Monday, 29 July 2019

Risks of associating cryptos with Ponzi schemes

Terence Zimwara

Some crypto businesses see no harm in the use of network marketing as a strategy for hastening adoption of the fintech even though the approach is also commonly used by bad actors. Indeed network marketing is a legitimate business practice that has been employed by some businesses for decades.

Ponzi or Pyramid schemes on the other hand, are essentially fraud schemes packaged to appear like a legitimate network marketing business. Even ‘smart’ people will not be able tell the difference between a scam and a legitimate one, the line is very thin. Such fraud schemes are common in poor countries as well as in emerging markets where consumer protection laws are not that robust. Victims are usually lured by the promise of huge earnings in the shortest period possible time or by a passive income that promises a healthy lifestyle.

Usually with such schemes, the emphasis is on getting more members to join than the marketing of the actual product. Apparently the core business is getting new members to join but this is never said upfront. Victims usually realize they have been conned when they have already joined or paid but the schemers are confident that only a few will take action to recover lost funds.

The fraudsters often gamble that the rest of the victims will be in on the con because; firstly they want to recover their own ‘investment’ and secondly they can also profit by luring their own victims. Indeed, those joining such an elaborate scheme much earlier, will realize substantial revenues that are mainly extracted from fees paid by later recruits.

Successful members/investors are then used as testimonies to lend credibility to the grand scheme. This maybe the reason why some defend Ponzi schemes, the earnings are real for the early investors. Indeed, even Bernie Madoff’s multi-billion grand theft might have duped many investors in the end but those who joined early earned handsome rewards.

Regrettably, all Ponzi network marketing schemes often collapse as it will become mathematically impossible to continue getting new investors or referrals as they commonly known. When that point is reached, such a scheme collapses like a deck of cards and the last members to join often lose out. There is neither compensation nor relevant laws that provide cover while consumer watchdogs only react when the schemers are already gone.

For example, controversial organizations like OneCoin, MMM and RRR Link conned unsuspecting people into parting with millions of dollars by employing similar tactics. Arrests have been made but masterminds might not even serve time!

As the old adage goes, once bitten twice shy, some in African countries where Ponzi schemers regularly strike now view with suspicion any organization using any such marketing methods.

Sadly when a legitimate business attempts to employ the same tactics in a market that has seen its fair share of Ponzi schemes, such a business will see their image getting tainted by this association. That also goes for Blockchain or crypto businesses, distrustful potential users will steer clear of crypto-currencies when a suspicious referral system is brought into the picture.

Blockchain is real and its utility has been proven countless time but this association with such unpopular schemes will only slow down the embrace of the innovation. Already some crypto businesses on the continent constantly have to bat away accusations that they are running pyramid schemes. This does not augur well for cryptos in a market that represent the best user case scenario.

One Bitcoin mining company is using such an approach as it attempts to recruit more miners to its pool and its officials believe they are conducting a legitimate and genuine operation.

Potential miners are told of enticing but surreal income projections, which are dependent on the number of successful referrals. After attending one of their regular investor meetings, one gets a feeling that the organization is running a pyramid scheme but using its association with Bitcoin to claim legitimacy. 

For opponents of Bitcoin, this particular case is manna from heaven, they are quick to seize on this by warning the public to avoid this ‘latest’ Ponzi scheme in reference to Bitcoin and not the said organization. Such an attack is at best disingenuous but it sticks if the targeted audience has had previous encounters with actual Ponzi/Pyramid schemes.

MMM was grand scheme that left hundreds of thousands counting losses across the African continent. Crypto opponents on the continent are able to weep up emotions by invoking these memories when they attack crypto-currencies and they may have a ready audience in the form of ignorant government officials. A few years ago, Nigeria and Uganda lawmakers were both reportedly contemplating tougher regulation for cryptos, which authorities are repeatedly linking with the growing problem of Ponzi and Pyramid schemes.

Therefore crypto businesses must avoid falling into this trap by choosing marketing methods that make the task of marketing tokens easy. Perceptions are stronger and difficult to alter though the passage of time will. It does not matter that a crypto company believes that it is running a legitimate operation, what matters are the potential users’ perceptions. If the perceptions about network marketing are currently negative and they cannot be changed immediately, the best course of action would be to avoid relying on this referrals business as strategy of driving up numbers.

It is best to only resort to that method when the air has been cleared that crypto-currencies are not scams but are real solutions to the continent’s problem of inaccessible banking services.

Thursday, 25 July 2019

Intrinsic value—does it matter for Bitcoin

Terence Zimwara

Opponents of pure crypto-currencies including those supporting stablecoins have consistently used the tokens’ perceived lack of intrinsic value as their main line of attack. Stablecoins are backed by ‘stable’ fiat currencies like US dollar and Euro or alternatively with commodities like gold. Fiat currency itself is stable because it has state backing, it’s the legal tender.

Ordinarily this lack of intrinsic value means a pure crypto-currency like Ethereum is not really backed or tied to anything of value. Matters are made worse by the fact that few countries have given recognition to Bitcoin or any of the so called alt-coins.

Without official or legal recognition as well as real assets to back them, growth and acceptance of crypto-currencies will remain stymied we are reminded. But just how far this intrinsic value argument goes is unclear. Most government issued currencies are also not backed by underlying assets, they have no intrinsic value but they remain in play.

Legal tender status

Indeed, prior to 1971, the world was accustomed to a gold standard; the US dollar was redeemable for gold. The world has since moved away from that system to one where value of the currency is determined by the forces of supply and demand. Under such a system, it is the central bank that is entrusted with the task of maintaining or stabilizing the value of a currency by either injecting or limiting the amount of money in circulation.

The abandonment of the gold standard meant a central bank issued currency was now just a token with no real value. Besides the legal tender status that is assigned to it by a government, it has no intrinsic value per se, the currency only functions because it has state backing. Logically people will have confidence in that currency’s ability to act as a medium of exchange or a store of value simply of because it has the legal tender status.

It is this confidence that matters particularly when a currency has nothing backing it. Pure crypto-currencies like Bitcoin are not backed by anything nor do they enjoy the legal tender status but have exhibited signs of a fully functioning medium of exchange. That is only possible because early users have confidence this novel currency.

In 2018, when Bitcoin’s value began heading south, critics began predicting a total crash but that has not happened just yet. After peaking to just under $20 000 in late 2017, Bitcoin value fell to below $4000 by late 2018 but only to stabilize around that price. The so-called analysts pointed to the price of $3600 being the resistance level; Bitcoin could not drop further than that, the only direction was up.

That assessment seems correct for the moment because Bitcoin has since rallied, briefly peaking at $13 000 in July 2019. Some are predicting that it will breach the $20 000 barrier later this year with reports suggest that institutional investors have joined the club.

Why the confidence in Bitcoin

Bitcoin and alt-coins have maintained their values precisely because users have confidence in the mathematics behind the creation of such tokens. The Blockchain— the technology that underpins crypto-currencies—occupies the role usually reserved for a central bank, it ensures the currency in circulation is immutable, it cannot be duplicated and more importantly, it allows users to verify if the founding rules are being adhered to. In other words there is no debasing of currency through over printing or uncontrolled borrowing as is the case with fiat currency because the Blockchain pre-empts this even if that were the only ‘options’ left .

