Sunday, 30 June 2019

Debunking the Bitcoin terrorism funding myth

Terence Zimwara

Terrorism is a word that sends shivers to many whenever it is mentioned in any conversation. Terrorists have been responsible for the most heinous and despicable acts of violence of our time. From the September 11th destruction of the New York Twin Towers to the London underground train bombings, the world has constantly faced this threat since then.

In response, governments around the world have united efforts in combating this scourge by enacting laws that pre-empt future terrorist acts. Many such laws include the Anti Money Laundering (AML) as well as Combating the Financing of Terrorism (CFT) provisions.

By identifying and stopping the transfer of money to religious fanatics, authorities have been able to prevent terrorism events. Nevertheless, the problem remains just as much as that of money laundering or tax evasions.

Criminals and terrorists are always trying to find ways to circumvent these regulations and crypto-currencies are identified as one of the many ways. So while Satoshi Nakamoto had pure intentions when he released the whitepaper for Bitcoin in 2009, somehow the narrative was changed.

Those engaged in the fight against terrorism argue that Bitcoin and other crypto-currencies have opened a new funding channel that made their task harder.

Crypto-currencies like Bitcoin are impossible to trace, they offer complete privacy to holders. It is this feature that has created problems for Bitcoin adoption efforts. Most governments and regulatory authorities have refused to give recognition to this privately issued digital currency, in part because it denies them the ability to determine the identity of those using the currency.

Without knowing the identity of those behind the transactions, many have been quick to conclude that terrorists and criminals behind most Bitcoin transactions.

This is how they justify their fight against or opposition to crypto-currencies, a stance supported by the gullible. But just how accurate is this assertion that terrorists are now heavily relying on crypto-currencies to finance their operations?

Well, no one is really in a position to tell that because crypto transactions are private, third parties cannot really tell who is sending or receiving funds. So opposition to Bitcoin is largely based on the assumption that terrorists and money launders favour this currency than actual evidence.

To illustrate, in Europe, a BBC report states that, “Europol estimates that £3-4 billion is laundered using cryptoassets each year in Europe. This remains a relatively small proportion of total funds estimated to be laundered in Europe, however, which stands at £100 billion.”

So even by Europol’s own admission, only a small fraction of funds is believed or assumed to be laundered via crypto-currencies. Apparently money launderers still prefer the traditional channels, fiat money and the conventional financial system. It is a mystery then how opponents of Bitcoin are so adamant that the crypto has become the terrorist’s currency of choice hence it has to be curtailed. 

Central banks around the world have issued advisories against use or holding crypto-currencies partly because it is used to finance illicit transactions. Regular financial institutions are forbidden from integrating their systems with crypto exchanges.

Associating of crypto-currencies with terrorism financing somehow blurs on-going efforts explain the actual benefits of using such a medium of exchange. Crypto-currencies can potentially solve problems that have existed for decades.

Take the plight of undocumented immigrants for instance. Every year, millions of people take on the risky adventure of migrating to foreign lands in search of better life.

Those managing to make it often lack identification documents that are recognized by their host countries. This forces them to accept menial jobs that pay the least. As if that is not enough, these migrants will face problems each time they try to send money to families back home.

To use registered or formal money transfer agencies, one has to have government issued identification documents, which is not an option for illegal immigrants. Faced with this situation, undocumented migrants are forced to resort to informal channels, which can be anything from unregistered couriers to friends and family members.

These channels are not only expensive but risky as well; the funds might not reach the intended beneficiary. Therefore the coming onboard of crypto-currencies has been a welcome relief as this gives senders an efficient and more secure option.

Additionally, crypto-currencies like Bitcoin prioritize privacy, there are no cumbersome Know Your Customer (KYC) processes involved. KYC processes are known to be the reason why many remain unbanked or choose to use informal channels.

Clearly, it these attributes that are forcing this economic group to use crypto-currencies when remitting funds. This might explain why the numbers of those using crypto-currencies is increasing but how then this is seen as terrorism financing is quite baffling.

To illustrate, in 2015 millions of migrants from North Africa, the Middle East and Asia reached Europe in search of better economic fortunes. Germany had the highest numbers by far. So when a bigger number of these migrants begin sending money to their respective home countries like Afghanistan, Syria, Mali, Somalia etc, there should be no alarm.

Things will only get murky when a Financial Action Task Force (FATF) report to the G20 notes that suspicious transaction reporting linked to crypto-currencies is rising globally! Such transacting might be seen as suspicious because the receiving countries are blacklisted as terrorist hotbeds.

