Not too long ago, with a lot of youthful exuberance and optimism – in 1997, I believed the Internet and data technology that had evolved at the time would be the perfect solution to not only addressing Africa’s communication woes, but also the emergence of an information revolution had the ability to lift a whole generation of disadvantaged people on the African continent. Finally, the people would join and be able to participate in the new evolving economy of connected online Internet platforms.
Having enthusiastically enrolled in early adoption of Internet and data packet switching, which was technology disruption from the incumbent traditional circuit switching. Circuit switching was then used by most if not all of the incumbent telecommunication companies in African countries and in most parts of the world. There was plenty of misinformation, mistrust and misunderstanding about effects of the new phenomena.
Suffice to say, regulators and incumbent national telecommunication companies across the continent’s whole spectrum would not envision why Internet and data mattered in the long-term. Fast forward two decades, and most African countries that had been slow to recognise innovation and disruption of Internet and data at the early stages are largely also relegated to hyper-consumers of the first information-age value chain.
Excepting Kenya, no major production of Internet-related industry has evolved from the continent. However, Africans are (I suspect, based on general observation) big consumers of external products such as WhatsApp, Facebook, Twitter and lately Uber services. The questions I would ask myself are: Where is the employment benefit to Africans? Where is the upper-echelon knowledge-based capacities of first Internet and data revolution for Africans? The real-value beneficiaries reside in third-parties outside Africa. Part of the reason why Africa is always a late majority and therefore a laggard on the bell curve is lateness in providing leadership for Regulation!
We are entering a different super era of our time – the ‘Internet of money’ (emphasis on the Internet as a paradigm), wherein the new generation of users will be experiencing a quite different Internet from the one that we have learned to use. The internet 1.0 had to do with
democratization of information; it allowed direct exchange of information between parties regardless of the position or status of those parties or entities. The new phenomenon has to do with direct exchange of Money, Assets, or anything that parties or entities agree to be of Value. For the first time in over a century, the Global Financial System is fundamentally being augmented by the invention and innovation of blockchain.
This disruption is virtually redefining the very essence of the concept and future of Money. The world is clearly in the adoption stage of a blockchain revolution: cryptocurrency, private tokens, digital money and bitcoin are all applications of the blockchain. They cannot be uninvented! To properly participate in the future of the new financial economy that is evolving, African countries will need expansion of existing Regulations to ensure the purposeful adoption of blockchain is achieved.
What is Blockchain?
Blockchain is an open-source system ledger that employs mathematical algorithms and cryptography to establish digital trust instead of the traditional intermediary role that exists today.
Blockchain is a decentralised system – which means each computer that is part of the network maintains a copy of legitimate ledger at all times. So, it becomes increasingly difficult to compromise the integrity of the ledger as more computers join the network. In fact, Bitcoin – which is the first blockchain established in 2009 – is secure to the extent that it has not been compromised since inception.
This is not for the lack of attacks though; Bitcoin is under constant attack by hackers, by agents, and I assume by various governments for one reason or another. Over time, these attacks have helped Bitcoin to develop resistance. One can reasonably conclude without reservation that Bitcoin blockchain is the most secure public record of transactions in existence to date.
What does this concept of digital trust mean for Africa? The key here is the fact that we now have a new global protocol platform that minimises the emphasis of trust in transactions between two parties, and therefore allows parties to transact directly with each other without the benefit of prior knowledge of who or where or how big or small the parties are. In effect, the traditional expensive roles performed by intermediaries to ensure transactions are secure and safe are now functions of mathematics and software. This is exceptionally beneficial to developing and African countries, because digital trust does not draw the heavy hidden charges that traditional intermediaries levy on transaction. The freed capital is obviously passed-through to consumers.
Secondly and most importantly, most African countries lack institutions of attestation and therefore have no formal accredited and transparent mechanism to vet its citizens on the global stage. Consequently, the inhabitants are ‘unknown’ and effectively considered high risk. The nature of blockchain is such that the system is less trust-dependent.
Is there a benefit to moving to such a system? Yes! Maybe not so much for the developed western countries because these institutions exist for them already. Their systems have been built over the last couple of centuries, but for African and developing countries, eliminating such risk factors from the equation does present a significant opportunity for their citizens to access the new global financial economy. One that has alluded them until the advent of Blockchain.
Another tenet of blockchain that has been implied already is the fact that records are registered on all participating computers. What this means is that at any particular time, all the computers – no matter where they are located geographically – possess the same ledger or information. Of course, if we just digitise an asset without the capability of transfer, we are limited to digital editions of the product. We need a way of being able to monetise and unlock the value in an asset. Like in most countries, real estate comprises a big part of asset ownership and source of wealth.
