Simo Mcunu, the VP of Africa at Cashaa Ltd, is exhausted. “I’ve been working 12 hours a day, seven days a week since our ICO [initial coin offering] went live almost a month ago,” he says. “A lot of people want to take advantage of the sale.”
Cashaa has ambitious goals. Apart from having already sold more than 100 million tokens of its newly released cryptocurrency called the CAS token, the company aims to use blockchain technology to build “the largest payment platform on earth” as a way to provide peer-to-peer and remittance services at the “cheapest possible rates” to “the next billion” – a reference to the current approximately two billion people who are currently unbanked, according to estimates by Global Findex.
“We are basically a decentralised wallet,” says Mcunu. “Traditionally when sending money from overseas to South Africa you would have to wait 72 hours and use three different banks. Now with Cashaa, we are able to do the exact same process but for free and actually instantaneously. It’s just one of a few ways that blockchain is changing the world.”
Mcunu’s flat-out work pace, the “revolutionary” tone of his rhetoric and the hugely ambitious aims of his company capture the zeitgeist of the current cryptocurrency space. Poster child Bitcoin’s meteoric rise gives one a sense of this: in 2009, when Bitcoin pioneered the idea of a ‘virtual’, decentralised currency based on a secure, shared digital ledger which cut out the middle man and allowed for low-risk, irreversible transactions to take place, bitcoins were worth less than one hundredth of a US cent.
By July 2011, a bitcoin cost $31. By December 2013, one bitcoin would have cost you between $600 and $1000, depending on when you bought it. Fast forward four years to May 2017 and you would have spent $2000 on a bitcoin. In November, it breached the $10 000 mark. A single bitcoin is currently worth over $12 000. Although plagued by huge volatilities, its spectacular rise in price and popularity is almost mythical, made only more so by the fact that its inventor, so-called Satoshi Nakamoto’s whereabouts are not known. (According to an October 2017 Time magazine article, he could be worth about $5.8-billion).
A veritable explosion of cryptocurrencies, all leveraging blockchain technology, have sprung up in Bitcoin’s wake. As of the end of November 2017, there were an estimated 1 324 cryptocurrencies (and counting) available on the internet. Payment platforms, wallets, global settlement networks and hundreds of cryptocurrencies abound. With about 47% marketshare, Bitcoin is still by far the biggest cryptocurrency player but it’s being energetically chased by the likes of Ethereum, Litecoin, Ripple and Dash.
What’s all the excitement about?
Bitcoin leverages a technology called blockchain, which is the real crux of the movement. Blockchain is a distributed digital ledger that allows participants to inexpensively and transparently record transactions in a permanent, traceable way.
“One way to think about a blockchain is as a public bulletin board to which anyone can post a transaction record,” explained Nir Kshetri, professor of management at the University of North Carolina. “Those posts have to be digitally signed in a particular way, and once posted, a record can never be changed or deleted. The data are stored on many different computers around the internet, and even around the world.
“Together, these features – openness to writing and inspection, authentication through computerised cryptography and redundant storage – provide a mechanism for secure exchange of funds.”
As blockchain has matured, it’s become apparent that it can be used not only for the exchange of value, but in many other ways as well. Products such as Ethereum have evolved (with about 19% of the total market share, it’s the second biggest player). Ethereum is an open software platform based on blockchain technology that enables developers to build and run a wealth of decentralised applications. Potentially, blockchain can be used anywhere the need to track the ownership of documents, assets, or voting rights might exist.
“It can be used in shipping, healthcare, supply chain management, the food industry,” explained Mcunu. “The blockchain streamlines all the transactions contained in inbound and outbound logistics: all of that info is no longer going to be stored in a silo but integrated, making it faster and cheaper to use and store.”
Solving real problems
Several uses are being adapted specifically to Africa. Firstly, blockchain-enabled remittance services are helping people send money to and from Ghana, Zimbabwe, Uganda, Sierra Leone and Rwanda at a fraction of the current banking rates. Along with its advantages, the use of cryptocurrencies for remittances in Africa also has its potential drawbacks.
