The Blockchain Revolution

By Anton Baumann and Mark Fitzjohn

When the average Joe hears about blockchain, he’d be forgiven for thinking “crypto,” but there’s a lot more to blockchain technology than the cryptocurrency market.

Along with “blockchain”, people also tend to hear the terms “bitcoin” and “nonfungible tokens (NFTs)” and associate these with online scammers or someone who got rich overnight. Across the world, blockchain is not limited to creating bitcoin millionaires, but is used to unlock the digital economy of the future, decentralized financial services, smart contracts, bottlenecks in service delivery and much more.

In South Africa, there is an emerging technology ecosystem consisting of a blockchain community that explores and promotes the possibilities of the technology far beyond its use in the unregulated cryptocurrency market.

Is it possible that this community has the vision and foresight to implement and develop a future economy where inclusion, privacy, security and cost-effectiveness are possible? We think so.

“We believe the economy works best when it works for everyone, and this new platform is an engine for inclusion,” said blockchain expert, consultant and author Don Tapscott.

Cybersecurity expert Dr. Mashael Al-Sabah writes in MIT Technology Review that “Technologies like blockchain do not ensure anonymity, but with the right understanding they can provide privacy, security and even freedom.”

Why blockchain?

Web 3.0 refers to the third generation of the internet, a decentralized online ecosystem based on the blockchain. The term was first used in 2014 by computer scientist Gavin Wood, the co-founder of Ethereum, the decentralized blockchain platform behind the cryptocurrency ether (ETH).

Web 3.0 is a new iteration of the World Wide Web that includes decentralization, blockchain technologies, and token-based economics.

Blockchain is a digital ledger that records information that cannot be easily erased. Each change or adjustment to the ledger forms a new block in the chain, creating an immutable public record. Data stored on a blockchain is decentralized, not stored on a single computer or server, but spread out.

While blockchain may generally be associated with bitcoin and cryptocurrency, it has other permanent, decentralized database applications that are used to improve service delivery. With blockchain technology, governments can securely store the vast amounts of data they have access to – such as births and deaths, marriages and divorces, a variety of licenses and medical records. Imagine the bureaucracy, corruption and administrative obstacles blockchain can 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 economically by improving how we store our money and do business to make it fairer, more transparent and free from corruption.

Tapscott’s book highlights the following benefits of blockchain:

1. It is almost impossible to tamper with.
2. Blockchain makes everything about finance faster, cheaper and more equal than today’s banking systems.
3. Blockchain has many uses, including privacy and transparency.
4. Blockchain can improve service delivery concretely by strengthening transparency and ensuring decentralization.

Governments are changing their views on the use 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, “In recent years, governments in several countries have experimented with the use of this new technology for a wide range of functions and services, including land registration, educational credentials, healthcare, procurement, food supply chains, and identity management.”

South African banks have previously said they ban crypto exchanges. However, the 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 crypto-assets rule into effect in the next 18-24 months, joining other central banks around the world in reviewing 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 genuine consideration for the technology and its potential for the payments space.

The South African Reserve Bank has stated its intention to regulate cryptocurrencies in South Africa, namely:

• Declare crypto-assets as a financial product (thus 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 that a “health warning” is provided to inform consumers that buying cryptoassets may result in them losing money and that it is not the equivalent of a bank deposit.

Growing acceptance and growing demand for crypto skills

According to Hannes Wessels, head of Binance SA, the most important impact of cryptocurrency in the future is likely to come from the ever-increasing acceptance of its function as a decentralized financial solution.

In Africa, cryptocurrency is becoming used to make and receive daily payments for goods and services. A policy brief from the United Nations Conference on Trade and Development in June showed that 7-9% of the population in South Africa, Kenya and Nigeria regularly use digital currencies to pay for goods and services.

While the Wall Street giants have largely avoided the spot cryptocurrency market due to regulatory uncertainty and “know your customer” rules, they are now exploring broader avenues for blockchain in areas such as payments and supply chains.

Bloomberg reports that Citigroup, Goldman Sachs and JPMorgan Chase are seeking employees with blockchain experience as the technology underpinning crypto markets continues to capture the attention of banking clients and regulators.

For blockchain to achieve its huge promise and potential, developers need to build trust in the technology and its applications, but this is likely to happen with the increasing regulatory frameworks implemented by governments and regulators. In any case, it will be a foundation for the free market, democratic and prosperous economies of the future.