As a growing number begin to understand this about the Blockchain, more people get attracted to Bitcoin even as it has no intrinsic value. As often is the case with currencies, it is confidence that translates to a strong and stable currency. High confidence means a strong currency and vice versa. Backing a currency or even a stablecoin with gold or oil might not be enough to sustain or support a currency when there is no confidence. That is what Venezuela has learnt with its petro crypto token.

Oil not enough

Venezuela is in the midst of a crippling economic crisis; its currency has all but collapsed and generally the country is short of confidence. In response, the government launched its own crypto, which it said is backed by oil or gold. However reports coming from that country indicate this project may have suffered a stillbirth; few people are accepting this as a means of payment. Instead, Venezuelans have placed trust in Bitcoin, a privately issued crypto-currency with no intrinsic value. Reports suggest many are using Bitcoin to settle transactions as well as to hedge against runaway inflation.

This example proves that while precious resources or commodities are important in backing a currency, confidence in the process of issuing that currency remains paramount. Venezuela is a renowned oil producing country and backing the petro token with oil made all the sense, yet for citizens of that country that is simply not enough. Reports of abuse of national resources as well as corrupt practices by government officials are some of the factors that drain confidence in a currency as well as the economy in general, and this may have contributed to the petro failing to take off.

Legal tender not enough

Zimbabwe is another example that has proven that without satisfying certain conditions like confidence, a currency cannot stand even as it enjoys the so-called legal tender status. When the Zimdollar collapsed in 2008, the country adopted the popular and stable US dollar as the new legal tender or as the process is known, Zimbabwe dollarized. It was during this dollarization era when officials repeatedly complained that the US dollar had curtailed the central bank. The central bank could not issue out effective monetary policies without a local currency. 

Things like inflation targeting and foreign exchange controls were not possible without a domestic currency was argument.

Sometimes the arguments had little or no economic rationale. For instance officials averred that a country just had to have its own currency for the sake of it. A local currency was a source of nationalistic pride. Local currency supporters did not want to be reminded why the currency had collapsed in the first place.

Consequently, in late 2016, the government reintroduced the Zimdollar, then initially disguised as the so-called bond notes, which were supposed to be at par with the US dollar. The Zimdollar was brought back to ostensibly enable the central bank to positively tackle monetary issues.

Of course, this is not the only reason. With capacity to mint your own currency comes the ability to print money well beyond a country’s economic means. With printing money comes power, an entire population is at the mercy of a few central bank appointees who are in fact more subservient to their appointers than to the interests of the masses.

In countries with weak governance systems, such an arrangement enables corrupt politicians to finance expensive but ultimately unviable public projects and Zimbabwe is no exception.

In early 2017,Zimbabwe launched Command Agriculture, an ambitious but costly agriculture funding initiative and this expansive exercise gobbled $3 billion between 2017 and 2019. Government had initiated this in order to bolster the country’s agricultural output and food security after years of grain deficits. Two years later, government now says Zimbabwe needs to import at least 800 000 metric tonnes of maize in order to avert a famine following a poor agricultural season! In other words, the giant agriculture project has failed even after the central bank created or printed money to fund this.
Just recently, the country’s auditor general produced a report which exposed the rampant abuses that plagued Command Agriculture leading to its now apparent failure.

It is imperative to note that this kind of unrestrained spending coincided with the return of a local currency. Command Agriculture would not have been possible without the fictitious money coming out of the central bank.

Now ordinary people are paying the price, a legal tender status or state backing will not save a currency from collapsing. The new Zimdollar has depreciated by 900% against the US dollar since its reintroduction in late 2016 and looks destined to fall even further. With official inflation figures now at 175%, ordinary Zimbabweans are dumping the currency in favor of the USD and Bitcoin.

The growing interest in Bitcoin by some Zimbabweans is particularly important as it is happening despite public warnings against the use of crypto-currencies which were issued by the country’s central bank.

Bitcoin’s popularity in Zimbabwe underlines the importance of transparency in managing a currency. This crypto-currency has a known number of coins in circulation as well as the total number that will be issued. There is no possibility of reneging on this because this is already wired in the Blockchain and no one party can alter this. Knowledge of this creates confidence, a key attribute for anything that functions as a medium of exchange.

Intrinsic value matters yes but on its own it cannot sustain a currency. However, with just confidence, a currency will survive as Bitcoin and alt coins have shown us. Bitcoin opponents may have to look for another reason to attack the crypto, the intrinsic value is argument does not stick anymore.

Wednesday, 17 July 2019

Crypto-currency inevitable despite Trump outbursts

Terence Zimwara

United States of America President is not one given to diplomacy, Donald Trump speaks his mind and in many ways that endears him with his supporters. Trashing Washington’s well established etiquette and its venerable poise, this president has taken on powder keg topics or issues with breathtaking unruliness. From the trade spat with China or a brawl with Iran to lashing out at a special counsel investigation into 2016 US elections, Trump’s showmanship looms large.

However, for those searching for clues of the exact happenings inside the Trump White House, the twitter rants are a treasure trove. Journalists now seem to prefer reporting on his twitter feeds to official government announcements. Anything he says grabs headlines around the world.

So many crypto-currency enthusiasts and supporters could not believe their luck when the man teared into Bitcoin and the upcoming Libra recently. Trump attacked Bitcoin and claimed the US dollar was the strongest currency before suggesting (or threatening) that Facebook had to establish its own banking charter if it wanted to launch Libra.

As usual, those looking for clues from the twitter rants found this to be quite bemusing but interesting nonetheless. For crypto-currency discourse had until now remained limited to a motley of crypto supporting websites, some tech magazines and on rare occasions, the mainstream media. The bigger media may have been avoiding this subject, possibly out of ignorance or perhaps due to sinister motives. Whichever the case, the effect has been clear and consistent, it suffocated this debate.

So when an unhinged Trump tears into crypto-currency there has to be something much bigger about the topic than the attention it had been getting. Interestingly, the US Treasury Secretary Steve Mnuchin addressed the same issue but was more measured as did Jerome Powell, the chairman of the US Federal Reserve. The two men may have been trying to walk back some of the president’s unrestrained comments earlier.

Nevertheless, it is Trump’s utterances that matter because they are not laced with the usual diplomatic niceties, when he sees a threat he makes sure everyone knows about it.

So what is the threat here anyway? Apparently the US government establishment believes a crypto-currency like Libra stands a good chance of succeeding and thus possibly ending the US dollar’s global dominance. That is the first clue to be gleaned from Trump’s twitter rants; it is primarily about the impeding loss of power and not the usual money laundering or terrorism funding talk that officials have tried to use to sanitize their alarm.