However, it is common knowledge about properties owned in Africa that there is no proper and convenient linkage of attestation to formal ownership of the asset. Therefore, owners are limited to using their properties as abodes with no option to transfer the wealth. Zero knowledge proof, an application of blockchain is a useful tool that can be applied to address the situation. Since blockchain allows peer to peer transactions to be accomplished safely with assistance of the digital trust mechanism and digital attestation of individuals, blockchain is a unique opportunity for Africa to develop new property platforms and new financial products by unlocking and transferring the value in assets.
All of the above activities – registering of assets or value, transferring of assets or values, stamping of time of registration, who signed what etc. – are captured in the audit trail, and can never be changed in a blockchain. In the case of public and permission-less blockchain networks such as Bitcoin and Ethereum, the audit trail of information can be accessed openly if one knows how to deconstruct the pseudonymous nature of the transactions.
Private blockchains such as Hyperledger, Ethereum Enterprises and a host of others may choose to limit access to only permissioned parties. Because of the audit trails in the blockchain and immutability of the records and signatures, it becomes very difficult to deny an action once recorded. This is how blockchain shines ‘light’ and creates visibility on activities. Thus, blockchain engenders good behaviour and could serve as part of a major tool for fighting corruption in Africa.
What is the Issue?
Blockchain is definitely a paradigm and process innovation for the global financial industry. It is also a product disruption in many ways (across the spectrum), and it will understandably encounter resistance reaction from the financial industry’s incumbent players. Indeed, the last two years have witnessed high volumes of negative reaction from respected global financial icon Warren Buffet, and push-back articles from the Bank for International Settlement – which acts as the central bank to most African central banks.
It is of no surprise that many of the powerful financial entities have anchored in the status quo and would prefer to see punctures in the acceleration of blockchain, cryptocurrency, bitcoin, ethereum, and altcoin etc. As of writing, a number of organisations and countries have made a ‘U-turn’ and have enrolled in the value propositions of the ‘cryptocurrency and blockchain’. JP Morgan Chase has announced its JPcoin, which is a private stablecoin; Japan has recognised bitcoin as a legal tender and medium of exchange; Australia, Switzerland, Malta, and a number of countries in the European Union are currently subscribers of cryptocurrencies.
The state of Ohio accepts bitcoin for local taxes. I can also conjecture that most fortune five hundred companies are seeking blockchain and cryptocurrency strategies by now.
Companies such as Amazon – even Twitter, Facebook, owners of WhatsApp and a host of social media platforms – will join the ‘cryptosphere’ sooner rather than later. Of note is what is also happening in the central banks of some seventy (70) countries that are already seeking issuance of Digital Money accordingly. What is not clear is whether those digital monies will take the form of fiat or stablecoin.
Here is the pain point though: Just like many countries, African States face a dilemma:
Almost all of the central banks are primarily owned by governments. Responsibility for
issuance of Fiat and management of monetary policies of each nation rests on the central banks. The banks also manage public debt and deal with other foreign fiat currencies on behalf of their respective countries.
However, blockchain and cryptocurrencies or decentralised digital money are foreign to the existing laws and monetary policies. Moreover, the security and taxation laws do not adequately address the products of blockchain, and most of the African states are taking their leisurely time to deal with the new innovation of blockchain and cryptocurrencies. The act of striking a balance in establishing the proper Regulations is what’s at stake in the various countries of Africa.
Blockchain and cryptocurrency technology is an innovation. It is experiencing a similar latent ‘pick and choose’ sedate policy attitude to that most African countries adopted toward the Internet and data revolution. Ironically, blockchain innovation has more to offer Africa than it offers in the advanced countries.
African countries now have the tools to help them achieve or establish the institutions that have taken western civilisation more than two hundred years to achieve. Without a question, blockchain, cryptocurrency, digital money, private money, private tokens are legitimate inventions and arguably the future of money in the financial industry. They are not illegal, fake or fraudulent!
Yes: criminals have used crypto-currencies like bitcoin, which is the first blockchain application, for their criminal enterprises. Unfortunatel,y that is the nature of technological innovation. The first cars were used as getaway vehicles and the first telegrams were used to run long-distance mail fraud schemes and Ponzi schemes – as referenced by ‘The Internet of Money’, published by Andreas M. Antonopoulos.
Africans need to advise themselves and move quickly beyond the negative connotations of cryptocurrency and blockchain. Make no mistake about it, we, the Africans benefit more from this innovation. It is time for African central banks to shift their focus from taking wholesale prescriptions from entities such as the Bank for International Settlement, and actually engage in inward interests that make sense to the African plight.
