Monday, 25 February 2019

Fiat cash and payments losing ground to cryptos

Cash has been and remains a key driver of commerce globally and this happens despite the clear difficulties associated with it such that we’ve become so accustomed and inured to such problems.  

In fact, many cannot even entertain the idea that there are, and there should be alternatives to money
It is quite obvious by now, that fiat money/currency represents the highest point of money since its beginning. 

Starting with a barter exchange system, money would be represented by metal coins for sometime before monetary authorities settled for a gold standard. Real evolution of money seems to have ended when the gold standard was dropped in favour of fiat cash in 1971.

Of course, the debit and credit cards would later emerge along with payments platforms like PayPal, Visa, MasterCard and of late mobile money to mention just a few. However, all these forms of payment are premised on the central bank fiat currency system, where one authority is legally entrusted with task of issuing currency.

Even the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the renowned global cross border payments facilitation platform is also based on this fiat cash system.

The fact that the world embraces fiat currencies shows that this form of money is not entirely a bad thing, after all, it has proven its utility for almost five decades now.

Main problems of fiat cash

Granted, fiat money has always had its fair share of problems or weaknesses, but the debate about such weaknesses has remained relatively muted, as no viable alternative has existed until recently.

However, events of the last two decades have amplified some of the inherent problems of fiat cash and payment systems. The financial crisis of 2009 brought to the fore such problems culminating in the emergence of alternative forms of currency like Bitcoin initially, and later Ethereum, Dash, XRP among others.

To begin with, fiat cash is susceptible to inflation and depreciation shocks. A host of countries have been forced to rebase or issue new currencies as inflation left previous ones worthless.

Inflation, which is continuous increase in prices of goods and services, erodes value of a currency and ultimately leading to its collapse. Inflation has become such a routine for some countries, as they seem to suffer regular bouts if this phenomenon more than others. Often corruption and mismanagement of state finances are the main triggers of inflation especially in developing economies.

So while individuals and businesses are by and large, subjected to rules and regulations of commerce, something which maintains order in markets, the same cannot be said of government or central bank officials. State or central bank officials are able to destroy savings and value with little or no punishment coming their way.

To illustrate, fiat currency is issued at a central point—the central bank—and everyone else must trust and believe that those assigned this task (currency issuing) will adhere to stipulated guidelines for such.

Sadly, that only happens in an idealistic society, in real life, abuse of this trust is commonplace across many central banks. Political considerations, which are often used to justify the abuses, take precedence over everything else. Time and again this has proven to have serious implications on people’s lives.

How this affects commerce

When a currency loses value as a result of breach of trust at (trusted) institutions like central banks, commerce is heavily affected. Currency depreciation or devaluation usually suggests a corresponding a round of price increases will follow.

However, since abuse of central banks’ currency issuing privilege is riskless undertaking, officials are obliged continue running the printing press—currency printing—to finance runaway government budget deficits or any other unplanned state expenditures.

The resulting flood of money, which does not correspond with the level of aggregate output, naturally leads to pressure on a currency. Subsequently, another round of devaluation or depreciation will occur, triggering a fresh round of price increases. This cycle continues and each time the deprecation or devaluation of currency is more profound than before.

Herein lies the problem, employees or those receiving a fixed income are hit really hard as their earnings lag behind either inflation or the rate of currency depreciation. Such stagnant incomes in turn result in reduced demand for goods and services.

Faced with reduced demand companies will cut jobs, hire less workers or close shop thus compounding the unemployment challenge. Higher unemployment rates lead to toxic civil relations often with deadly results.

A cursory look at countries facing internal strife like Venezuela and Zimbabwe, reveals that it all began with the abuse of national resources including the currency.

Currency instability causes uncertainty in business. What you agree to be paid today, may be substantially lower tomorrow in real terms, therefore abstaining from conducting the transaction in the first place may seem logical. This lack of confidence also lowers an economy’s growth.

Constrained economic growth means governments will be forced to commit significant resources towards welfare programs instead of building infrastructure or supporting small businesses.