Chief of Mission for the International Organisation for Migration in South Africa, Richard Ots, said: “Migrants throughout Africa may feel attracted by virtual currencies as a way to remit their earnings to relatives in their country of origin. The cost of regular channels of sending remittances between many countries continues to remain high, and virtual currencies aim to offer an alternative way to save or transmit migrants’ earnings. However, the fluctuations in the rates could lead to significant and unexpected decreases in the amounts relatives at home end up saving or receiving”.
In Zimbabwe, where assets lost huge amounts of value overnight during the hyperinflation period of 2008, some of its citizens have turned to cryptocurrency as a savings mechanism. According to Verengai Mabika, the founder of BitFinance (now Golix) in Zimbabwe, 37% of Zimababweans use it for this purpose.
When long-time president Robert Mugabe was ousted by the Zimbabwean military in November, Bitcoin saw a surge in price on the Harare exchange. When uncertainty was at its peak, the price for a single bitcoin on the Harare bitcoin exchange was close to double the price on global bitcoin exchanges.
“Interest in bitcoin has peaked as people cannot send money outside or pay for international transactions using formal banks,” Yeukai Kusangaya, a trade coordinator at the Golix bitcoin exchange in Zimbabwe, told Quartz.
“People have had to look for alternatives and bitcoin has been a useful solution which can be used to purchase goods on Amazon or to pay for vehicles from international suppliers and traders”.
Bitcoin has been used to fundraise for projects in Africa since 2013, where a woman in Botswana raised $1 500 for SOS Children’s Villages. It can provide a secure voting platform for countries in which citizens might battle to access voting stations or face intimidation.
Blockchain is responsible for movements such as Usizo, a South Africa-based blockchain platform that allows members of the public help pay electricity bills for community schools. And, in a change that will affect every African country with a seaport, blockchain is doing away with the need for paper documents in the tracking of goods by sea, a difficulty that could previously not be met by electronic bills due to the need for non-forgeability and a central register.
There’s also its potential to alleviate the circumstances of African refugees. In May, the United Nation’s World Food Programme used a blockchain platform to record and authenticate transfers of items such as lentils, pasta and oil for about 10 000 Syrian refugees. The European Union and the United Nations are currently exploring the potential for blockchain to provide legal identification to those who don’t have documents. The potential application for this on the African continent is vast.
“Without email, phones, passports or even birth certificates, a blockchain could be the only way many poor people have to prove who they are,” says Kshetri. “That could really make their lives better and expand their opportunities.”
Adoption in Africa
Thabang Mashiloane, chief executive and co-founder of Chankura Crypto Exchange, a global crypto-currency exchange founded in South Africa and currently headquartered in Silicon Valley, pointed out the rising interest and excitement in certain countries.
“Between August and September 2017, South Africa was the top country in the world to search for the bitcoin term on Google search,” Mashiloane told the Africa Portal. “South Africa and Nigeria have seen significant growth in Bitcoin trading from multiple local exchanges. More than $3.6-million is being traded daily in [these] countries. Other African countries such as Kenya, Ghana, and Morocco also have volumes, but due to lack of bitcoin exchanges the volumes are not easily traced.”
Gareth Grobler, of cryptocurrency platform ICE3X estimates that between 200 000 and 300 000 South Africans are now involved with cryptocurrencies.
Marina Niforos, principal at Logos Global Advisors which compiled a report about blockchain in emerging markets to the World Bank, described the keen interest of the Kenyan market. “Seventy percent of all transactions in Kenya are already digital and over half percent of the country’s adult population holds an M-Pesa digital wallet,” she said in a note.
With the most mature mobile money market in Africa, Kenya is leveraging its existing networks to allow for the transactional use of Bitcoin in the country. This is allowing for an easier exchange between fiat and cryptocurrency.
“The lack of an official or formal bitcoin payment gateway has done little to dampen the adoption rate of cryptocurrencies in Kenya. Quite the opposite in fact,” said Michael Kimani, chairperson of the Blockchain Association of Kenya. “People have adapted to this service gap by forming peer-to-peer networks where anyone can buy or sell cryptocurrency. These informal networks, resemble the airtime currency informal networks of pre-2006, that powered remittance payment networks before M-Pesa became a thing.”
