Can South African tenants pay rent in Bitcoin?
Bitcoin is a worldwide cryptocurrency and digital payment system. It is the first decentralised digital currency, since the system works without a central repository or single administrator. It was invented by an unknown programmer/group of programmers, under the name “Satoshi Nakamoto”, and released as open-source software in 2009. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are recorded in a public distributed ledger called a “blockchain”. Willing participants can use Bitcoin to buy and sell goods and services without the involvement of commercial banks. More than 100,000 merchants, including Microsoft, PayPal, Dell, takealot.com and the big law firms, are accepting Bitcoin as payment.
A limited number of 21 million Bitcoins were created when Satoshi Nakamoto defined the Bitcoin protocol. By agreeing to use Bitcoin, the larger Bitcoin community is backing their value and turning them into a currency. Bitcoin has the following unique features: (a) there will never be more Bitcoins; (b) Bitcoins are impossible to counterfeit; (c) Bitcoins can be divided into as many small pieces as you require; (d) Bitcoins can be transferred instantly across great distances via the internet. Members of the Bitcoin community consider these features to be worth something, and value the Bitcoin accordingly based on supply and demand on open currency exchanges.
The symbols used to represent Bitcoin are BTC and XBT. Small amounts of Bitcoin used as alternative units are milliBitcoin (mBTC), microBitcoin (µBTC), and satoshi – named in homage to its creator/s, being the smallest amount within Bitcoin (i.e. one hundred millionth of a Bitcoin).
The price of a Bitcoin is determined by supply and demand. When demand for Bitcoins increases, the price increases, and when demand falls, the price falls. Before money was something a government printed out on a printing press, decreeing that it was worth X amount, all money was worth what people were willing to pay for it. Bitcoin goes back to those roots, not allowing governments to decree anything about its value. The price of Bitcoin is calculated as an average of what the buyers and sellers are matching their bids for, at that moment, across various Bitcoin exchanges, per currency pair.
There are two licenced bitcoin exchanges in South Africa, Ice Cubed and Luno. In South Africa you can sell your goods and services for Bitcoin by simply asking to be paid in Bitcoins to your Bitcoin wallet address.
Blockchain.info has an Android app that allows a wallet to be kept on an Android phone, which can be used to accept Bitcoin payments. On an Android phone or tablet, the Blockchain Merchant App can be installed from Google Play, which allows payments of any amount of ZAR in Bitcoin, using the latest exchange rate.
Hosting a checkout system like BitPay on your company’s website, makes the whole process easier for customers paying with Bitcoins. In South Africa, the local payment gateway provider PayFast allows users to pay in Bitcoin, which it converts to ZAR, so if you have a website that is already using PayFast, people can already pay you in Bitcoin, the difference is that you get ZAR and not Bitcoin in your bank account.
Because of the anonymity associated with Bitcoin, public perception is often suspicious. The use of Bitcoin is not illegal in South Africa. In its Position Paper on Virtual Currencies, the South African Reserve Bank (SARB) concluded that given the current landscape and information available, Bitcoin poses no significant risk to financial stability, price stability or the National Payment System. In line with SARB’s position that regulation should follow innovation, SARB will continue to monitor developments, should changes in the current landscape warrant regulatory intervention.
Is bitcoin legal in South Africa?
Bitcoin is currently unregulated in South Africa. According to the South African Reserve Bank Act of1989, the SARB governs the management of currency and has the sole right to issue coins and notes, i.e. “legal tender.” Bitcoin however falls outside of the definition of legal tender. Consequently, payments made via Bitcoin in South Africa may not discharge a debtor of a monetary obligation. Landlords are also legally entitled to refuse to accept Bitcoin as payment.
Additionally, virtual currencies are not defined as securities in terms of the Financial Markets Act of 2012 (the FMA). The FMA pivots the existence of an exchange on “a person”. In other words, an exchange for purposes of the FMA requires a person who maintains, constitutes and provides the system. The FMA recognises the JSE Ltd as being a person, who provides a particular system for securities exchange and related activities. However, the FMA would not apply to a platform that enables the trading of shares on a peer-to-peer basis. On the blockchain platform no one maintains or provides a share trading system, just many people using the system on a peer-to-peer basis. Bitcoin is therefore not subject to the regulatory standards that apply to the trading of securities.
Paying rent and other utilities with Bitcoin is easy where Bitcoins exist and where there’s some kind of legacy payment system, for example M-pesa or SWIFT.
If a direct Bitcoin deposit is not acceptable for the landlord, then the next step is to ask if you can pay rent through a bank deposit. Most landlords have a digital banking account which can be used to pay the rent with Bitcoin.
Step 2 is to choose a Bitcoin exchange that can make deposits into the landlord’s preferred payment method. South Africa has a Bitcoin community, which exchanges Bitcoin for “fiat” through the use of various legacy payment methods like PayPal. Fiat money is currency that is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of.
Step 3 is to create a Bitcoin exchange account for the landlord. Find out what authentication documents are required by the exchange to link the deposit account from your landlord. This will likely include some kind of bank to bank special account number as well as a copy of the landlord’s KYC documents. With this information, the tenant can now host a Bitcoin-to-fiat account for the landlord on the Bitcoin exchange.
Step 4 is to pay with Bitcoin. Once the Bitcoin-to-fiat account on behalf of the landlord has been created and verified, the rent can be paid with Bitcoin. The tenant deposits some Bitcoin into the exchange, converts to fiat, and makes the rent payment into the landlord’s bank account.
Payment of rent using Bitcoin is already happening internationally. It follows that international tenants requiring to rent leased premises in South Africa, would require the flexibility to also pay rent using Bitcoin in South Africa. The following are examples of property companies that are already using Bitcoin:
- Rentulations is an online property management platform that helps landlords vet potential tenants, look after their properties, and request maintenance work, and allows payments using Bitcoin.
- Edge Creek Property Management is a student housing company based in Idaho, contracted to the Brigham Young University, which allows students to pay their deposits and rent in Bitcoin.
- Alvic Property Management, is a property management company based in New York City, specialising in cooperative, condo and multi-family properties, which has begun accepting Bitcoin as payment for rent and maintenance.
- Saving on transaction fees, e.g. the landlord gets direct bank deposits in ZAR for a simple, flat 1% settlement charge.
- Direct bank deposits, e.g. the landlord can accept payments in Bitcoin and receive funds directly into his bank account.
Competitive advantage for attracting international tenants, e.g. the landlord is connecting to the world’s first borderless payment network, and can receive rent payments in any amount, from anywhere in the world, from any computer or mobile device.
- No fraud and identity theft, e.g. with Bitcoin tenants can pay without handing over sensitive personal information.
If a landlord wants to accept rental payments using Bitcoin, the offer to lease/lease agreement must be updated to provide for tenants to elect to pay rent using Bitcoin. If the tenant elects to pay with Bitcoin, the landlord must procure the issuing of an invoice at a locked-in exchange rate, which shields the landlord from volatility risk.
Enabling tenants (especially international companies and students) to pay rent using Bitcoin will be a competitive advantage for any landlord/property manager, in this age of disruption.
In addition, given the current economic climate, landlords/property managers should be looking for ways to increase income while cutting expenses, and Bitcoin provides this opportunity. Bitcoin lowers the transaction costs of transferring money from one party to another, which is a win-win situation for both the tenant and the landlord.