Governments will see reduced revenues and taxes in real terms as a consequence of currency depreciation. In nutshell, the actions of the few at central banks will start a chain reaction that will hurt everyone. This sad state of affairs naturally motivates enterprising individuals to proffer solutions.

First alternative to money

Consequently, the shadowy Satoshi Nakamoto, proposed an alternative currency, the Bitcoin, whose core selling point is pre-emption of individuals, whether government bureaucrats or private players, from over-issuing currencies, something now well known to destroy livelihoods.

This digital currency has a predetermined number of ‘coins’ that will be created and supported by public ledger, the Blockchain hence it will not be feasible for anyone to issue extra coins.

It has been ten years since the launch of Bitcoin, and this so-called internet of money has made strides in not only offering a resilient alternative to fiat money but in also making apparent the possibilities offered by such a temper proof system.

Since then a number of other privately issued crypto-currencies have emerged to give users an array of currency options.

Traditional banking institutions, which have hitherto attempted to stifle growth of this currency, are now joining the club, having seen some of the advantages of decentralized currencies.

JP Morgan’s announcement that it will launch its own privately issued currency is the latest testament to Bitcoin’s enduring success. Indeed, stablecoins like JPM Coin are being touted as the next big thing in payments because they satisfy the competing interests of regulators and private currency issuers.

This growing range of crypto options makes it possible for ordinary people to insulate themselves from the ravages of inflation and economic mismanagement. However, all cryptos still have a formidable opponent in the form of central banks. Central banks have pretty much littered cryptos’ path with obstacles, some legal and others not so legal.

In addition, mass adoptions of cryptos remain relatively slow, in spite of the promise of Bitcoin, Ethereum, Dash etc. Apparently, there are only a few merchants accepting payments in the form of cryptos, therefore a potential client, who is also a holder of cryptos, must content with an intermediary in the form of an exchange, before dealing with the merchant.

In the interim, this makes cryptos a less appealing option when compared with fiat cash. When there are a few places that accept your currency, it is only logical to dumb it in favour of one that is widely accepted.  

Central banks and regulators are all too aware of this and have been adept in exploiting this challenge. Central banks and regulators have repeatedly issued warnings and outright bans on any form integration of fiat currencies with cryptos. Of course not everyone is taking heed but the warnings are having the desired effect, mass adoption remains slow.

Call to action

Nominally this means cryptos holders are trapped with the currency since it has not utility outside the small crypto community.

This situation demands a solution that at least satisfies crypto holders’ concerns while not deviating from the founding principles of crypto-currency—decentralization and transparency. 

At the same time, merchants ordinarily like to remain compliant with tax and national laws, so they too want to be able to transact in any currency as long as they are able to switch to legal tender without hassles.

So the challenge is on for crypto entrepreneurs to come up with solutions that meet these conditions. Already a number of start-ups have sprung up, and they are presenting different kinds of platforms or wallets that seek to address these longstanding concerns.

There is no doubt if any one such platform truly resolves these lingering challenges, such a platform will be widely embraced. Furthermore such intermediaries will hasten mass adoption of cryptos , a key challenge for the community.

Thursday, 21 February 2019

J P Morgan’s crypto-currency a game changer

Three years ago, Jamie Dimon, chief of J P Morgan one of the world’s largest financial institution, attacked Bitcoin and crypto-currencies declaring they will never replace fiat currency.

Dimon took the initiative after Bitcoin’s price ballooned as punters lined up to acquire this new form investment. Taking a cue from central banks, Dimon applauded the Blockchain technology, an essential part of the crypto-currency but demonized the cryptos.

It is still bewildering that opponents still want to play that card despite the fact that Bitcoin cannot be separated from the Blockchain. The creators of the crypto came up with a total package that addressed all possible challenges/problems likely to be encountered when using it and Blockchain is an indispensable part of that.

Nevertheless, Mr Dimon has tried to walk back his earlier comments leaving some to wonder what could have prompted this, although it is likely he was simply trying to buy time.

Fast forward to 2019, J P Morgan announces it is finally joining the currency issuing club. It does not matter how the institution tries to spin this, what is very apparent now is the fact even conventional financial players are keen to break the central bank currency issuing monopoly.