Bitcoin and Libra are real threats to Washington’s foreign policy and its sanctioning toolbox, the Office of Foreign Asset Control (OFAC). It seems a widely adopted crypto-currency as Libra is promising to be, can potentially nullify the effectiveness of the financial sanctions policy. Facebook and its Libra partners may have taken the unusual step (in the crypto world) of engaging or of trying to submit to authorities first before launching but that is being rebuffed because the issue has more to do with threats to America’s global dominance by crypto-currencies. KYC or AML concerns are just smoking guns!

The second clue comes from the stance taken by congress, a body often at odds with Trump, but seemingly happy to back him on this one. Such unity should be enough to raise stink to any neutral observer. When a polarizing president’s utterances are in sync or are supported by a usually divided congress, it means the threat is real. In fact, a bi-partisan congress has even gone a step further by asking Facebook to halt its march towards Libra launch because lawmakers want to time to study or to have their concerns addressed first. Of course Facebook may not be in a position to adequately address any such concerns. Simply put, congressional leaders do not want Libra to compete with the US dollar period! No amount of glossing over will hide this fact.

Facebook’s blockchain lead David Marcus tried to point out that the US need not be left behind with this technology when appearing before the Senate Banking Committee but lawmakers were unmoved. Their disdain of Facebook and general fear of competition blinds them to a point that any rationale argument in favour of privately issued currency is assailed.

While Facebook is hardly the right candidate to speak on behalf of this industry, Marcus did manage to highlight one important fact, the need to serve those without access to financial services. The world has 1.7 billion people who are unbanked and many more who under-banked and this is has been the case pretty much for years. 

Some lack a bank account not because there are no financial institutions around them but because they do not trust them or lack the necessary documents needed. A World Bank Global Financial Index survey found that close to 20% of unbanked respondents said they do not trust financial institutions as their reason for avoiding the banking system.

Banking fees as well as accessibility are some of the key issues of concern to those without bank accounts and it these areas where crypto-currencies hold an advantage over traditional banks. One only needs internet access to be able to access or use crypto-currencies, which are also better at making cross border payments or remittances.

These are real life use cases and trying to forestall a US company from providing such services will only result in non-US companies or the difficult to regulate cryptos like Bitcoin filling this void. Crypto-currencies are inevitable, whether privately, anonymously or publicly issued, the world actually needs them.

Governments need to come to terms with this reality sooner rather than later and embrace this technology. Moreover, efforts should be undertaken to see how these technologies can be integrated with the conventional financial system.

Attempting to legislate against innovation— as the Capitol Hill rumor mill seems to suggest—will be a signal to rivals that the United States is relinquishing its position as the number one hub for innovators. In any case, any such legislation will be akin to putting cart before the horse, it goes against the conventional way of doing things. A new product or an innovation must given a chance to grow and express itself before one passes judgment. Legislation should only come when there is sufficient information and knowledge about an innovation.

Indeed fear and cynicism might win votes and elections sometimes but that should never be the case when it comes to lawmaking or government policies, which often outlast elected governments. Instead, sobriety must always take precedence.

Monday, 15 July 2019

Stablecoins—the critical final piece

Terence Zimwara

The impasse that has prevailed between crypto entrepreneurs and regulatory authorities meant mass adoption of crypto-currencies was not going to happen unless a breakthrough was found. To potential cryptos users, an endorsement of crypto-currency by authorities is seen as an important step towards instilling more confidence.

 On the other hand, regulators are unwilling to give such an endorsement to any innovation which they see as a threat, and now with US President Donald Trump accentuating these fears, endorsement may not come anytime soon.

Prior to Mr Trump’s outbursts against cryptos, central banks/regulators had for years been adamant that all players in the financial services industry had to comply with KYC and AML processes without exception.

Central banks genuinely believe they should be able to track and trace all financial transactions that fall within their jurisdiction; privacy is not something that overly concerns them. In nutshell, central banks want to maintain total control.

Obviously creators of purely decentralized cryptos will never accept this because their innovations are already popular, in part because they give users complete privacy. Also anyone who wishes to acquire crypto-currencies is free to do so as long as they have the funds to make the purchase. There is no documentation required or the usual KYC procedures, which may be responsible for the exclusion of some 1.7 billion from the banking system. Crypto-currencies like Bitcoin are permissionless!

This unhealthy stalemate has subsisted for a few years now although both parties are in agreement that the Blockchain technology is actually beneficial. Naturally, this situation has been seen as a call to action for entrepreneurs to create a hybrid that satisfies the seemingly mutually exclusive needs/concerns of users and regulators.

For the moment, stablecoins appear to be that important compromise albeit with some limitations. Stablecoins are cryptographic tokens collateralized with a physical asset, most commonly being fiat money such as the USD or commodities such as gold or silver. Tokenization of an asset essentially transfers the ownership and value of an asset to the correlated token. Pure crypto-currencies may have failed to achieve mainstream adoption thus far due to the fact they have no ‘intrinsic value’ hence the price volatility.

This tilt from the extreme end of the spectrum—a decentralized crypto like Bitcoin—to stablecoins indicates an understanding of challenges stifling pure cryptos. Consequently, there has been a deluge of generic forms of crypto-currencies, from USDT, a privately issued stablecoin which is backed by the USD to petro that the Venezuelan government issued coin and now Libra.

Indeed, pure crypto-currencies were initially created to compete or replace fiat currency as a medium of exchange and a unit of account. This has not really happened on a large scale partly due to the aforementioned reasons and not forgetting the instability of most crypto-currency values, if not all of them.

As we have seen in preceding articles, many other factors also contribute to this challenge of slow adoption hence their failure to upstage fiat money thus far. To illustrate, crypto market capitalization as at March 11, 2019 was estimated at about $134 billion. At around the same time, the overall value of banknotes and coins in circulation is over US$7.5 trillion, the global narrow money supply (banknotes and coin, including cheque account deposits) is US$36.8 trillion, while the global broad money supply (banknotes and coin, cheque account deposits as well as money market accounts, savings accounts and time deposits) is more than US$90 trillion, making cryptos still relatively immaterial compared to fiat currencies. (At the time of writing, crypto market capitalization had surged to over $300 billion largely spurred on by Bitcoin, which is set to breach its previous peak.)

As already noted, a number of stablecoins have emerged and more are coming with the most notable being the upcoming Facebook Libra. The Libra story supports the growing realization that stablecoins are the future of cryptos for now and why an alternative system is necessary. Also, the Libra story could amplify the debate about the importance of Blockchain technology in bridging the financial services gap.

However, in spite of all this, stablecoins including Libra are a deviation from the original ethos of digital currencies and thus they cannot pass as decentralized or permissionless currencies. To understand this point, one has to observe the structure of the organization behind the Libra stablecoin for instance. An umbrella body representing the interests of organizations who are party to this project, the Libra Association Members is being set up.

Purportedly this body will not be under the direct control of any of the participating organizations but the fact that it is there underlines the critical difference with Bitcoin which does not have a similar body.

This is one key deviation from the original principles; pure cryptos have no central point of failure, there is no big brother snooping around so to speak. Today politicians and regulators gripe against Bitcoin because they cannot influence or control those using it or where it is used because it is decentralized, there is single point to attack.

