Bitcoin has been in the headlines since late 2017, as the value of the cryptocurrency shot up—and then sank almost as rapidly. But many financial professionals see greater potential in blockchain, the distributed ledger technology underlying Bitcoin. We asked faculty and experts across the Global Network for Advanced Management about the potential benefits and risks of Bitcoin and blockchain.
What has been the impact in your country/region of increasingly popular cryptocurrencies such as Bitcoin? What are the greatest hurdles?
The Bitcoin ecosystem in Africa is still nascent with the Ghana, Nigeria, Kenya, and South Africa in the forefront as leading Bitcoin economies on the continent. Even though the impact can is minimal, there is rising interest in these four markets through Bitcoin exchanges and applications. Bitpesa is one such application that facilitates foreign supplier payments on behalf of businesses. This B2B exchange that operates in Kenya, Tanzania, Uganda, and Nigeria enables companies that lack access to foreign exchange pay suppliers. The general interest in startup FinTechs (financial technology firms) on the continent is also on the rise. While BitPesa has been successful in raising capital from various sources, in 2017, SureRemit, a Nigerian remittances company, raised over $7 million in an initial coin offering (ICO). Notwithstanding these applications, the attitudes of most African regulators towards cryptocurrencies vary - from exploratory and open to outright prohibition. Amidst their concerns of the regulators is the anonymity that bypasses know-your-customer (KYC) guidelines and other global anti-money laundering and terrorism initiatives. For example, to better understand cryptocurrencies, blockchain and their applications, the Central Bank of Nigeria has established an industry working group.
Can blockchain, the technology underlying Bitcoin, serve other purposes? What are potential applications? How should it be regulated?
Cryptocurrencies such as Bitcoin are the most popular use cases of blockchain technology; however, the blockchain technology has more use cases that can serve other purposes across diverse industries. Simply put, a blockchain is merely a database that is distributed and decentralised and managed without a central authority but multiple nodes known as miners. Hence, rather than one single point of failure, the distribution of a blockchain on several computers enhances reliability. Described as the next technology revolution since the internet, blockchain technology can be used to address several business and social problems. Two notable examples for the region are described.
- Financial services: this is one of the most exciting use cases for blockchain technology. Traditional financial services providers (banks and settlement organisations) dominate the international money transfer market. Among Africans in diaspora alone, this market, according to the World Bank, is in the range of USD$ 33 billion (total remittances to Sub-Saharan African in 2016). The dominance of the central authorities has resulted in relatively high transfer costs as well as unduly long (in some cases) transfer times, especially across international borders. The deployment of such as use case on blockchain first eliminates the central authorities but is now a direct person-to-person (P2P) transactions. Finally, the transaction is processed almost immediately at a fraction of the cost.
- Land Registry: access to proof of ownership of land has always been contentious in most African markets. Hence, even when landed assets are acquired, the inability to ascertain ownership has introduced fraudulent activities like the resale of the same property to multiple buyers. Also, in regions where the under-banked and unbanked have no credit history, their ability to use the landed assets as collateral further restricts their access to credit. In the Takoradi/Kumasi region of Ghana, Bitland is a blockchain initiative being deployed to manage land titles.
Without a proper understanding of the risks, the modalities of blockchain regulation baffle many regulators in both advanced and developing countries. While the cryptocurrency itself may be difficult to regulate, the operations of related businesses can nonetheless be controlled depending on their scope of business activities. The decomposition of business activities of some of these companies may also require more functional rather than definitional regulations.