Bitcoin started this movement which continues to grow and now, one time opponent has finally summed up the courage by putting on trial a token, which it hopes will address some of the inefficiencies seen in the fiat alternative.

According a report by CNBC, trials are set to start in a few months and a tiny fraction of that will happen over a digital token called the JPM Coin. This institution moves more than $6 trillion around the world every day for corporations in its massive wholesale payments business.

Obviously, the JPM coin has features akin to a stablecoin, which many believe to be less volatile than original crypto-currencies, hence they have a better chance of acting as both medium of exchange and unit of account.

The J P Morgan revelation is a colossal coup for the crypto-currency movement because the giant institution’s move chips away at many a regulators’ assertion that cryptos are not currency. At the very least, the JPM Coin is an endorsement of the decentralization ideals that are espoused by Bitcoin creators.

In the near future, more conventional institutions will follow suit and launch their own coins, and at that point it will be difficult for regulators to carry on the same way without inviting a backlash. 
J P Morgan’s move presents central banks with a particular dilemma.

 The crypto market threshold that would get many regulators worried will easily be surpassed once major banks join this market. To illustrate, some regulatory bodies believe that when market capitalization of cryptos reaches $2 trillion, then more stringent regulations must apply.

There is no doubt that J P Morgan will fight such regulations if this coin proves to be useful. Cryptos look destined to become mainstream despite problems hindering mass adoption.

Saturday, 16 February 2019

Legacy institutions cannot regulate cryptos

The year 2019 appears to be an ominous one for cryptos as institutions charged with regulation of financial and payment systems gear up in their efforts to control the nascent industry.

Already, the Financial Conduct Authority (FCA), a British regulator has taken the initial steps after releasing a consultation paper in January, a step that can only be seen as a prelude for the expected stringent regulation. Similarly, the fragmented regulatory bodies in the United States are also stepping up their own efforts to bring cryptos under their ambits.

There is no doubt, other regulating bodies around the world will follow United States and Britain’s lead by setting tough operating conditions for crypto players. While institutions like the FCA are not directly threatened by cryptos, the same cannot be said of central banks, whose time as sole issuers of currency seems to be coming to an end.

Central banks often double as regulators in many jurisdictions, and this gives them such overwhelming influence and power to dictate activities in the financial services industry. Over the years, national laws have been enacted to ensure that central banks enjoy total domination when it comes to issuing currency.

Central banks are virtual monopolies in most countries, only they can issue currency without running the risk of legal troubles or jail time. Only central bank issued currency is recognized as legal tender by governments.

The monopoly question

For decades, this dominant position has been abused and often with governments being complicit. However, consequences of such abuses often manifest in the form of collapsed currencies, hyper-inflation and loss of savings among many other problems. The ordinary folks are hurt the most.

Indeed this monopolistic position has been challenged before with some individuals even approaching courts. The legal precedent in many jurisdictions shows that courts of law are usually disdainful of such powerful entities.

Sadly however, it would appear that when it comes to central bank monopoly, such courts or anti-trust watchdogs often look the other way. Instead of empathizing with the masses, fuzzy reasons are often proffered for justifying the existence of central bank monopoly.

It is the resultant oppression—which has a zero possibility of escape—that encourages the oppressed to devise out of the box solutions.

The nonexistence of a legal recourse that can remedy this longstanding irregularity only serves to encourage innovation. Indeed, some innovative entrepreneurs have created financial technologies that attempt to break the dominance of financial systems by these legacy institutions.

So far, only crypto-currencies have been demonstrated to be the most efficient at this. These currencies are clearly proving to be a viable alternative to fiat currencies issued by central banks despite the history of hostility towards them. The year 2019 marks the tenth anniversary of Bitcoin, the pioneering crypto-currency whose popularity and resilience helped to encourage the creation of many more digital currencies and tokens.

Central banks adamant cryptos not currency

After originally showing nothing but derision towards crypto-currencies a few years ago, central banks and fellow regulators are now pursuing what can only be seen as a coordinated attack against cryptos.

