In these days when more and more governments are expanding regulatory control over the trade in cryptographic currencies, the question is what is expected to happen in Africa? How good are the prospects for the success of the Bitcoin and other coins on this continent, and why there is a special interest in blockchain technology in Africa? Can Israel take a lead in this industry, based on its fertile start up ecosystem in High-tech, Fintech, cryptographic technologies an Cyber? How can we connect the innovation to the need?
The number of Bitcoin exchanges is constantly increasing throughout the African continent. The ecosystem expands particularly in South Africa, Nigeria and Kenya. There is already a Blockchain Academy, start-ups, hubs and foundations that deal only in this field. South African drivers can now pay traffic fines in Bitcoin. However, the technology is not yet matured.
There is a built-in struggle between cryptocurrency and traditional financial systems like banks and other powerful financial institutions that fight every means to maintain their control. In Africa, because of the relative weakness of these systems, there is fertile ground for the success of the new currencies. Africa needs an alternative to domestic “Fiat” money, which in many cases is weak and unreliable.
Goldman Sachs has expressed a distinct aversion to the cryptographic currency market in recent years, but now seems to have changed. It seems that the bank believes in the chances of Bitcoin becoming “real money,” especially in less developed countries, for example, in Africa.
“the bank believes cryptocurrencies will make an impact in specific regions. Especially in sub-Saharan Africa, opportunities are plentiful.”
Of four relevant uses of Blockchain, one can learn about the chances of success in Africa:
1) Cryptographic coins for use as money – I have written in the past about the principle of Leapfrogging in Africa. Such technological leapfrogs have already taken place in Africa, with the most dominant being skipping over the wired Internet – directly to the mobile, because of a lack of physical infrastructure. The lack of infrastructure has become an advantage.
In the financial field, the legacy banking infrastructure is loose and therefore Africa is a convenient place to adopt new technologies and methods. 80% of people on the continent are not yet connected to bank accounts. The use of traditional financial systems, including bank accounts, credit cards, etc., is complex and cumbersome in some parts of Africa. The new technology will also be suitable for micro-payments and Africa may be using it as early adopters. The potential to include many new customers in the financial economy is great and the benefits would be immediate.
It is worth looking at M-Pesa – a digital payment system that grew in Kenya about 10 years ago and spread rapidly in East Africa. Today the system is used by about 30 million people in 10 different countries. It is the most advanced mobile payment system in the world.
In Kenya, the use of traditional currency and banknotes has been rare for many years, and this is a direct result of poor investment in the country’s banking system. The Kenyans adopted M-Pesa because traditional banking was irrelevant to them.
M- Pesa today allows not only payments and transfer of funds, but additional financial services such as savings, loans, insurance, and all this outside the banking system. Blockchain may help develop an effective payment network if an open, accessible and safe trading platform develops. A broad population now outside the financial field may join the game.
2) Cryptocurrency as store of value- Just as digital currencies allow for a quantum leap in financial activity in countries suffering from a lack of functioning infrastructure and confidence in financial institutions, the Blockchain is seen as a great hope for change in countries with high levels of corruption and low levels of political and economic trust (such as Zimbabwe, South Sudan and Egypt). Cryptocurrencies are seen as an option for maintaining good value, which is the same everywhere in the world and without exposure to local inflation as a result of conflicts, political instability or economic collapse. It should be noted that in the stock exchange of Zimbabwe, Bitcoin is usually traded at a premium of 30% of the other stock exchanges in the world.
3) Cryptographic currencies for use in trade and cross border transfers and payment – whether by African migrants spread around the world and transferring money back home or through transfers of funds between different countries within the African continent or trading with China. The market of work immigrants is estimated at half a trillion dollars a year, and it appeals both to start-ups and to financial institutions. The commission costs charged by entities such as Western Union could be lowered significantly. BitPesa has already started this direction.
4) Other uses of Blockchain technology and DLT (distributed ledger technology) – the technology is perceived as a possible solution to some of Africa’s economic problems and to fuel growth. Blockchain is not only expressed in the Bitcoin currency, but in many other potential uses such as smart contracts, registration of assets and rights on land without intervention, Drug counterfeiting, trade in surplus energy and cyber solutions. There is an opportunity to mobilize this revolutionary technology for the common good, and Africa is an excellent playground for experimenting with necessary solutions.
Nevertheless, the challenges facing cryptocurrencies are still difficult and complex due to the instability of trade, changing regulation, the need to raise awareness of the advantages and uses, building consumer confidence and building simple, fast, affordable and accessible platforms. There are also fraud risks that need to be addressed as soon as possible by governments to protect the simple citizens who need the solutions that the technology offers.
Next month I will be attending the Blockchain Africa 2018 event in Johannesburg. This is an international conference that has been taking place for the fourth year in a row. I hope to return from there with new insights into the chances that the Blockchain revolution is closer than we expected.
I think the Blockchain or its evolution (the 3 rd generation) is the great opportunity of Africa, in the hope that African entrepreneurs and governments will summon the courage to defend and embrace this technology for the future and development of the continent. This train can no longer be stopped.
And raises the question – what innovative Israeli applications can fit in Africa?
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