To illustrate this last point we take the example of the United States government, which presently relies on the US dollar’s global dominance to project its power around the world. Washington can literally cut off any country from the global financial system if it feels that country threatens its foreign policy objectives for instance. So when the world switches to a currency, which it cannot control like Bitcoin, the US government will resist this because such a currency erodes its power.

The much anticipated Libra may not pass the same decentralization test as Bitcoin because it has a central point of failure, governments can always exert pressure on either Facebook or the organization charged with overseeing the Libra project. This is already happening even before Libra is launched; the US government is essentially asking Facebook to make certain changes or to slowdown the project and the internet giant will oblige or risk punitive action. 

Indeed most stablecoins are designed in a way that allows governments and regulatory bodies to have influence in their issuance or circulation thus setting them apart with pure crypto-currencies.

Stablecoins may be permissionless but there may be exceptions to this as the Libra case once again shows. Facebook is currently engaged with US authorities over concerns that Libra might be used as a conduit for illicit transactions, money laundering and even terrorism funding. The US government wants be to assured that those it flags as possible money launders or terrorists, be precluded from using Libra. Facebook may be in position to give such assurances given its control over the massive user database as well as the network that will be the key in supporting the stablecoin.

It is quite possible that people in OFAC blacklisted countries might not be able transact freely with this stablecoin, that is if the US government has its way. This effectively renders Libra a permissioned stablecoin!

Lastly stablecoins are a deviation from the original principles of cryptos because they rely on or are backed by fiat currencies issued by central banks. Backing a crypto with a fiat currency— not matter how strong—means it will be susceptible to monetary policies and consequences thereof. Such a coin will be affected by inflation or devaluation of the underlying currency leaving holders worse off.

As we have observed here, stablecoins are fraught with these challenges which can potentially render them ineffective. Nevertheless, they are an important step forward in the quest to have crypto-currencies widely accepted.

In any case, this market needs competition and stablecoins could prove to be just that competition. There is no doubt issuers of pure crypto-currencies will be thinking of ways of responding to the upcoming Libra stablecoin. This means existing pure crypto-currencies will see improvements or changes that make them more acceptable to potential users thus making the goal of greater adoption achievable.

Stablecoins are well poised to break the ice and end the impasse between regulators/governments and the Blockchain movement. Most important, stablecoins could be the final piece needed to bring financial services to those who do not have them. The next few years will be important for this small but critical industry.

Sunday, 14 July 2019

Why Taiwan is a promising Blockchain leader

Blockchain technology has been around for quite a while now. It is only now that the technology is starting to take a firm hold. By 2021, the blockchain market will approximately be worth $2.3 trillion. Many governments are now starting to realize the value of the technology and some are adopting the technology for a variety of tasks including health care, voting and land administration services.
A legislator in Taiwan, Jason Hsu intends to find ways to integrate the blockchain technology on a grand scale and steer his country towards the adoption of blockchain for uses other than cryptocurrencies. Hsu has been lauded as the “crypto congressman” by Vitalik Buterin from Ethereum. He is a tech entrepreneur who successfully ran for Congress and now wants to turn Taiwan into a haven for innovators working on different application technologies.

Change of legislation

In September 2017 when China slapped a ban on ICOs, Hsu saw this as an opportunity to propose some changes to legislation that would help Taiwan capitalise on China’s move. His intention was to introduce more friendly laws that would not only nurture the blockchain technology but entice more startups to set up base in the Island nation.
As Hsu reflects the today, a number of technological disruptions are making an impact on how our lives manifest. The country ought to recognize this fact and update its policies to incorporate new ideas into the current system.
Subsequently Jason helped to launch the regulatory sandbox in the finance department to explore future opportunities for financial technology start-ups. The sandbox also helps to ensure that start-ups are able to create workable solutions and technologies that are usable by all and sundry.


Hsu believes that today’s environment is moving very fast and sandboxes in such areas as a medical technology are vital in order to test new devices that can incorporate digital health. In Dec 2017, parliament passed into law Taiwan’s regulatory sandbox, which allowed certain selections of startups to unveil new products or services while enjoying immunity from the existing laws.
The Taiwan Financial Technology Experimentation and Innovation Act (Regulatory Sandbox Bill) is supposed to help bridge the fintech gap in Taiwan. Hsu was a major player in the drafting of the bill as well as the entire legislative process. The sandbox was unveiled to create opportunities for upcoming fintechs on the island and help build innovations that would create solutions globally.
Jason Hsu, the congressman who is turning dreams into reality is also exploring different initiatives along with a few other industry enthusiasts and these include:
        Digital content proof of ownership
        Decentralized internet for every citizen
        prediction platform for  politics, or share markets and many more

Parliamentary support

Taiwan is modeled in such a way that the Executive Yuan can propose their own legislation.  Legislators are also allowed to propose and draft laws and the norm is the different versions can be debated on. The Executive branch is still very conservative, but they do share a common goal with the legislature, it is the pace in which the two are moving at that is different.
Hsu intends to create opportunities for the youth, and he is not worried much about convincing his parliamentary colleagues but makes it a point that start-ups do support his proposals. Support from the startup puts a lot of pressure on officials and congressional representatives to give a response.
The Financial Supervisory Committee and the Ministry of Finance are well on the way towards passing cryptocurrency and blockchain legislation. They have formed a parliamentary level commission for blockchain that is working towards building the necessary framework.

Skepticism over Blockchain

Hsu says that people will always be skeptical about any new innovation. When the internet was new, people said it was a scam but today many acknowledge its utility. As a legislator, Hsu’s intention is to create a fair environment that cultivates innovation while safeguarding consumer rights.

Development and adoption of blockchain

Many countries are still struggling to understand the blockchain technology as well as how to develop and implement it. In Taiwan’s case however, the country has been a computer and electronics integrator since the 1970s and is endowed with a pool of talented and experienced engineers. With this in mind, Hsu has set out to build up Taiwan as a blockchain haven where innovators can pioneer new projects that will churn out applications for blockchain.

Blockchain implementation

Blockchain has been underrated for as long as it has been around. As with any new technology, once a useful application comes up, people start to take notice. Blockchain gave birth to Bitcoin, but now the technology is growing and integrating other applications.
Hsu has plans to ensure the government recognizes and uses blockchain on a larger scale. It has already moved to the Departments of Justice, Education, and Health onto the blockchain. The average person needs to recognize the improvement of life is via blockchain’s efficiency. As part of his many objectives, Hsu has introduced 25 pilot projects in various departments to look into the potential use of Blockchain in areas such as court records, supply chain, and drug tests.

Blockchain’s future

Blockchain is not going anywhere. The world’s governments are slowly accepting the technology and in no time, these hurdles and scaling issues will be a thing of the past. Jason also believes that Cryptocurrencies and fiat currencies can co-exist. Cryptocurrencies are a financial alternative that can create solutions for poor countries like Zimbabwe and Venezuela.
Taiwan is a haven for technological start-ups that focus on blockchain, IoT and AI. An escalation in the creation of major start-ups and incubators are thrusting Taiwan into the blockchain limelight. Taiwan Tech Arena is one such startup incubator that will initiate at least 100 start-ups every year, and accelerate the expansion overseas of 300 more in a span of the next three years.


