by Francis Quartey
Not too long ago, with a lot of youthful exuberance and optimism, in 1997, I believed the internet and data technology revolution that was evolving at the time would be the perfect solution to addressing Africa’s communication woes, and that the emergence of an information revolution had the ability to lift a whole generation of disadvantaged people on the African continent out of poverty. Finally, it seemed, our people would be able to participate in the new evolving economy.
It didn’t turn out that way.
Suffice it to say, regulators, and incumbent national telecommunication companies across the spectrum of the continent could not envision why internet and data mattered in the long term. There was plenty of misinformation, mistrust, and misunderstanding of the potential of the new phenomena.
Fast forward two decades, and most African countries that had been slow to recognize the innovation of internet and data in the early stages, are now relegated to being hyper consumers of that first information age value chain. The economic beneficiaries largely reside outside of Africa.
Except Kenya, no major production of internet-related industry has evolved from the continent. However, Africans are big consumers of external products such as WhatsApp, Facebook, Twitter, and lately, Uber services. Where is the employment benefit to Africans? Where is the upper echelon knowledge-based capacities of the first internet and data revolution for Africans?
The community that pulled away from—and in many cases shunned—the progress of internet revolution is now some of the biggest international consumers with no benefit to our economy. We can’t allow this pattern to happen a second time in a generation.
We are entering an incredibly different era of our time! The “Internet of Money.” The internet 1.0 had to do with democratization of information; it allowed direct exchange of information between parties regardless of their position or status. The new phenomenon, or as I call it “the internet 2.0,” 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 being fundamentally augmented by the invention and innovation of blockchain and cryptocurrency.
This disruption is virtually redefining the very essence of the concept and the future of money.
The world is now in the adoption stage of the blockchain revolution; cryptocurrency, private tokens, digital money, and bitcoin are all applications of the blockchain. They cannot be un-invented! To properly participate in the future of the new financial economy, African countries would need expansion in existing regulations to achieve the purposeful adoption of blockchain.
WHAT IS THE ISSUE?
In many ways, blockchain is a process innovation of the global financial industry—it was inevitable and yet, it is also a product disruption. Understandably, blockchain already has, and will continue to encounter resistance from the financial industry’s incumbent players.
Here is the pain point though: just like many other countries, African states face a dilemma; almost all of the central banks are owned by the government. Responsibility of issuance of fiat¹, and management of monetary policies of each nation rests on the onus of the central banks. The banks also manage public debt and deal with other foreign fiats on behalf of their respective countries. However, blockchain and cryptocurrencies or decentralized digital money is foreign to existing laws and monetary policies. Moreover the security and taxation laws of African states do not adequately address the products of blockchain. It seems most of the African states are taking their leisurely time to deal with blockchain and cryptocurrencies. African central banks are largely unstable as it is. Without early adoption and regulation, blockchain and cryptocurrencies can become grossly mismanaged, and fall out of control of African hands just for the same nations to end up relying on the blockchain network. Striking a balance in establishing proper regulation is what is at stake in the various countries in Africa.
It is time for African central banks to shift their focus from taking the wholesale prescription 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, the head of the International Monetary Fund (IMF), 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 emerging financial technologies and products that are already starting to shake up the financial services. Recently, in April 2019, two years after sounding her first alarm, she said crypto is “shaking the system!”
The question we ought to be asking ourselves is this: how do central banks in Africa, with their capital control policies, develop regulations that could harmonize the new flourishing space among global giants that will inevitably enter the sovereign space of the African countries? What kind of rules and regulations can central banks adopt now to allow a symbiotic, beneficial relationship? Not only does it make sense for central banks to actually take a 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 consult.
Having clarity of rules and regulations of blockchain and cryptocurrency has the impetus to send a strong signal to global investors of readiness in the new economy. Market capitalization of cryptocurrencies is between $120 billion and $150 billion and growing. It is a serious investment! African countries need to get onboard by adopting regulations in this early phase of the process.
According to investinblockchain.com, out of the top 50 smart contracts² and protocol standards out of well over 30 million transactions on various Etheruem blockchains, as of the end of 2018, none of them have had their origins from the continent of Africa. Smart contracts are being developed in Switzerland, France, South Korea, Canada, Japan, Australia, Malta, Bermuda, Slovenia, Greece, and China. These countries are seriously enacting regulations to guide adoption of digital currencies, and blockchain evolution.
The IMF estimates Slovenia’s economy expanded 4.5% in 2018, unusually high for a nation so small. Not surprisingly, the country has adopted blockchain and “cryptosphere” as a major national priority for economic drive and development.
WHAT NEXT?
I am going to conclude this blog by quoting Andreas M. Antonopolous, one of the leading figures in blockchain technology. 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. I am still unwrapping. I am finding more and more things that surprise me every day about bitcoin.” This resonates with my own sentiments about the chemistry of this new money, specifically about bitcoin and blockchain.
As an African, and an early enthusiast of blockchain, with a deep knowledge of African culture, and economic structures, there are so many areas in the African ecosystem where I believe blockchain innovation of digital currency technologies may have significant, economy-transforming impact. These tools may be used for building infrastructure where presently non-existent. The areas that could be improved include, but are not limited to:
- Corruption
- Attestation
- Provenance
- 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.
FIAT the mandatory currency or currencies of a state (such as paper money or credit).
SMART CONTRACTS refers to logic software programs 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 would 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.