It is a fact that many regulators and central banks dismiss the assertion that crypto-currencies like Bitcoin are a medium of exchange or an equivalent of money. Such an innovation is only currency if issued by a central bank. For instance, South Africa Reserve Bank (SARB), which released its own consultation paper on cryptos at about the same time as FCA released its own, concludes that privately issued crypto-currencies are not a medium of exchange or legal tender.

SARB, seemingly commenting on behalf of its peers said, “central banks, in particular, have been reluctant to refer to the phenomenon (of crypto-currencies) as ‘currencies’ for concern of giving it unwarranted legitimacy as a form of legal tender.”

Apparently giving such legitimacy has the effect of infringing on SARB’s right as the sole producer of South Africa’s Rand currency! There is no economic rationale whatsoever behind the refusal to endorse crypto-currencies as a medium of exchange or legal tender but rather a selfish desire to maintain the status quo.

Amazingly, in the same consultation paper, the SARB does admit that cryptos can function as a medium of exchange, albeit in certain communities. Says the consultation paper;
“Crypto assets have the ability to function as a medium of exchange, and/or unit of account and/or store of value within a community of crypto asset users.”

The SARB just does not want this community to grow it seems.

The unbanked problem

Meanwhile, SARB’s admission that cryptos are actually currency in certain communities, essentially underscores why central banks cannot and should not regulate cryptos. These institutions (deliberately) fail to understand that the growth and popularity of these alternatives points to failures of the global financial system.

As an illustration, the World Bank Group Global Findex Database of 2017,which measured financial inclusion and fintech revolution, revealed that as many as 1.7 billion of the world’s population remains unbanked. So instead of trying to reduce this huge number through provision of low cost financial services, central banks appear more worried about stopping a financial technology that is attempting to do exactly that.

After years of trying but with little headway in solving the unbanked crisis, it tooks efforts by non-financial institutions like mobile phone companies, to reduce the number excluded from the banking system. As a result, the grumblings similar to those we hear today about cryptos were also heard then.
Only this time the ‘outcry’ seems louder and sustained. We see central banks from across the various backgrounds coordinating efforts towards making life difficult for privately issued cryptos.

In spite of this, studies and pilot projects still show that cryptos can potentially bring financial services to the unbanked or those who do not trust or are excluded by the banking system. In other words, cryptos should not be seen as a threat to the present global financial players as many opponents of crypto-currencies like to point out. Cryptos are attacking a space that is often neglected by the conventional financial system.

In fact, crypto-currencies can potentially compliment fiat currency financial systems instead of harming them but this is only possible if regulators adopt a more embracing approach. This is something that is already underway in countries like Japan and Singapore where authorities have taken the unusual approach of embracing cryptos, by designating some as legal tender.  The jury is still out but this approach yet we can be certain these will bring advantages to these pioneering countries over the course of time.

It should be noted that monopolies everywhere are always on the lookout for any emerging competition and accordingly plans or strategies to eliminate such competition/threats are often adopted. What central banks are attempting to do with respect to cryptos fits very well with this pattern, stifle their growth or suffocate them in order to stop further adoption.

Height of hypocrisy

SARB, which is essentially a leader on the African continent, says it will be on the lookout for all indications that show an additional growth in the cryptos market as a signal for tightening the regulatory noose. Therefore, if total market capitalization of cryptos drops, then we can be assured of no additional action by SARB. However, if the opposite happens then more stringent regulation will apply.

The message is clear, this market should not grow beyond its current levels. Such is the hypocrisy and worse, it’s not even disguised. One cannot be a player and a referee at the same time.

Ideally, central banks should only regulate communities or players that use fiat currency and leave those using decentralized crypto-currencies to be regulated by stakeholders in that particular market.
Also, it is now time for governments to dispense with the notion that central banks must be shielded from any competition.  

The fact that some central banks are contemplating issuing their own crypto-currencies is ample proof that competition is indeed a good thing. Without Bitcoin, central banks would never consider changing the way currency is produced or issued.

In addition, cryptos are forcing central banks to seriously consider concerns as espoused by the whitepaper that gave birth to Bitcoin. Doing this is one sure way that central banks can at least retain their share of the market even as the movement towards cryptos continues to grow.