The only way to grow blockchain technology lies in its demystification. This can only be done by changing blockchain’s narrative from the complex tech talk to a language understandable and that an average person can relate to. This means showing people what the blockchain technology can really do, the real-life problems it can solve as well as laying out its many advantages.
A lot is happening behind the scenes, not just in Taiwan, but globally as the race to integrate blockchain with everyday life gathers momentum. It is only when people realize the real benefits of the technology and how they stand to benefit will a greater adoption of the technology be realized.

Friday, 12 July 2019

Central bank issued cryptos

Terence Zimwara

The crypto-currency race is heating up, giant corporations like J P Morgan, Microsoft, Facebook, Oracle and many others have all signaled their intention to or are in the process of creating their own Blockchain backed currencies.

It seems former skeptics are now taking this financial technology quite seriously; Bitcoin’s resilience has proven that a privately issued currency has its place in a space that has for a long time been closed. So perhaps it comes somewhat as a surprise when central banks also join in the crypto-currencies frenzy.

It is surprising because when Bitcoin was launched, central banks led the charge in vilifying and maiming the currency. Potential users were constantly reminded why this privately issued currency had to be ignored not least because of risks of financial loss. As Bitcoin endured courtesy of the underlying technology, alarmed central banks and their cohorts upped the ante in their opposition.
This currency is being used by criminals or terrorists has been their usual refrain.

Essentially, authorities were alarmed that a privately issued currency was gaining foothold and that this threatened the future of central banks and their monopoly over monetary policy management. Of course, Bitcoin was created specifically to challenge this monopoly and give people a viable alternative to fiat currency.

So it is quite awkward that some 8 years after the start of Bitcoin, the Bank of England signaled its intention to experiment with its own Blockchain backed currency, the so called RSCoin. At the time of the announcement in 2016, the academics working on this project said they hoped this particular Blockchain backed crypto would even upend the US dollar as the world’s reserve currency.

According to media reports at that time, supporters claimed the RSCoin would combine the benefits of distributed ledger technology (DLT) with those of a regular controlled currency. Such are the double standards, apparently crypto-currencies are only beneficial when issued by central banks. The benefits or advantages that are already seen with cryptos like Bitcoin are simply whitewashed.

Indeed many figures in the regulatory world privately acknowledge the utility of the Blockchain technology or DLT and do not want to be left behind. Threats against Bitcoin have not worked, there are now 2000 more crypto-currencies and more will come. The only logical thing is to join the race.
One can only feel sorry for those in the central bank orbit still fighting crypto-currencies; the world has accepted this idea. 

Augustin Carsterns is a General Manager with Bank for International Settlements and a harsh critic of privately issued currency.

Earlier this year he was quoted by the media, railing against crypto-currencies arguing that there are ‘huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system.’ 

According to him, central banks thus do not put brakes on innovations (like crypto-currencies) just for the sake of it.

This is rather a belated but important admission, regulators could have been deliberately stifling growth of crypto-currencies this entire time but now ructions within the ranks of central banks beginning to manifest. Switzerland is one country to have gone a step further in embracing Blockchain technology and will probably issue its own central crypto. 

It is clear that reasons often given for the warnings or advisories against Bitcoin are just a ruse; central banks were not happy with the intrusion, they just wanted this space to remain monopolized.
It may be worthy to note that prior to Bitcoin, there had been several attempts to issue currency privately and each time such efforts were crushed.

Abuse of national currency and unchecked printing are some of the inflation causing reasons that motivate individuals to seek alternatives.

Creators of Bitcoin learnt from the mistakes of early currency dissidents and made this decentralized digital currency that seems to give disillusioned fiat currency users a viable alternative. Unless central banks reform, privately issuing crypto-currencies or alternatives to fiat currency will keep coming. It will not matter that central banks are now joining the crypto movement; people will continue to seek alternatives.

Essentially, it this threat or competition from private currencies, which might force central banks to reform after all. Furthermore, it has never been desirable for any entity to enjoy a monopoly position as history has shown us. Therefore central banks can issue their own cryptos but that should not mean an end to privately issued currencies. The more the merrier!

In any market, the quality of choices is only enhanced when there is healthy competition and that should be the case in the currency markets as well.

Bitcoin’s vexing anonymity and confidence

Terence Zimwara

The world’s first privately issued currency, Bitcoin, can be described as a success given the challenges it has survived. There is no doubt that this success will be bettered as events in the financial services world continue to unravel.

Bitcoin has made its point, even harsh critics like Jamie Dimon, the CEO of JP Morgan has been forced to eat humble pie, after initially attacking the crypto. News that JP Morgan will be launching its own crypto vindicates Bitcoin and those behind it in a big way.

However, in spite of this apparent success and acceptance of the ideals of a private currency, the fact that Bitcoin creators still choose to remain unknown is something that still confuses.

It is customary, perhaps even natural, for individuals who bring life changing innovations to seek or expect recognition for their efforts. After all, the geniuses of this world gained global recognition for their innovations, from Bill Gates with his Microsoft to Mark Zuckerberg and his Facebook, Jack Ma with Alibaba to Ren Zhengfei and his Huawei,. Yet with Bitcoin, you cannot put a face to it, Satoshi Nakamoto remains anonymous!

Unfortunately opponents of Bitcoin are seizing on this as they up the ante against the crypto-currency. For example, South African regulators want all issuers of crypto-currencies to register with them so as to gain ‘permission’ to continue operating in that country.

This may well suggest that South African regulators want to know those behind Bitcoin.  Of course, Bitcoin issuers are not going to comply with this, besides it is not possible for any one regulator to grant permission to Bitcoin or to enforce an order banning this crypto. The Blockchain technology behind Bitcoin makes the innovation permissionless, it continues to grow like this because it was created to survive like this.

South African regulators are well aware of this but they are pressing on as the idea is winning the moral argument against anonymous crypto-currencies. Central banks hope to turn the tables against cryptos like Bitcoin, by tying the anticipated refusal to register down to possible ties to money laundering, illicit transactions and terrorism financing.

Of course this terrorism or money laundering argument has run its course but it may well be one of the major reasons why Bitcoin has not reached its full potential. Such a tag saps confidence in that crypto-currency while giving lagging rivals a window to play catch up rather quickly. It could well be true that Facebook studied the Bitcoin Blockchain well and understood the pioneering crypto’s weak points before announcing its entry.

Facebook’s Libra coin is now being touted as a crypto that may finally achieve the elusive dream of greater adoption even as it slated for launch in 2020. Bitcoin did all the hard work, it fought authorities for years to accept the very idea of a privately issued currency and it is now easy for the likes of Facebook to announce it will launch its own.