Niforos explained: “With relatively small legacy systems in Africa, the adoption of blockchain becomes easier due to lower transition costs and less cultural resistance. This provides the backdrop for … disruption in the remittances and payments segment.
“Peer-to-peer payments with digital currencies have started to become an alternative to local currencies, with a number of growing blockchain African-run startups, including Kenya’s BitPesa and Bitsoko, Ghana’s bitcoin exchanges BTCGhana, and South Africa’s Luno and Ice3X and GeoPay, BitSure and Chankura. South African mobile money network PayFast recently integrated bitcoin payments options and now provides access for bitcoin payment to 30 000 merchants outlets across the country.”
“A decentralised system like Bitcoin will spur interconnected hubs of prosperity that function beyond national boundaries.”
Where could this all be leading?
The higher risks associated with traditional banking, lower bank penetration, and greater presence of digital financing in most African markets provide fertile ground for a “technological leap forward and a boost to financial inclusion and growth,” said Niforos.
Bashir Aminu, the founder of Cryptogene, a Nigerian-based multi-platform hub for the development of blockchain technology, said that he sees the potential for blockhain “more in Africa than anywhere else.”
“Blockchain technology presents us with an opportunity to solve the problem of financial inclusion, [among] other things,” he told the Africa Portal. “In other parts of the world where they have legacy systems, they don’t need this as much as we do.”
Philip Asare, the chief executive officer of bitcoin exchange BtcGhana, believes that cryptocurrencies can usher in a new era of prosperity to Africa. “Ultimately, blockchain technology will help in bringing wealth to a land plagued by poverty,” he said. “A decentralised system like Bitcoin will spur interconnected hubs of prosperity that function beyond national boundaries.”
What are the challenges?
While these advancements would be welcome in Africa, the implementation of a solution that requires a high level of technological know-how, financial literacy, access to internet and a computer or smartphone has its challenges. The World Bank’s 2014 Global Financial Index found that 66% of Sub-Saharan Africans did not have a bank account, and only 20% of Africans own a smartphone, according to a 2015 report by Pew Research Centre.
In Aminu’s experience with Cryptogene in Nigeria, there’s a huge need for consumer education around the benefits of cryptocurrency and blockchain applications. “Our biggest challenge is getting people to understand the use cases of this technology – that it can actually help them,” said Aminu. For that reason, “education is the first part in our roadmap,” he continued. “People will most likely not adopt what they don’t understand.”
Cryptogene holds regular webinars, lectures and group training sessions for its members. Since its inception about a year ago, the Cryptogene community has grown to about 5000 people from Nigeria and surrounds, ranging from tech experts to people who know very little about cryptocurrencies. To address a generally low level of financial literacy, its founders aim to eventually develop a user-friendly, accessible platform for remittances.
“When you are using it, you don’t need to know that it’s blockchain you are using,” said Aminu. “Of course, behind the scenes is the whole blockchain thing, but we want to make it feel like a traditional system.”
“People will most likely not adopt what they don’t understand.”
Internet access is another prohibitive factor. “The cost of internet connection has improved significantly over the past couple of years, but it’s still not accessible to the vast majority of the population,” said Aminu, with the experience of Africa’s largest economy being reflective of most others.
Thomas Rehermann, an economist for the International Finance Corporation who specialises in the cryptocurrency space, points out the added concern of electricity costs. “One of the biggest challenges is the lack of access to cheap electricity,” he told the Africa Portal. “Electricity in most African countries is much more expensive than in countries with similar or somewhat higher income. Therefore, the triangle of banks / nonbank fintechs, telecommunication companies and energy / electricity providers must be integrated much better in yet-to-be-accessed places.”
And, in order to use cryptocurrencies, Africans need to be able to exchange their fiat currency into the desired crypto. This requires an exchange or wallet, and there’s a dearth of these in many countries around the continent. “The challenge in majority of the African countries has been the lack of bitcoin infrastructure companies like exchanges that allow users to exchange between fiat and bitcoin,” said Mashiloane. “There’s only a few African countries with fiat to cryptocurrency exchanges.”