Thursday, 14 February 2019

Blockchain 101: 51% attacks

Decentralized crypto-currencies are created to meet the idealistic rules of their creators, which sets them apart from national fiat currencies.

Whereas fiat currencies are controlled by a group of government approved appointees, decentralized crypto-currencies are governed by a technology, which is almost impossible for one entity to control. Of course, not all cryptos are decentralized as the Bitcoin, therefore for purposes of this article, we focus on Satoshi Nakamoto’s creation.

The Bitcoin is an idealist’s dream come true in many ways and it has survived for ten years open hostility from many quarters, price volatility and seriousness disagreements within its own community. Bitcoin just like other decentralized crypto-currencies owe their popularity to the trust engendered by the technology.

Users have confidence in the technology’s ability to live up to its promise of actual decentralization, privacy and immutability.

However, there is always a chance that some members of the Bitcoin ecosystem might actually violate some of the core tenets of this innovation. Miners or owners of the super computers that perform mathematical puzzles are an integral of Bitcoin and contribute towards the continued success of the currency.

The consolidation of miners into larger mining pools raises the possibility of an eventual centralized system that is if such consolidations surpass certain thresholds.

To illustrate, if one mining pool gains control of more than 50% of the hash power, it can always produce a “longer” chain than all the other miners combined and therefore it can reverse its own past transactions and/or refuse to enter transactions from others. Controlling a majority of the hashing power allows bad actors to potentially rewrite transactions.

So, it is important for the ecosystem of any crypto-currency that honest miners maintain less than 50% of the computational power in the system. In fact ,in the past some mining pools in Bitcoin have gained over 40% of the hashing power in the network, something that has raised concerns.

For example, in mid-2014, mining pool GHash.IO controlled about 50 percent of the total Bitcoin hashrate, making the largest crypto-currency “vulnerable” to a potential 51 percent attack.

These major pool members reportedly backed off from the 50% mark voluntarily, in order to preserve confidence in the system.

A Coindesk report seems to support the assertion that major mining pools backed off leading to more decentralization as the currency’s hashrate has become evenly distributed among the major mining pools. Canadian financial services firm Canaccord Genuity Group was the source of Coindesk’s report.

According to the firm, in 2019, no single mining pool controlled more than 20 percent of Bitcoin’s hashrate, with five mining pools having from 10–20 percent and the remaining groups controlling less than 10 percent of the total hashrate.

A hash rate is the measure of miner's performance. In other words, it is the hash function's output or it is the speed at which a miner solves the Bitcoin code. Hash per second represents SHA-256 algorithms that are used per second, known as hash rate. It is SI derived unit that is symbolized as h/s.

So this means for now, Bitcoin is unlikely to suffer a so called 51% attack as long as players adhere to the founding principles of the crypto-currency.

Cohesion within the Bitcoin community remains key for the currency’s long term prospects. There is no doubt that members of this community will find ways of solving disagreements without resorting to mudslinging or hacking attacks as has been reported in the past.

Failure to do this will allow other crypto-currencies to seize the initiative and takeover Bitcoin’s place as the number digital currency by market capitalization. At the same time, governments which long resisted digital currencies but are now more amenable to Blockchain backed currencies, will also exploit divisions within the Bitcoin community.

Governments will try to reiterate the message that only they are best placed to issue and manage currencies including crypto-currencies. 

Therefore, Bitcoin stakeholders need to understand that the currency is already achieving modest goals like forcing governments to accept that they no longer enjoy total monopoly in issuing currency. The fact that some governments want to issue their own crypto-currencies suggest that the long delayed currency reforms could be underway.

More reforms may be coming if Bitcoin and other crypto-currencies stay to true to the original cause.  

Friday, 8 February 2019

Blockchain 101- The stablecoin option

The crypto market continues with its fast paced growth with stablecoin tokens now seemingly taking centre stage. Driven by the desire to create a solution that will finally fulfill the quest to achieve mass adoption, entrepreneurs are increasingly designing tokens that aim to satisfy this.

