ACCRA, GHANA — Block CEO Jack Dorsey and his prime brass descended on Accra for the inaugural Africa Bitcoin Conference in December to speak about one of the vital probably disruptive and transformative alternate options to the continent’s present monetary system: bitcoin.
Since its inception in 2008, this unfamiliar type of cash has alternatively been disdained as an absurdly complicated toy for libertarian techies, a legalized type of playing, a speculative guess to get wealthy fast, and a automobile for criminals and fraudsters to obscure the origins of their ill-begotten beneficial properties.
But this parallel monetary system may serve a tangible social good, providing an onramp to the monetary system for individuals who would in any other case be unnoticed. In international locations the place the overwhelming majority of the inhabitants is unbanked, nationwide currencies are not a secure retailer of worth, remittances comprise a hefty portion of GDP, and worldwide sanctions complicate connections to the worldwide economic system, a digital forex that does not require an middleman to approve transactions is usually a very important lifeline for survival.
As cryptocurrency continues to rise in prominence and turns into a rising flashpoint for regulators, Dorsey and his deputies are offering a necessary counternarrative: Bitcoin brings monetary energy to individuals who would in any other case have none.
“It doesn’t matter to me if the price goes down or up, because I can still use bitcoin as a vehicle to move money around the world instantaneously,” mentioned Mike Brock, the CEO of TBD at Block, a unit which focuses on cryptocurrency and decentralized finance.
“I can exchange dollars for bitcoin and then bitcoin for Brazilian rial. There is a market for bitcoin in every corner of the world today,” continued Brock.
A damaged monetary system
Moving cash in Africa is an costly and complex course of.
“If someone wants to move money to the country next door, normally, you’d have to fill up a suitcase full of cash and move it over the border,” explains Ray Youssef, CEO of Paxful.
Part of the problem stems from the continent’s quasi-colonial payment framework, in which roughly 80% of cross-border payments originating from African banks are processed offshore, mostly in the U.S. or Europe. That translates to higher costs and processing times that are sometimes measured in weeks.
Then there’s mobile money, which has been around since the early 2000s. Think of it like an electronic wallet tied to a phone number that does not require a smartphone or data to operate. Users can pay bills and shop with their phone through SMS texting, instead of having to rely on traditional banking options.
Africa’s mobile money transactions rose 39% to more than $700 billion in 2021, according to data from the GSM Association, a non-profit representing mobile network operators worldwide. World Bank data shows that account ownership at a financial institution — or via a mobile money service provider — has more than doubled in the last decade, rising to 55% of adults in Sub-Saharan Africa.
An employee uses a Nokia 1200 mobile phone inside an M-Pesa store in Nairobi, Kenya, on Sunday, April 14, 2013.
Trevor Snap | Bloomberg | Getty Images
But even as adoption proliferates, mobile money users don’t get the perks of legacy banking, including earning interest on banked savings and building up a credit score based on a history of spending. Interoperability on the continent also remains a major issue with this alternative way of banking.
“The entire banking system in Africa is completely and utterly broken, even amongst the mobile money providers, the telcos,” said Youssef from Paxful, a peer-to-peer crypto marketplace where users can directly buy and sell tokens with one another.
“Two thousand payment networks and only 2% of them talk to each other. That number continues to grow. It’s not getting better, it’s actually getting worse,” continued Youssef.
Companies like Western Union and MoneyGram offer an expansive physical network of storefronts around the world designed to move money for those who are unbanked. That cash network was extraordinarily difficult and expensive to build, which is why there aren’t a lot of direct competitors. It is also why those cash transfers often incur substantial fees.
Bitcoin could eliminate all these intermediaries, allowing citizens to send digital payments directly to one another, without relying on credit and without incurring multiple settlement fees along the way.
“We’re going to move to a model where we can make payments without IOUs, or credit, or promises, or fiat,” said Alex Gladstein, chief strategy officer for the Human Rights Foundation, an organization that works with activists from authoritarian regimes around the world. “It’s literally like sending a piece of gold or a $20 bill instantly somewhere else.”