Authorities now seem to have come around the idea of privately issued currency that is if the United States Congress demands to Facebook are anything to go by. Apparently American congressional leaders want Facebook to assure them that the Libra coin will not be used for nefarious activities something they cannot do with Bitcoin. Of course, in reality politicians have little leverage over Facebook, the congressional hearings are only a pyrrhic victory, and nothing really changes in the end if past hearings are anything to go by.

Powerful politicians are now negotiating with an entity that has not even launched just because they can put a face to the organization. Ideally these powerful politicians should have been negotiating or pleading with Bitcoin! Bitcoin will thus remain handicapped by this anonymity while lesser rivals gain recognition and adoption by the masses.

So while Bitcoin developers and supporters may argue that Libra does meet the minimum standards for a decentralized currency, there is a good chance that those without banking services will embrace it just because they know Facebook, they know Mark Zuckerberg. The social media company has the numbers and many potential users will simply embrace Libra without asking the hard questions like they are doing with Bitcoin or Ethereum for instance.

Bitcoin creators’ insistence on anonymity opens the doors for opportunists as what happened in 2016 when Craig Wright attempted to present himself as Satoshi Nakamoto. This is made possible by the fact that there is no-one or a public relations person that can forcefully dismiss such opportunists.
In Bitcoin’s defence however, this anonymity has been justified given the environment that the currency has had to operate. 

From its inception, the creators recognized the potential of Bitcoin and what it could possibly turn into, and chose anonymity over recognition. Unusually for them, the incentives for going public were outweighed by the cons; possible legal ramifications, personal harassment, liability etc. Some have even suggested that the actual Satoshi Nakamoto may have passed away so the ‘coming out’ that many expect might never happen.

Sadly the situation has changed quite significantly, there is a good chance Bitcoin might become the next MySpace or Yahoo unless some changes are made and that may include revealing the real identities behind this crypto.

MySpace was one of the pioneering social media organizations; it had tens of millions of users especially in North America and enjoyed a leadership position. However that would change when Facebook and Twitter came along. Facebook came with a strategy that was more appealing to a wider audience and its users grew exponentially and the same goes for Twitter. Before long MySpace had been deposed as the number social networking site and today no one remembers much about them.

Similarly, Yahoo was one of the pioneering and dominant email providers but that would change when Google came along. This new kid on block came with its famed search algorithm, emails, videos plus many other services. The result was a familiar, Google upstaged the likes of Yahoo and Hotmail and today there are over a billion Gmail users! Yahoo is now the forgotten email service provider just because it failed to regenerate itself in time.

The idealism behind Bitcoin is almost perfect but now there is a good chance that a rival with diluted principles will enjoy a larger share of the spoils. Bitcoin developers need to do more in order to maintain the momentum and this could mean increasing the block size for instance or the number of coins in circulation or even revealing the actual team behind this innovation. Indeed the threat coming from Libra means Bitcoin creators need to reevaluate the pros and cons of going public.

Achieving mass adoption should be the greater objective hence making sacrifices will be necessary along the way. Bitcoin’s Blockchain has many potential uses but the scaling and numbers issues continue to make it difficult for such potential to be realized. It is time to regenerate the strategy in order for the king of cryptos to continue holding that position.

The controversy surrounding ICOs and crypto adoption

Terence Zimwara

Initial coin offering (ICO), the buzzword in 2017 and early 2018, is a fundraising initiative similar to an Initial Public Offering (IPO) by a company listing on a stock market for the first time. The hype and success of early cryptos kick-started an unusually high request for funding the creation of more crypto-currencies and tokens.

Cryptos are touted as the next big thing after the internet itself and many do not want to be left behind hence the funding requests. So far such funding requests have manifested in the form of ICOs, which raised billions of dollars attracting the interest of global regulators.

Indeed a good number of ICOs were issued during the period of explosive growth in cryptos values. However, prices have since receded and most tokens now trade at well below ICO issuing prices thus severely impairing the value investment portfolios. In other words, if holders of these investment tokens decided to sell they would incur huge losses.

According to a Financial Conduct Authority (FCA) consultation paper, evidence suggests there are particularly significant risks of fraudulent activity associated with ICOs. The FCA is a UK based regulator and consumer protection body.

FCA’s consultation paper quotes a study which ‘showed’ that approximately 25% of ICOs could be fraudulent, whilst other estimates suggest that 46% of ICOs issued in 2017 have already ‘failed.’
The paper adds, “In many cases, investors do not receive what they were promised and issuers do not deliver the intended product or service. This is in part driven by a conflict of interest for the issuer of the ICO, who may seek to maximise the capital being raised by failing to be transparent, not providing sufficient details of the risks, and misleading consumers. In some cases, large sums of money have been raised for projects without appropriate plans or capability for delivery,” concludes the UK watchdog.

From this perspective, it is easy to understand why some view newly created cryptos with suspicion or just as scams. Nevertheless, it is also fair to say that some ICOs have been successful; the funds raised have helped to create outstanding crypto innovations even though token/coin prices remain well below launch levels.

Unfortunately, the narrative has been focused mainly on the former; the entire market needs to be regulated and fast before more investors lose. Conventional financial regulatory bodies want to take the lead in regulating this market even as they do not fully understand the concept of crypto-currency. The result has been these outlandish proposals which are essentially aimed at constraining the growth of this market. Predictably the response by crypto businesses has been that of defiance.

It is important to remember that regulators lack the technology and the know-how to fully control this nascent industry. They will have to rely on the voluntary cooperation by crypto players. If crypto entrepreneurs are unwilling to subject themselves to regulations, there are a few options on the table which regulators can use and these are not 100% effective.

For example, the Reserve Bank of Zimbabwe (RBZ) banned banks from dealing with crypto exchanges and at the same time it issued advisories warning members of the public against dealing with crypto-currencies. One crypto exchange, Golix was forced to stop operations and even had an automated teller machine seized.

Nevertheless, that has only forced people who have already embraced crypto-currencies to go underground. Bitcoin trading is going strong despite the ban and the country’s dithering economy—something that can be traced back to RBZ actions—is only helping make the case for wider adoption of cryptos. The verdict seems to be that the RBZ is hardly a suitable candidate to call out crypto-currencies as risky financial assets when its own currency is in shambles!

Zimbabweans are and can still participate in ICOs or whatever fund raising initiative without worrying much about the RBZ. That it pretty much the case in many jurisdictions, regulatory authorities do not have absolute control over ICOs and peer to peer trading.

Sadly however, such haggling between over enthusiastic regulators and sometimes recalcitrant crypto businesses plays a part in slowing the adoption momentum. Fence sitters are easily swayed by the media reports of ICO scams and confidence in cryptos is further shattered when governments skirmish with crypto businesses.

When Golix was forced to shut down in Zimbabwe, it approached the courts for relief and indeed a judgment was handed down setting aside RBZ’s decree.In spite of that, banks still refuse to deal with exchanges and reports suggest clients may have lost funds.

At the very least, Zimbabweans will decide to wait until the dust has settled before embracing cryptos. In worst case scenarios, potential adopters will avoid cryptos completely.