Original cryptos like Bitcoin or Ethereum seem to suffer from volatility, which for now make them unsuitable to function as medium of exchange or a store of value. Trade happens smoothly if the medium used is stable but when it fluctuates widely each day some people will reject that medium. Of course there is more to this crypto volatility than what may be known.

In spite of this, crypto-currencies are still appealing because of their centralized nature as well as their immutability—meaning holders can be confident that no one will temper or counterfeit them.

 Face with this conundrum, innovative entrepreneurs are attempting to create hybrids that at least meet the minimum requirements for anything to function as a medium of exchange or store of value on one hand while remaining decentralized on the other. Stablecoins appear poised to be that exact solution.

Solving volatility problem

Stablecoins are tokens designed to minimize the effects of price volatility. To minimize volatility, the value of a stablecoin can be pegged to a currency, or to exchange traded commodities such gold or silver. Stablecoins backed by currencies or commodities directly are said to be centralized, whereas those leveraging other crypto-currencies like Bitcoin are referred to as decentralized.

Nominally, stablecoins appear to be an alluring addition to the cryptos, particularly if backed by a stable currency or metal. Backing a stablecoin with gold means holders will not worried in times of inflation and devaluation of currency.

Argentina, Turkey, Venezuela and Zimbabwe are all facing currency troubles and they are all planning or have already launched new currencies. For these countries, stablecoins appear to be a logical and perhaps less complex option.

Zimbabwe has so far indicated its disdain for crypto-currencies and is promising another fiat currency by the end of the year while Argentina is poised for re-dollarisation. Turkey’s lira suffered heavy knocks during 2018 and it has started the year with the slide showing no signs of a let up. Turkey has so far not announced anything drastic but reports of the government buying Venezuela gold highlights the extra ordinary steps Ankara is taking to shore up its currency.

Weakness of stablecoin

Venezuela, which is facing a far worse currency crisis, took the unusual step of embracing cryptos when it launched its own crypto—the petro. Whether more countries, which face currency troubles, will follow the same route, only time will tell.

Yet, in spite of their allure, stablecoins have problems of their own with many of them failing the decentralization test. Some stable coins are said to be backed by currencies but there is often no way of verifying this as tokens are not underpinned by Blockchain as is the case with crypto-currencies.

Any stablecoin issuer will be tempted to over-issue coins especially if there is an urgent need for the funds. This is a common practice with fiat currencies issued by some central banks and the very reason why crypto-currencies came into existence. To issue a successful stablecoin, the issuer must have an impeccable trust. This standard is only met by quite a few issuers as it currently stands hence it is quite odd that Venezuela government became the first to issue such a token.

Venezuela’s track record means it largely fails satisfy the conditions necessary to issue a stablecoin. Venezuela’s gold-backed stablecoin went into circulation even though it was not clear whether precious metals actually backed the tokens.

To make matters worse, reports of 20 tonnes of the country’s gold being sold to foreigners, not only destroys trust in that particular token, but once again underlines the problem of centralization.
Venezuela’s case might have driven home the point governments are the worse candidates when it comes to issuing successful tokens. This is because situations or emergencies will always exist and will push governments to choose expediency.

Sadly the easiest option destroys value in the end as petro token holders have realized. According to the Venezuelan government, billions were raised when petro tokens were sold for the first time but there is no doubt that reports of gold being shipped out will add pressure on petro tokens.

Perhaps the private sector is better placed to issue these tokens even then challenges remain, the temptation of over issuing is not only confined to government bureaucrats but extends to private players.

Issuers of stablecoins must adequately address this concern among others if more tokens are to be successfully issued.

Sunday, 3 February 2019

Remittances challenges shows why cryptos are the future

World Remit, a globally renowned cross border money transfer agency, recently put out statement touting the strides it has made, which makes remittances much easier and less costly.

While the statement sought to sell the new technology the organization is now using, the story also made apparent the high cost and difficulties of sending money from Western countries to Africa.
Citing its own research, World Remit said Zimbabweans in the Diaspora could be losing up to $9 each time they send money home, particularly towards the festive period due to the ‘high cost of sending money through traditional remittance channels.’