In October 2017, head of the International Monetary Fund, Christine Lagarde, sounded a cautionary note that: “It’s time for the world’s central banks to get serious about digital currencies”. She also said global financial institutions are taking risks by not watching and understanding the emerging financial technologies and products that are already starting to shake up the financial services industry. Recently, on April 4, 2019 – two years after sounding her first alarm, she has commented again that: “Crypto is Shaking the System!
As I have intimated earlier, make no mistake, central banks of Africa: companies like Facebook through WhatsApp with a billion subscribers in its ecosystem, Twitter, Amazon – these are not just messaging boxes and country-specific online stores. They have huge subscribers from your population in their ecosystem. They may also harbour aspirations to have their own digital coins as well.
The question we ought to be asking ourselves are these: How do central banks in Africa with its capital control policies involve Regulations that could trigger and harmonise the new, flourishing space among those global giant companies that will inevitably enter the sovereign space of African countries? What kind of Rules and Regulations can these central banks adopt now to allow a symbiotic beneficial relationship?
Not only does it make sense for central banks to actually take the bold step of introducing their own Digital Fiat, but also to expand existing Regulations. Securities Commissions mandated to regulate investment contracts should also widen their oversight; and Tax Regulators should understand the new innovations so that they can provide clarity.
Having clarity of rules and regulations of blockchain and cryptocurrency has the impetus to send strong signal to investors of readiness in the new economy. Market capitalisation of cryptocurrencies is between one hundred and twenty billion to one hundred and fifty billion United States dollars (US$120-150bn) and growing. It is serious investment!
I would not be surprised if mostly the capital is attracted to places like Switzerland, France, South Korea, Canada, Japan, Australia, Malta, Bermuda, Slovenia, Greece and some early-adoption states in the USA. These are all destinations that have taken a positive posture toward enacting Regulations for cryptocurrency and blockchain products.
As I have stated already, the state of Ohio now accepts bitcoin for tax purpose. That effectively moves the needle in making bitcoin a legal tender in the state of Ohio. Thus, a clear sign of trying to woo crypto businesses and investment funds to the state. Well over two hundred cryptocurrency exchanges exist; but none of them exist in Africa (South Africa excluded) that I am aware. African countries need to get onboard by adopting Regulations and rules in this early adoption phase of the process. As a matter of fact, I hope the issuance of digital money and smart contracts in one form or another is seriously being considered.
Out of the top fifty (5) smart contracts and protocol standards that have transacted well over thirty million transactions on various Etheruem blockchains as of the year ending 2018, none of them have had their origins from the continent of Africa. Guess where those smart contracts and protocols are evolving from? You got it! Smart contracts are being developed from the same countries that I have mentioned above, in addition to China. These countries are seriously enacting regulations to guide the adoption of digital currencies and blockchain evolution.
Slovenia, with a population of about two million people has more smart contracts on the blockchain than the number of smart contracts in the entire Africa. The IMF estimates
Slovenia’s economy expanded 4.5% in 2018. Not surprisingly, the country has adopted blockchain and the ‘cryptosphere’ as a major national priority for its economic drive and development.
Smart contract refers to logic software programmes that are developed by companies or individuals to control financial decisions on the blockchain. These contracts control the programmable nature of digital money; they execute all kinds of financial transactions and decisions on the blockchain. It is safe to say these smart contracts are increasingly creating the future financial companies and institutions that will control the global financial
industry. Directly or indirectly, the owners of the self-executing smart contracts are sowing seeds to germinate the future of financial power-players in the world.
I am going to conclude this article by quoting Andreas M. Antonopolous, one of the leading figures in blockchain technology. This resonates very well with my own sentiments about the chemistry of this new money, specifically about bitcoin and blockchain. He said: “This is one of the aspects of bitcoin that makes it so exciting and so interesting. It’s one that most of us don’t even notice until we study bitcoin for a year or two. Bitcoin is a bit like an onion. You have to unwrap it. As you unwrap, you find one more layer. I started five years ago and I am still unwrapping. I am finding more and more things that surprise me every day about bitcoin”.
As an African, and an early enthusiast of the blockchain with deep local knowledge, there are so many areas in the African ecosystem that I think blockchain innovation of digital currencies technologies may impact. These tools may be used for building infrastructure where they are non-existent. The areas that could be improved, but not limited to these, may include:
- Digital Currency
- Logistics and Management
- Capital Formation and Financial Products
- Education, Capacity and Employment
And many more.
Put this all together and one cannot divorce early adoption and genuine success from the introduction of Timely, Progressive REGULATION.
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