Therefore a middle ground has to be found to enhance confidence in cryptos. Regulators have to acknowledge that they cannot always force regulations if crypto players are unwilling to observe such. Equally crypto players need to acknowledge that without the ‘seal of approval’ from regulatory bodies, confidence in cryptos will remain low and adoption will remain static.

That maybe the direction needed at this particular moment. Already Facebook seems to be attempting this in its engagement with US government officials. The social media giant knows it can still go ahead with its Libra project without ‘approval’ but it wants this endorsement as this will help bring confidence to the coin. Similarly, a tech start-up Denk had its ICO approved by the SEC and this endorsement will go a long way in attracting investors who are otherwise wary of unregulated ICOs.

Sunday, 7 July 2019

Ignorance and complex verbiage: another barrier to crypto mass adoption

Terence Zimwara

Bitcoin is an important innovation that has the potential to end years of dominance by central bank issued currencies. However, in spite of this potential, Bitcoin and other crypto currencies remain on the periphery, in part because potential users are struggling to understand how this sophisticated distributed ledger technology supported currency works.

Not only that, the technical language used within crypto world might also be a big turn-off for potential users. Understandably, the terms and phrases used when discussing Bitcoin are necessary to make the right distinction and for clarity.

 So with this in mind, one might be compelled to conclude that the crypto entrepreneurs might not be doing enough to educate or explain to potential users these terms or phrases. That ignorance levels among the targeted audiences remain very high, some 10 years after launch of Bitcoin, is a serious indictment against advocates of the currency.

 While many crypto news sites do carry contributions from the ‘nerds or geeks’, often these highly intelligent individuals assume that their audiences comprehend issues as well and quickly as they do. So these contributions are often laced incredibly difficult lexicon and concepts.

Such assumptions ultimately act as barriers to effective communication with those of lesser intellect who are in fact the majority. Matters are compounded by the fact that important players like mainstream media are also not capacitated to handle crypto issues or information very well. This important bridge between users and developers remains shaky and ineffective.

For example, in the developing world it is plausible for journalists, just like ordinary folks, to view crypto-currencies with suspicion. Far too many complex get-rich-quickly scams have left thousands counting losses and it is easy to see why crypto-currencies could be viewed similarly.

In any case, it is not easy even for the smart non-IT folks to follow the crypto-currency discourse when complex terms like Cryptographic hash, Elliptic Curve Digital Signature Algorithm (ECDSA) or hard-fork chain split are thrown about in a rather a cavalier fashion.  Such heavy phrases sometimes kill the conversation before it is even starts.

As consequence, the crypto narrative or agenda get easily distorted because media practitioners are either ignorant or find the jargon to be unfriendly to their audiences.

More efforts need to be directed towards filtering the technical language to ensure that anyone who is interested in the subject can follow trends or the latest news. There has to be a way ordinary people can discuss these complex parts of crypto-currencies without getting ‘bored’.

Furthermore, it is important to for the crypto world to communicate directly with the masses. A situation sometimes exists where other forces or non-crypto players seem to be controlling the narrative and this poses many risks.

For example, the death of Quadriga CX CEO and the reports of the subsequent loss of millions of dollars worth of cryptos generated a very negative narrative about the entire crypto market.

After the issue was widely reported by some global media outlets— by journalists who are not very knowledgeable about cryptos— the debate that followed only reinforced the stereotype that cryptos are a scam, a very risky investment or are used by criminals etc.

What do you get when you interview a Wall Street banker about the risks of crypto-currencies? Chances are he will likely assail crypto-currencies and point to the Quadriga CX fiasco as ‘evidence’ of crypto businesses being scams. That is exactly what happened! Journalists covering this story relied on regular financial experts who are just as ignorant to unpack the Quadriga saga. The outcome was predictable.

There lessons here, crypto players must seize the initiative from less the knowledgeable or opponents and control direction of the discourse. Ideally, the debate should be about the utility of Blockchain or the proof of work concept with the crypto players taking the lead in driving this narrative home!

Part of this ‘control’ includes simplifying the complex verbiage and terms as well as repeating the message enough times to make the topic stick. The same way ‘mining’ of crypto coins is seen as critical for the survival of Bitcoin, has to be the same way managing the debate about cryptos should be seen.

The creation of crypto focused media outlets has helped in countering negative storyline but it is perhaps time to invest in pages of mainstream media. The quest to achieve mass adoption means reaching out to readers who are non-crypto enthusiasts but open minded and who may not have the time or interest to visit popular crypto websites but enjoy reading well researched articles. Perhaps this group might listen or even start following the crypto discourse, that is if the topic is regularly discussed in their favorite newspaper like the New York Times or the Bild.

Journalists can only write good articles if they are well capacitated or trained. Educating journalists about cryptos helps to make the topic less difficult to understand as well as eradicating biased reporting.

Merchants embrace key in the quest for wider Bitcoin adoption

Terence Zimwara

The number of merchants accepting crypto-currencies like Bitcoin as a means of payments remains very low. Apparently merchants are only willing to accept cryptos as payment when there are sufficient numbers of who wish to pay this way. When that happens, businesses are likely to even display prices in cryptos but it is still a long way before we get to that stage.

Meanwhile many potential clients will use cryptos increasingly as a payment method when there are enough merchants accepting cryptos as means of payment. No one wants to be stuck with a currency that is not widely accepted. In other words, Bitcoin still has to pass the acceptability test even after being around for 10 years.

The question then arises; what must come first; merchant adoption or general public adoption?
Essentially, the idea must be to make crypto trade or the conversion to and from fiat money seamless, with little to no involvement of intermediaries. When that is achieved, merchants will be attracted to cryptos because of the obvious savings they stand to gain.

In the same way a businessman would reject a currency from a country he barely knows that is the same way he will reject crypto-currencies. He does not want to be trapped with something that he believes no one is willing to accept.

An understanding this means crypto-currencies issuers will have to redouble their efforts at finding a solution that allows for this seamless conversion.

The merchant does not even need to know the complex process of Bitcoin mining or to even download the Blockchain software in order to start accepting cryptos. Their only interest is serving their customers—including those buying with cryptos—well and getting rewarded with a successful purchase. The onus is on crypto entrepreneurs to proffer solutions and already there are products on the market that are doing exactly that. Devices like the PundiX Point of Sale machine, which allows the seamless conversion from Bitcoin to USD, is one potential solution merchants are looking for, if only they are aware of this.

PundiX does exactly what they ask for; it allows the switching from Bitcoin to USD locally. There is no need to involve crypto exchanges domiciled in foreign countries; everything is done locally over the counter by simply swiping a debit card.

So going back to our earlier question, yes it is quite possible for merchants to adopt crypto-currencies first without having to worry about not being able to use these. In fact, a merchant need not understand the complexities of Bitcoin, the POS device does that. The merchant only needs to know how to operate the POS device!

