Strangely a telecom company is probably the best value investment in digital currency today. Specifically Vodafone (NASDAQQ: VOD) has quietly solved many of the problems confounding cryptocurrency developers.
For example, Vodafone claims to have processed 529 transactions a second with its M-pesa unencrypted digital currency in December 2016. Therefore, Vodafone could have solved the blockchain scalability problem before most of us heard of it.
To explain, the blockchain scalability problem is the speed and size limit that keeps cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) from processing large volumes of transactions. For instance, Ethereum will process 15 to 20 transactions a second and it is faster than Bitcoin.
Moreover, Bitcoin’s capabilities are far lower than Ethereum’s. In particular, most estimates show Bitcoin will only process three to four transactions a second. Although, I have seen Bitcoin transaction volume estimates as high as 10 per second.
M-pesa, on the other hand, achieves high volumes of transactions by sacrificing encryption. Thus Vodafone is already using a solution that Ripple (XRP), the Lightning Network, and the Raiden Network are experimenting with. The solution is a sidechain, a less encrypted digital shortcut to speed processing.
Meet Vodafone’s M-pesa the world’s most successful digital Currency
M-pesa is the world’s best established and most successful digital currency. Vodafone claims M-pesa processed 614 billion transactions in December 2016.
Vodafone’s Safari.com subsidiary launched M-pesa in Kenya on 6 March 2007. By March 2017 there were 29.5 million M-pesa users in 10 countries worldwide, CNN estimates. In particular there were 18 million users in Kenya alone.
Significantly, there is a network of 287,400 agents (brick and mortar businesses) in 10 countries to accept M-pesa payment and sell the digital currency. Nations M-pesa is accepted in, include: India, Egypt, the Democratic Republic of Congo, Romania, Ghana, Lesotho, Mozambique, and Tanzania.
Moreover, M-pesa has 1.17 billion potential customers in India. Reuters reported there were 1.17 billion mobile phone users in December 2018. Those people are potential Vodafone customers because M-pesa is a digital currency designed for use on mobile phones.
M-Pesa the Digital currency that fights poverty
In detail, users buy M-pesa with cash and send it via SMS messaging. M-pesa is popular because they can transmit it in real time. The M-pesa digital currency is stored in a phone or SIM card.
M-pesa is used to pay water bills in Kenya, and to send money and benefit payments to the sick in Tanzania. Additionally, pay-as-you-go (PAYG) merchants in Kenya and Tanzania are selling electronics, appliances, and solar power systems on M-pesa instalment plans.
Kenyans use M-pesa to withdraw money from ATMs, top up airtime on mobile phones, pay for goods, receive remittances from relatives working abroad, and even receive their salaries. Charities like GiveDirectly are experimenting with direct M-pesa payments from North Americans and Europeans to poor Kenyans.
A fascinating side effect of M-pesa is its ability to help the poor move up in the world. For instance, Vodafone estimates M-pesa lifted 2% of Kenyans; around one million people, out of poverty.
Significantly M-pesa is performing many of the functions, most cryptocurrency promoters are trying to implement. More importantly, M-Pesa is doing that stuff in the real world right now.
For example, M-Pesa is sending and receiving remittances, a market Ripple (XRP) is just entering. Remittances are the funds people send to friends and relatives in other nations.
The World Bank estimates remittances were a $613 billion business in 2017. Markedly, M-pesa is available in India, which the World Bank identifies as the world’s largest market for remittances.
Vodafone reportedly has 223 million mobile customers in India. Significantly, Trading Economics estimated the value of Indian remittances at $12.639 billion in 2nd Quarter 2018.
Will Vodafone Become a Leader in Cryptocurrency?
Obviously, M-Pesa’s success gives Vodafone a head start in the race to deploy cryptocurrency in the real world.
Vodafone has created a digital currency that real people are using every day in the real world. Uniquely, Vodafone’s digital currency is being used for thousands of commercial transactions each day.
A logical business for Vodafone will be to integrate M-pesa with a cryptocurrency. Potential markets include: Ripple (XRP) to M-pesa remittances, or the purchase Bitcoin (BTC) with M-Pesa.
Another solution will be an ERC20 (Ethereum convertible) cryptocurrency they could integrate with M-pesa. Even more valuable will be Ethereum blockchain platforms that accept M-pesa payment.
Most of the commercial blockchain experiments underway utilize Ethereum. Therefore, M-Pesa could be the key to commercializing the blockchain. An obvious revenue stream at Vodafone is to deploy its own Ethereum blockchain platform.
Vodafone should form an alliance with the Ethereum Project or the Hyperledger Project. Such an alliance could be lucrative because those organizations are developing commercial applications for Ethereum.
An obvious long-term goal at Vodafone is an M-pesa cryptocurrency or M-pesa ERC20 token.
Serious barriers to M-Pesa’s integration with cryptocurrency remain. The greatest obstacle is central banks which have the authority to block digital currency use.
Is Vodafone a Value Investment?
Vodafone (NASDAQ: VOD) is a potential value investment because it has 444 million customers in 26 countries.
Significantly, Vodafone has 223 million customers in India, 50.1 customers in South Africa, 303.2 customers in Germany, 22.3 million customers in Italy, 14.1 million customers, and 17.5 million customers in the UK, Statista estimates.
Therefore, Vodafone has one of the largest platforms on Earth. Yet its shares were trading at $20.02 on 11 October 2018.
Vodafone is making money, it reported an annual gross profit of $19.246 billion, an annual operating income of $5.781 billion, and an annual net income of $3.88 billion on 31 March 2018. Vodafone is a cash rich company, for example it recorded $18.785 billion in cash and short-term investments on March 31, 2018.
Best of all, Vodafone reported an annual operating cash flow of $18.967 billion and an annual free cash flow of $12.167 billion on March 31, 2018. That cash flow came from annual revenues of $69.953 billion reported on March 31, 2018.
The combination of M-Pesa and Vodafone’s mobile customer base is one of the greatest untapped resources in business today. If digital currencies like M-Pesa become widely used Vodafone could sit on a gold mine.
Vodafone is a Great Dividend Stock and a Value Investment for Today
Best of all Vodafone Group PLC paid an annual cash dividend of $1.195 on August 3, 2018. Vodafone also paid a 59.88¢ dividend on 2 February 2018.
Vodafone has only recorded one year of dividend growth. However its shareholders enjoyed a dividend yield of 11.81%, an annualized payout of $2.35 and a payout ratio of 166.6% on 9 October 2018.
The potential of the M-Pesa digital and Vodafone’s footprint make it a stock to buy for the future. The dividends, cash and low share price make Vodafone a value stock for today. If you are thinking about putting a British stock in your portfolio, Vodafone is a great choice.
This story first appeared at Market Mad House your guide to the payment wars.