are linked to your retirement plan.
Chart: Financial Life Cycle
Early years: Use Your Time and Make Money, (Accumulate)
The first stage is called the Accumulation stage. Imagine a 22-year-old who has just graduated and is a management trainee. He typically has a low credit score and assets and income are also substantially lower. What he has in abundance is time. So it’s important to deploy his time in the best way to make money. Hence in the accumulate stage, the goal is to generate cash flow either from a job, multiple jobs, working longer hours, saving, cutting unnecessary expenses, etc.
The key measure in the accumulation stage is the Savings Rate which is essentially how much of income earned or generated has not been spent. On average, the participants in the accumulation stage have fewer dependents and maintenance needs which should theoretically make it easier to save.
Mid Years Use Your Money To Buy Assets (Consolidation)
In the consolidation stage the focus shifts from saving to investing. At this stage, the income earned and credit scores have improved. This is when the talk of buying a home or starting a business takes concrete shape because, at this stage, those dreams can be funded. Hence capacity to take on debt is improved, and debt is used to invest in assets like a home. Remember debt is simply front-loaded consumption, which means we are taking our future income to invest today, intending to repay with future income generated from today investment.
The key measure in the consolidation stage is the Rate of Return which is essentially how much has been generated from the investments made.
Spending & Gifting Phase; Use Your Assets To Generate Cash Flow and Time (Spending and Gifting)
Why is it called the spending phase? Because that’s what the individual is doing, spending down accumulated investments. The spending will include buying annuities or perhaps relocating to another city, your dependant’s college needs, etc. At this stage, typically very few are still earning “new” income but are rather spending from the return of prior investments.
The key measure in the spending stage is the Withdrawal Rate which is essentially how much of investment can be withdrawn as cash annually to ensure we do not outlive our investments.
Retirement is All About Passive Income
Passive income, which is the income we are making from investing from the accumulation and consolidation stage is now sufficient to generate income and reduce expenses to meet our expenses in the spending/gifting stage.
To give an example, assume we took a mortgage to buy a house in the Consolidation Stage, in the Spending stage, we pay no rent, thus we save cash, which reduces our Non-Discretionary Expenses. In essence, retirement is planning to eliminate your future expenses to the point where you need less income when you retire.
What Should You Invest In Before Retirement Or In Retirement?
Our objective is simple, Income. In retirement, we invest solely to make income to meet our spending needs, Risk profile is also very low because there are fewer recovery options if your investments sink.
The retirement portfolio is an income-generating portfolio that will be overweight in fixed income products. First, determine what the risk-free rate is. In Nigeria, we can take the yield on a ten-year FGN bond as a guide, this means we can have a target of 10% as our huddle rate for the long term. Thus I will recommend an 80/20 portfolio with 80% going to Fixed Income consisting of long term bonds, REITs, and other top-grade commercial paper.
However what happens if we lock in our funds for 10 years at 10% and rates jump to 20%, meaning a loss to our portfolio. To avoid this risk we can create a bond ladder, where we break down the bulk sum and duration of our total bond investment outlay. Let us assume we have N10m in cash to invest, instead of one single lot investment of N10m, we split into 5 equal investments of N2m and place for 6, 7, 8, 9, and ten-year maturities. This means by the 5th year the first N2m will mature, if rates are higher, reinvest, if rates have fallen then reevaluate.
What about Equities
Yes, equities also pay a dividend. In buying equities, we must ensure we are only buying stocks that pay a dividend above our huddle rate of 10% which is the 10-year FGN bond rate. Which Nigerian stock meet that huddle rate?
- GT bank
- United cap
In closing, let us summarize. Retirement is not chronological age. The event occurs when our passive income pays our bills. Planning for retirement means planning to reduce obligation in the future by investing today. Investing in retirement is income-based with a huddle.
Steps to take to bag international scholarships
Here are the steps you should take if interested in pursuing international scholarships.
Studying abroad gives you exposure among many other things, and that is precisely why many Nigerians have been looking for ways to study abroad. However, not everybody is privileged with the resources to study overseas and this is where the international scholarship option comes in.
If you are interested in studying abroad and don’t have enough funds, you should consider applying for international scholarships. This article lists the steps you can take to bag international scholarships but before delving into that, here are some types of scholarships available to you as an international student:
- Location-based scholarships
- Course or program-based scholarships
- Sports-related scholarships
- Research-based scholarships
- University-funded scholarships
- Organization-funded scholarships
- Government-funded scholarships
Having discovered the types of international scholarships available to you, here are the steps you should take to bag any of these international scholarships.
Research: Research is vital if you don’t want to miss out on good opportunities or make mistakes during your application. Research scholarship opportunities available in your prospective college or location and be on the lookout for hidden scholarships.
Check your eligibility: Having done thorough research and discovered the available scholarship opportunities, check to see if you are eligible for them. Many international scholarships have their criteria and requirement, so you should confirm that you are the right fit first.
Get the required documents: After confirming your eligibility, you should get the necessary documents. If the scholarship requires you to write an exam, prepare for the exam, write a good statement of purpose and prepare all other documents.
Start your admission process: Some international scholarships require that you start your admission process and probably get the admission before starting your scholarship application.
Contact past scholarship winners: You might want to contact the previous scholarship winners to know what they did right and how you can learn from them.
Apply for the available scholarships: The last step is to apply to every available scholarship.
The best way to get funds for your undergraduate, postgraduate, or PhD pursuits abroad is by applying for international scholarships. If you do thorough research, you can find fully funded scholarships that won’t require you to pay any amount. One of the essential steps to getting an international scholarship as a Nigerian is staying abreast of current information and this will require you to network with others.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- Union Homes REIT proposes final dividend worth N465.03 million for shareholders.
- GT Bank Plc holds FY 2020 investors presentation.
- Cornerstone Insurance Plc notifies stakeholders of late submission of financial statements.
- NSE approves delisting of 11 Plc shares.
- Berger Paints Nigeria Plc reports a 67% decline in Profits in FY 2020.