A spike in crypto remittances from Germany to Syria might be construed as growth in funding of terrorist groups when in fact it is money sent to support those that stayed behind.

Important innovations should not be curtailed simply because terrorists or criminals are using the same. It is imperative to remember that terrorists or criminal gangs will always be there and they will still use the social media that we love so much, the latest IPhone or traditional financial systems.

It is the job of those tasked with fighting such vices to find ways of achieving this (combating terrorism and money laundering) without inconveniencing those who want peace and are law abiding. Also we need to assure entrepreneurs that their efforts will be rewarded instead of being punished. That way we will continue to enjoy new ground breaking innovations.

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Saturday, 29 June 2019

Africa cryptos; Bias towards home grown solutions

Terence Zimwara

It may seem far-fetched but the use of indigenous names or phrases helps in getting the attention of potential crypto users and nowhere is this more profound than on the African continent.

An innovation will gain quick approval if it is seen to be associated with the local entrepreneurs or the local environment. In Africa there is a general tendency of bias towards what is seen as home grown rather than something completely of foreign origin.

Part of the reason could be Africa’s history of colonialism and how that shapes the perception or attitudes towards ‘foreign made’ products.  

Indeed the language used may have a bearing on the chances of success of a crypto solution. Take South Africa for example, many Zulu and Xhosa people see the Afrikaans language as a reminder of the country’s brutal past. Afrikaans is the language of the country’s white minority.

For Zulus and Xhosa people, the Afrikaans language as an unwelcome Apartheid relic.  Therefore if you are going to target this particular group with any product, it is imperative to use their respective languages. When an innovation or a new product is given an indigenous name, the chances of its success are enhanced.

In other words, African communities will follow or choose what they see as locally created technologies over foreign ones. Of course, such prejudice ignores fundamental factors like the technical capacity of developers in emerging markets when compared with those in crypto leading countries. More importantly, funding can only be raised in the usual places like the UK, US or Japan and not on the African continent. The best way to get around this would be to have the best of both worlds.

For instance, a UK registered start-up which is aptly named KuvaCash, is on course to launch its own crypto wallet and token. The start up’s name which literally means having cash, in the Shona language of Zimbabwe. That name is enough to make ordinary Zimbabweans curious about this crypto wallet.

In addition to the name, KuvaCash’s CEO, James Saruchera, is a Zimbabwean who says he experienced the country’s record hyper inflation first hand. Seeing the pension of his grandparents getting decimated motivated him into creating a solution for his countrymen.

Such an appealing profile enhances the chances of success of this crypto because Zimbabweans/Africans feel that Saruchera is one of them, therefore what he is proposing will help them since he ‘understands’ their problems.

Also following a similar approach is another start-up, Zimbocash which is preparing to launch a token specifically targeting the Zimbabwean market.  Zimbocash’s whitepaper encapsulates the country’s regular fiat currency troubles and how these can potentially be solved by crypto-currency—the Zimbocash crypto in particular.

The start-up has native Zimbabweans as ambassadors on the ground working to create an interest in the crypto. When combined with other factors, such an approach greatly enhances the chances of success of this token.

In Kenya, Bitpesa is a Nairobi based a crypto payments and remittance firm, which is now expanding operations to other countries on the continent as more people embrace the technology. This outfit has enjoyed success because partly it uses a name that resonates with users. The name Bitpesa, is a combination of English and Swahili—the local Kenyan language. Pesa is the Swahili equivalent for money or cash. Bitpesa may have a learnt a thing or two from the wildly popular Mpesa, Kenya’s famous mobile money platform.

Kenyans are proud of their language and that is what may have inspired SafariCom to give its mobile money platform its name.

So start-ups from outside Africa that wish to tap into this market must remember to incorporate local content when designing their innovations. This will enhance the appeal of their solutions.

Problems slowing cryptocurrency adoption in emerging markets

Terence Zimwara

Crypto-currencies are changing the way cross border payments and remittances are being conducted. Crypto-currencies transaction fees are generally cheaper and more convenient when compared with traditional payment platforms.

Just like fiat currency, transactions can be conducted via a mobile phone or desktop computer with the difference being that there is no central point or authority that restrict payments or imposes limits.
 In addition, decentralized Blockchain technologies like that of Bitcoin make it possible for anyone interested to verify all the transactions. As a consequence, crypto-currencies are able to overcome the problem of lack of trust that sometimes bedevils fiat currencies. Often central banks say one thing but go on to do something else.

