Along with “blockchain”, there is also a tendency for people to hear the terms “bitcoin” and “nonfungible tokens (NFTs)” and to associate these with online scammers or someone who became wealthy overnight. Worldwide, blockchain is not limited to creating bitcoin millionaires but is being used to unlock the future digital economy, decentralised financial services, smart contracts, bottlenecks in service delivery and much more.
In South Africa, there is a nascent tech ecosystem that comprises a blockchain community exploring and promoting the prospects of the technology far beyond its use in the unregulated cryptocurrency market.
Is it possible that this community has the vision and foresight for implementing and developing a future economy where inclusion, privacy, security and cost-effectiveness are possible? We think so.
“We believe that the economy works best when it works for everyone, and this new platform is an engine for inclusion,” says blockchain expert, consultant and author Don Tapscott.
Cybersecurity expert Dr. Mashael Al-Sabah writes in the MIT Technology Review that, “Technologies like blockchain don’t ensure anonymity, but with the proper understanding, they can provide privacy, security, and even freedom.”
Web 3.0 refers to the third generation of the internet, a decentralised online ecosystem based on the blockchain. The term was first used in 2014 by computer scientist Gavin Wood, the co-founder of Ethereum, the decentralised blockchain platform behind the cryptocurrency ether (ETH).
Web 3.0 is a new iteration of the World Wide Web that incorporates decentralisation, blockchain technologies, and token-based economics.
Blockchain is a digital ledger recording information not easily erased. Every change or adjustment to the ledger forms a new block in the chain, creating an immutable public record. Data stored on a blockchain is decentralised, not stored on a single computer or server but dispersed.
While blockchain may be generally associated with bitcoin and cryptocurrency, it has other permanent, decentralised database applications used to improve service delivery. With blockchain technology, governments can safely store the vast amounts of data they have access to – like births and deaths, marriages and divorces, numerous licences, and medical records. Imagine the red tape, corruption and administrative hurdles blockchain could rule out.
In their book, The Blockchain Revolution, Alex and Don Tapscott write about the benefits of using blockchain technology to underpin transactions. Blockchain technology can transform our world financially by improving how we store our money and do business to make it more fair, transparent, and free from corruption.
The Tapscotts’ book highlights the following benefits of blockchain:
- It’s nearly impossible to tamper.
- Blockchain makes everything about finances quicker, cheaper, and more equal than current banking systems.
- Blockchain has many uses, including privacy and transparency.
- Blockchain can improve service delivery tangibly by bolstering transparency and ensuring decentralisation.
Governments are changing their views on the uses of blockchain
Until recently, central banks have generally prohibited financial institutions from providing banking services to cryptocurrency businesses. But things are changing.
According to the World Bank’s Victoria Lemieux and Cem Dener, “Over the past few years, governments in several countries have been experimenting with the application of this novel technology to a wide variety of functions and services, including land registration, educational credentialing, health care, procurement, food supply chains and identity management.”
South African banks have previously said they prohibit crypto exchanges. However, South African Reserve Bank (SARB) Prudential Authority recently announced that South African banks will now be able to work with crypto exchanges in South Africa.
Business Day reported in July that the SARB plans to put its rule for crypto assets in effect within the next 18-24 months, joining other central banks worldwide and mulling the sector’s regulation.
According to SARB deputy governor Kuben Naidoo, the crypto hype bore all the hallmarks of a Ponzi or pyramid scheme. However, there is a genuine consideration for the technology and its potential for the payments space.
The South African Reserve Bank has set out its intention to regulate cryptocurrencies in South Africa, namely:
- Declare crypto assets as a financial product (thereby listing it under the Financial Intelligence Centre).
- Develop a regulatory framework for the exchangers, for the platforms, have a basic KYC [Know Your Customer], and compliance with exchange control laws, tax laws, and other laws.
- Ensure the provision of a ‘health warning’ telling consumers that buying crypto assets could cause them to lose money and that it’s not the equivalent of a bank deposit.
Growing acceptance and increasing demand for crypto skills
According to Hannes Wessels, Head of Binance SA, the most significant impact of cryptocurrency in future is likely to come from the steadily increasing acceptance of its function as a decentralised finance solution.
In Africa, cryptocurrency gets used to make and receive daily payments for goods and services. A June policy brief by the UN Conference on Trade & Development showed that 7%-9% of people in South Africa, Kenya and Nigeria regularly use digital currencies to pay for goods and services.
While Wall Street giants have mostly avoided the spot market for cryptocurrencies due to regulatory uncertainty and “know your customer” rules, they’re now exploring broader ways for the blockchain in areas such as payments and supply chains.
Bloomberg reports that Citigroup, Goldman Sachs and JPMorgan Chase seek staff with blockchain experience as the technology that underpins crypto markets continues to grab the attention of banking clients and regulators.
For blockchain to achieve its enormous promise and potential, developers must build trust in the technology and its applications, but this is likely to happen with the increasing regulatory frameworks implemented by governments and regulators. Either way, it will be a foundation for the free market, democratic and prosperous economies of the future.