Furthermore, the World Bank says South Africa, home to sizeable Zimbabwean migrants is the most expensive G20 country to send money from. The average cost of sending $200 from South Africa to Zimbabwe is nearly 14%, about double the global average.

World Remit says it now offers a low cost digital channel that allows people to save while also bringing convenience because the whole process can be done using a Smartphone.

Furthermore, a poll by World Remit revealed that over 80% of people have found that switching to digital channels has made money transfer simpler not just for senders, but also for recipients too.
For cryptos enthusiasts, the biggest take away from all this has to be the apparent admission that not everyone is enthused by the latest developments in the remittances industry.

This is because the same World Remit poll concluded that; ‘the majority of global remittances flows are still going through informal channels.’

For example, the Finmark Trust estimates that 68% of remittances from South Africa to Zimbabwe are sent through informal channels such as unregistered courier services (malaicha) and buses crossing the border. 

Most remittances send informally

Of course World Remit did not tell us why that is the case but we can almost guess why. The inconvenience of having to travel to an agent to initiate the process is one big negative and worse, this comes with costs which are hidden.

Diasporas are not keen on making visit to a money transfer agent because many of those, whom we call the Diaspora here, are also known as illegal immigrants in lands where they reside. Illegal immigrants lack documents that allow them to use services of registered organizations like Western Union or World Remit.

In the last few years, Western Europe has seen a surge in the number of immigrants entering the continent illegally. For example, in 2015, Germany witnessed the highest number of recorded arrivals, close to a million people. Other European countries absorbed high numbers as well but a good number is believed to have sneaked in undetected.

If you are in European country, you will still need some form of recognizable government ID to be able to access different services. The same goes for those in the United States, Australia or New Zealand, only immigrants with the right documentation can open bank accounts for instance.
Some in the Diaspora actually avoid getting these documents because of fear of being deported.  

Therefore many will seek employment at places where they get be paid very low wages due to lack of documentation. Still such exploitative wages are just about enough to support and feed families back home. In such circumstances, the remitting of money can only be done via informal channels, which are more expensive but do get the job done.

In a nutshell, this might just explain why a majority of global remittance flows still go through informal channels. There is not much that World Remit or Western Union can do about it. The situation demands a radical approach that addresses the concerns of sending parties and cryptos appear to fit the bill.

Crypto solution

Crypto-currencies are especially ideal for this kind of business, something even acknowledged by those opposed to their rise. One only needs a Smart-phone or laptop plus internet access to be able to acquire, transfer or receive crypto-currencies quickly and cheaply.

The need for this kind of service has existed for years and crypto-currencies are well placed to satisfy this need. Already, a number of crypto start ups that are focused on servicing this need have emerged, and more will come.

One solution offered by Pundi X is particularly unique, it takes integration of cryptos with fiat systems to another level. While cryptos have been around for a decade now, mass adoption continues to be a challenge for a variety of reasons. In general, cryptos continue to face resistance from hostile entities who feel threatened by the fledgling yet resilient technology.

In many lands across Africa, banks have been instructed not integrate their systems with crypto-currencies. This means that even if a person in the Diaspora manages to send money in the form of crypto-currency (which is much cheaper and quicker), the recipient will not able to buy food or pay for school fees using that form of currency.

In a sense, the money will be ‘trapped’ and if there is an emergency, such a remittance will prove futile.

Pundi X’s POS potentially solves this problem as it is programmed to convert fiat currency e.g US dollar into crypto-currency and vice versa. This means for example, a villager somewhere in Kenya will be able convert or transfer remitted crypto-currency into mobile money, which is a widely acceptable form of payment in that country, to pay rent or buy building material.

Pundi X’s solution and other similar innovations might just prove to be the final missing piece that may hasten wider adoption of cryptos on the continent.  Africa’s case really shows why cryptos are the future, not only for remittances but for general transactions.

Therefore more has to been done to help their growth on the continent.

Friday, 1 February 2019

Crypto market players must take lead

Around the world, the so-called regulators are undertaking studies or surveys to help further enlighten their knowledge about cryptos, before they adopt the right regulatory approach and tools. There is an apparent rush to establish bodies to oversee the crypto market even before sufficient numbers have adopted this innovation.