However, in spite of this, crypto-currencies are still encountering problems gaining traction in emerging markets.  And unless something is done to address this, mass adoption will take much longer to happen, particularly in these vital markets.

There is a general consensus that when enough people are using these fintechs, the transacting costs, which are already low will only come down further. Furthermore, cryptocurrencies or tokens will realize their true potential once enough numbers are using the technology. So what could be hindering this objective?


To begin with, there is not much being done in terms of educating potential users or the general person. It would seem that some of those involved in the crypto business are motivated by the desire to make a big buck than taking on the exercise of informing and making aware. New enthusiasts (to the cryptoworld) are repeatedly informed about the Bitcoin price—which is growing fast—and how even the inexperienced investors are realizing huge gains.

It appears that Bitcoin for instance, is marketed more as a financial or investment asset rather than as a medium of exchange or store of value. Yet it is the latter two aspects of this crypto that can potentially hasten mass adoption (if only someone takes more time in preaching this.)

So after ten years of existence there is just not enough information on what crypto assets can do besides growing in value. For instance, in countries where there are harsh foreign currency regulations, crypto-currencies potentially offer alternatives that allow one to bypass or circumvent such regulations. This is because monetary authorities have no jurisdiction or cannot enforce policies over digital currencies like Bitcoin or XRP.

If this is widely known, more people in countries like Zimbabwe, Venezuela or Iran would be switching to cryptos.

It is the dissemination of such facts that will drive a wider adoption of crypto-currencies even as their numbers grow. According to, there are over 2000 such tokens and we can only expect more to come. There are apparently a disproportionate number of these currencies relative to their time in existence and the number of people using them.

Now many worry that such an avalanche of tokens/coins issued without a proper regulatory structure in place could spell trouble. In some instances this trouble has manifested in the form of collapsed starts-ups.

ICOs and scams

To support this assertion, some point to a noticeable slowdown in ICOs was observed in 2018. According to the UK’s Financial Conduct Authority consultation paper, this can be attributed to ‘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.’

Indeed it is the abuse of the ICO process as well as the packaging of outright scams as cryptos that has invited increased scrutiny by governmental authorities.

OneCoin is one prominent fraudulent scheme, which was disguised as a crypto-currency exchange business that fleeced investors millions of dollars. The media coverage of such failures reinforces the negative stereotypes about all crypto-currencies.

Cryptocurrencies seen as Ponzi schemes

Perhaps the biggest test for cryptos, particularly in Africa, has to be their association with Ponzi or pyramid schemes. Put differently, it is the failure by the more gullible to distinguish fraudulent schemes from legitimate crypto-currency businesses.

Ponzi schemes are elaborate undertakings by fraudsters to steal from unsuspecting people and these are quite prominent in poor countries. By contrast, crypto-currencies like Bitcoin have been proven to satisfy their core objectives like acting as an alternative to fiat currency—that is a store of value or medium of exchange. Bitcoin has been around for 10 years and still going strong, Ponzi schemes on the other hand do not last that long.

It is only when enough people in these poor countries are able to make the distinction will crypto-currencies like Bitcoin overcome this challenge of being associated with Ponzi/Pyramid schemes. But why must this be an issue of concern crypto stakeholders?

Well, a few years ago a Russia based Ponzi scheme, MMM was able to con millions of dollars from a number of people in several African countries. After a while this outfit was busted and the ringleaders were apprehended.

Interestingly however, that the same luring tactics used by this now defunct MMM syndicate are being employed by some crypto start-ups on the continent. This not only raises concerns with members of the public but invites unhelpful government intervention.

In Nigeria, regulators may have taken a hard-line stance against cryptos partly because ignorant lawmakers view crypto-currencies as another repeat of the MMM debacle. For the continent’s central banks, there is no better pretext in their ongoing fight against cryptos than labeling these fintechs as a danger to the public!

In spite of this, there is still a window opportunity to remedy this, the crypto community needs to go back to the basics. More investment needs to be channeled towards the education part of this business. Such an investment benefits all players.

For example, if crypto start-ups in Zimbabwe had invested more towards this effort then foreign currency account holders who are currently scrambling to withdraw from the banking system will realize they have an option to protect their savings. However, because this topic remains on periphery of the country’s national economy debate, many of such account holders will lose out following the recent foreign currency regulations.

Therefore education and awareness remain important if the objective of unlocking the full potential of crypto-currencies is to be realized.

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