Furthermore, the merchant will not be worried about tax evasion concerns because the device can always convert revenues into legal tender when necessary. Apparently this may be another key concern that is slowing crypto adoption by merchants.  Businesses are wary of possible tax avoidance and evasion allegations should they decide to accept Bitcoin, so a solution like the device mentioned above undercuts such concerns. Government tax agencies will be satisfied as long as they know taxes are being paid regardless of the currency used in settling transactions.

On a different note, the price volatility of cryptos is another key challenge for merchants as well. No one wants to trade in a currency that is unstable. You want to be certain of the value you get before a deal is concluded and that the value stays the same after. So when Bitcoin starts the day at USD11 500 but ends it at USD10 900, this is not ideal for a business that has to make payments to suppliers at the end of that day.

And unless the merchandise is priced solely in crypto-currency—which is even more complicated—there is little rationale for accepting cryptos as payment in the first place. At least that would be the thinking of businesses that refuse to accept cryptos.

Well there is a solution to that too! Today there is a growing list of crypto-currencies or alt coins that address those exact concerns and these are called stablecoin. Bitcoin remains king of crypto-currencies but stablecoins—which are essentially hybrids—have a place in this fight for adoption. 

As the name suggests, stablecoins are created in such a way that they do not fluctuate widely over a given period because the track the value of an underlying asset. The underlying asset can be a commodity or a basket of fiat currencies. True to form, stablecoins like the USD Tether have demonstrated this ability to remain stable; the Tether has maintained a value which is more or less equal to US$1 throughout its lifetime.

Using such a crypto-currency eliminates the volatility risk thus making wider acceptance a real possibility.

Of course there are more advantages to those accepting crypto-currency as payment but ignorance as well as hostility by regulators are stopping potential users from realizing these advantages. Nevertheless, as more people get disillusioned with the fiat currency system, it is imperative for those working to promote the use of alternative forms of money to regularly repeat this message.

·        Crypto payments are prompt and the transactions fees are significantly lower because there are fewer middlemen or intermediaries involved, if any. 

·         Crypto-currencies are usually not subject to exchange control regulations or a particular monetary policy as is the case with fiat money. A business organization can make cross border payments or receive payments from abroad without worrying about the foreign exchange control rules and regulations. Usually such rules compel recipients of payments from abroad to surrender a portion or the entire proceeds at an uneconomic exchange rate. For businesses operating in economically weak countries, an adoption of cryptos means this so-called foreign exchange risk is eliminated.

·        Cryptos are not affected by local inflation trends hence they are a good store of value.

An understanding such advantages means more merchants will start accepting cryptos as payment because they know at the end of the day, they will be able to convert all revenues—using the POS—into a currency that governments recognize. There is zero tax evasion allegation risk, there is zero exchange rate risk and more importantly, there is zero entrapment risk!

Whatsapp 263 771 799 901, @tem2ra, Facebook

Saturday, 6 July 2019

Limited internet access: How this affects crypto adoption in emerging economies

Terence Zimwara

Crypto-currencies might be the next big thing if this nagging problem of limited internet access is addressed. It would appear this is one area where crypto entrepreneurs are floundering, particularly those from developed economies. These entrepreneurs are busy rolling out new tokens, which are usually targeted at potential users in emerging markets where unfortunately internet accessibility remains a challenge.

In many African states, a majority of the population resides in rural areas where provision of essential services, including internet is at best negligible. Yet it is in such rural areas where a big chunk of potential users of crypto-currencies reside. There are fewer or no regular banking services in rural areas when compared with those in urban settings. 

Given this background, it is then easy to see why some cryptos that are designed in Europe but destined for the African market are failing. One has to have a clear understanding of the urban/rural dynamics on the continent—among many other issues— before expecting a crypto to be successful.

Network accessibility and cost remains a challenge in many emerging economies yet availability of the same is vital if greater adoption is to be achieved. Generally, network coverage particularly 3G or 4G is heavily skewed in favour of the affluent, those with access to banking services already (and might not be attracted to alternative forms of banking.)

In other words, Mobile Network Operators (MNO) as well as internet service providers (ISP) will only target remote rural areas if there is a big profit to be made there. On the other hand, rural communities are likely to embrace peer to peer currencies if these become easily accessible.

So an opportunity does exist for both the internet providers and the crypto start-ups, the question is; how can this be exploited for the benefit of both parties?

Indeed some studies show that data usage is increasing in emerging economies. However, a closer look will reveal that tailor made social media data packages are responsible for the general increase in the usage of the internet.

For instance, MNOs offer special data plans for popular social media sites like Facebook, Twitter, Whatsapp or Telegram. Data rates for such packages appear to be cheaper than regular internet browsing costs. In fact, data consumed using these popular social media sites is much higher than data consumed via regular internet browsing.

Perhaps it is with this in mind that many are predicting the Facebook Libra token to potentially be the game changer in as far as crypto mass adoption is concerned. Facebook and Whatsapp are already widely supported by many MNOs because of the sheer number of people using these services. 

Facebook and Whatsapp are popular in both urban and rural settings, which is a major plus.
So unlike Bitcoin, which has faced a myriad of challenges, the Libra token will face far few problems as it is backed by companies with a ‘track record’. There may be no need to invest heavily in education or advocacy as would be the case with many other cryptos, it is simply a question of adding another service to the platform that has more than a billion users. To a Facebook user, it is just a matter of exploring this new service without worrying about data cost. So on that score, Libra may have a head-start in emerging economies

However, there is a downside to the Libra coin, this crypto may not be as permissionless as Bitcoin nor will it be as decentralized. Libra is a hybrid and may not come with everything promised by a crypto-currency like Ethereum for instance. Therefore pioneering cryptos-currencies will still be able to compete well with Libra only if crypto entrepreneurs can solve the internet accessibility challenge. This is a daunting but achievable task.

Perhaps, one way to circumvent this challenge would be to cooperate and coordinate with MNOs in designing data packages and applications for crypto-currencies that are affordable and user friendly. This way, interested/potential crypto users will feel empowered to explore different crypto platforms or to experiment without worrying about data cost. For an MNO, the more users get hooked on a particular application, the better the revenues generated. It is potentially a win-win scenario.

Moreover, crypto businesses should be able to convince MNOs or those managing cellular infrastructure, to deploy in areas where the unbanked are concentrated. Currently crypto-currencies require good internet access for one to perform transactions yet that kind of access is normally available in areas where banking services are widely obtainable i.e. the urban areas.

Meanwhile a prospect of high usage of cellular infrastructure is a tantalizing opportunity enough to encourage an MNO to invest. Perhaps an MNO could be convinced further— to build such infrastructure—if a crypto start-up actually helps or shares the cost burden!

It has happened before, a few years ago, Facebook’s Mark Zuckerberg proposed the idea of giant floating Wi Fi balloons and drones as way that would complement net accessibility in remote areas. Facebook realized that it had to do something to increase the number of its subscribers in remote places. So instead of waiting for an MNO— which might have other priorities—to build the infrastructure, the social media giant came with this proposal.

Crypto players could also take a leaf from this and play their part in building the necessary infrastructure to facilitate a greater adoption of this innovation.

Whatsapp 263 771 799901, @tem2ra, Facebook