In fact, regulation might seem inevitable for some classes of cryptos, its simply a matter of time. For example, the Initial Coin Offerings (ICO), have attracted mixed reviews ever since start-ups began issuing these tokens. There is a high probability that ICOs process will fall under the purview of hostile regulatory institutions if current efforts anything to go by.

In an ICO, a start up creates a certain amount of a digital token and sells it to the public, usually in exchange for other crypto-currencies such as Bitcoin or ether. Interested members of the public might want to acquire such tokens because they may have an inherent benefit – it grants the holder access to a service, a say in an outcome or a share in the project’s earnings.

It is almost similar to an Initial Public Offering (IPO) by which a company lists on a stock exchange for the first time and offers its stock to the public.

ICOs mixed fortunes

ICOs have enabled a number of start-ups to successfully fund the launch of new and better solutions. However, other ICOs have not been so successful resulting in token holders losing value. This is has helped to feed a very negative narrative of not only ICOs, but cryptos in general. There is no doubt that such a narrative has given fodder to opponents cryptos.

It makes a lot of sense for those driving specific cryptos, which are the subject of proposed regulations, to take the leading role in the crafting of any such regulation. That way, the crypto stakeholders will have a greater input in the process than those less knowledgeable about cryptos. At the moment, it appears institutions that are ‘concerned’ about the negative potential of cryptos have seized the initiative and have even set deadlines by which process of crafting regulation must be completed.

For instance, FCA has already offered views it gathered on ICOs in a just released consultation paper. In it, the FCA says it observed that in 2018, there was a significant reduction in capital raised in ICOs compared to the 2017 amount and global ICO funding was $65m in November 2018, compared to over $823m in November 2017.

“There are a number of reasons for this fall, with commentators identifying investor caution as a response to the large amount of fraudulent ICOs as well as a high failure rate of new enterprises that use the ICO process. This can also lead to ICOs missing their target collections. The underlying volatility of cryptoassets used may also be an issue as they are used, in many cases, for payments in ICOs,” the FCA concluded.

Naturally such an observation, which ignores the fact that in February 2018 and May 2018 ICOs raised over $2.5 billion and $2 billion respectively, leads to an incorrect perception of ICOs. 


In addition, it betrays the non-bias rhetoric that is often espoused by regulatory institutions when it comes to cryptos.

To illustrate, according to Coindesk, an authoritative source of information about the crypto market, the year 2018 saw a growth in ICOs market, both in value terms and in numbers when compared to 2017.

Coindesk’s data suggest the total of the global ICO size was just under $6 billion in 2017 and in 2018, the market had grown to over $16 billion. So unless if there is something wrong with Coindesk’s data, then it is hard to believe that FCA has the correct figures. FCA relied on Token Data for its figures.

Next the FCA wants to buttress its findings about all classes of cryptos by inviting stakeholders and players to give their thoughts. The initial phase has already been completed and several ‘harms’ were identified while a few advantages of cryptos were also observed.

It is very clear from the foregoing that the odds are tilted heavily against cryptos because the process to draw up laws and regulations was initiated and carried out by outsiders.

Crypto players should set standard

An ideal scenario would have been if players in the crypto market organized themselves, set industry standards and a penal system that promotes discipline and order without violating much of the core principles of decentralized systems.

The success of decentralized systems is underlined by the resilience and growth of the crypto market yet the threat posed by rival markets demands some form of a unified or ‘centralized’ response. At the moment and as one would expect from a fledgling innovation, there is limited coordination when it comes to responding to regulatory threats.

Individuals seem to be operating in silos while others are engaged in feuds that have nothing to do with advancing the cause of cryptos. The market needs to put out a constant reminders about why Blockchain technology was necessary in the first place and that no regulatory body ever sanctioned the design of the first crypto-currency. Similarly, crypto players should not wait for outsiders to prescribe regulation.

Perhaps this regulatory challenge underlines why more efforts should be put in educating and informing new audiences. This is because such efforts will potentially lead to an improvement in the pace of mass adoption.  When cryptos reach that critical mass, then the market will not be easily bullied by rivals as is the case now.