Langelihle Mnyandu, an associate in the Banking and Finance department at Bowmans Law Firm, pointed out that money in Africa is still very much paper-based. “One misconception about money in Africa is that it is digital. It’s not. It’s still in hard paper,” he said in an interview with Africa Portal.
“If you have a funder in the US looking to sponsor a project involving rural people in Africa who have little access to technology, how do you get those funds to them using blockchain?” he said. “At the end of the day, you’re going to have to convert that cash to a fiat currency, which is cash that the people can use.” In Mnyandu’s opinion, it will “be very difficult to totally remove banks, because they are still a big part of this ecosystem”.
Regulation
And speaking of banks, cryptocurrencies’ traditional financial counterparts conform to endless standards and regulation. How is Africa regulating this new type of transaction, which by nature is decentralised and can be conducted anonymously?
A “standout challenge” in this regard “is the matter of jurisdiction,” said Mnyandu. “Blockchain and cryptocurrencies are cloud-based products and services, so now the biggest issues facing regulators is whether they have the appropriate jurisdiction to pass laws and regulate,” he said. “At what point do you determine and say this is a ‘South African’ blockchain?”
The only way to address this, he said, is by collaboration between governments and sectors. Regulators across Africa need to work together to come up with solutions that transcend borders.
There’s also a need to “regulate efficiently,” said Mnyandu. “This space is forever changing, so before you come out and pass regulations, it’s very important to understand what this revolution is all about and where the trends are going – so that when you pass the regulations you don’t stifle the innovation side of it.”
Bright Tibane, a senior associate in the same department at Bowmans Law Firm, said that one way of doing this was by adopting an approach called sandboxing. This practice creates a regulatory framework that forms the space for innovators to break the rules, and then allows them to demonstrate that breaking the rules has not been detrimental in that particular case.
The United Kingdom and Singapore are following this approach. South African authorities are looking to adopt something similar. “It’s a way of ensuring what’s going on, testing innovations in a safe space, and then that enables you to regulate efficiently,” said Tibane.
In addition to South Africa, Uganda has shown proactivity in its approach to regulation, says Tibane. “These are not things they’re just sitting on – they are actually looking at substantive cases as to how to they can regulate this thing,” said Tibane.
And generally, African regulators have been fairly receptive to cryptocurrencies, they said. “There is no African jurisdiction which has come out to say they don’t like the model or totally prohibit it,” said Tibane.
Could cryptocurrencies really lead to a financial revolution in Africa?
While many blockchain evangelists offer an unreserved yes in answer to this question, others are more tempered in their views.
According to Moashilane, cryptocurrencies will offer revolution in established markets, and a different kind of change in Africa. “I believe cryptocurrencies are going to change the way the world operates from central banking to decentralised blockchain applications that disrupt Silicon Valley and Wall Street,” said Moashilane. But, “in most African countries there hasn’t been major global financial institutions to disrupt, so cryptocurrencies provide another opportunity to skip telephones for mobile phones.”
In Mcunu’s opinion, blockchain will underscore a mighty shift in the way we transact, but he cautions that the hype has created a price bubble around some of the tokens. “Once the bubble is over, we will see the real intrinsic value of the tokens, and those are the ones that actually have utility,” he said.
Rehermann highlights an argument made in the Harvard Business Review that “much of the most imminent benefits from blockchain (and by extension cryptocurrencies) are incremental and rather hidden from customers (for example, internal reconciliation of accounts and settlements)”.
“The truly transformational changes might come rather later in technical terms,” he said. “However, the sheer number of unbanked people in Africa might mean that even incremental, low-key offerings go a long way to simply include populations not yet participating at all in transactions.”
In the meantime, cryptocurrencies and their protagonists continue to think and act big. Once the Cashaa ICO ends in December, “then we are going to start working on our main project,” said Mcunu. “We will launch our multicurrency wallet in India, the UK, Africa, the Philippines and Asia. Eventually, we’ll open a lending unit and an insurance unit. You might think I’m sounding like a salesperson here, but this stuff is really, really good.”
(Illustration: Eva Bee)
The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.