“If you can get access to the internet, you can settle bitcoin payments,” said Brock. “And the government can’t do anything about it.”
Dorsey points to the example of what happened in Nigeria during the protests against the brutality of the country’s Special Anti-Robbery Squad — a movement referred to as #EndSARS.
“The Nigerian government went to various bank corps to stop protesters from receiving money — which bitcoin made up for,” Dorsey said in Accra. “So our whole reason for being as a company is solving the same problem that bitcoin will ultimately solve for everyone in the world.”
Moving money on the bitcoin blockchain at its base layer has its own challenges. At times of peak demand, fees will often spike higher, and if a user is unwilling to pay a premium for the transaction, they may have to wait for more blocks of transactions to get confirmed before their transfer goes through.
Bitcoin’s Lightning Network helps alleviate both of those problems by slashing the cost of transactions to virtually zero and enabling nearly instantaneous cash payments around the planet – making bitcoin a more effective payment rail. This so-called “layer two” technology is built on top of bitcoin’s main chain, in part because bitcoiners are conservative about introducing changes to the base layer, for fear of opening it up to hacks or other mischief.
Yellow Card — Africa’s largest centralized cryptocurrency exchange run by CEO Chris Maurice — is also looking to embed this layer two technology into the platform, in order to drive down the price of transactions to virtually zero. Currently, the exchange doesn’t charge a commission for transactions, but network fees can be pretty steep when a lot of trades are happening at once.
“It’ll have a pretty big impact to our customers, because a lot of them are very price sensitive,” says Justin Poiroux, the co-founder and CTO of Yellow Card.
Yellow Card’s plan is still in its infancy, but Poiroux tells CNBC that he thinks the Lightning Network could ultimately provide a lot of value for its retail customers.
Bitnob CEO Bernard Parah and Cash App’s crypto product lead, Miles Suter, at the Africa Bitcoin Conference in Accra, Ghana.
Bernard Parah
Because Lightning offers a universal monetary language, money can travel around the world between any Lightning-enabled bitcoin wallet. Someone who uses a platform like Block’s Cash App — a regulated, American financial product with 51 million monthly transacting users which integrated with the Lightning Network in Feb. 2022 — pays any Lightning bill on the planet immediately.
“It’s a new way of doing business. It’s a different paradigm entirely,” mentioned Gladstein.
The crypto product lead at Cash App, Miles Suter, believes {that a} large a part of bitcoin’s utility is the way it will get round damaged and convoluted cost techniques that do not speak to one another.
“At Cash App in particular, we’ve always been really interested in taking bitcoin beyond just being seen an investment and bringing day-to-day utility to it,” Suter advised CNBC on the sidelines of the Africa Bitcoin Conference.
“In many ways, the people on the African continent are already doing that with the tools they have,” continued Suter.
Sending money with Lightning
Bernard Parah is a 30-year-old entrepreneur residing in Jos, Nigeria, a couple of 5 hour drive from the capital metropolis of Abuja. He’s the CEO of Bitnob, an app that lets customers throughout Africa purchase, save, and spend money on bitcoin. Bitnob is SMS-based and piggybacks on the cellular cash system, making it simpler for individuals to ship cash instantly into financial institution accounts and cellular cash wallets in African international locations.
Parah lately teamed up with Strike, a Lightning Network funds platform, to launch a characteristic known as “Send Globally” that permits Americans to switch cash to individuals residing in Nigeria, Ghana, and Kenya.
It makes use of native fiat money on both facet of the transaction, however bitcoin is used beneath the hood because the pipeline to leap cash over the border. The finish person by no means touches the cryptocurrency themselves.
“We’re able to settle into bank accounts or mobile money accounts, without the recipients having to interact with bitcoin themselves,” Parah tells CNBC.
“Over time, we’ve seen that there are still people who really don’t understand how to use bitcoin; who don’t care about bitcoin. What they do care about is their problems getting solved,” continued Parah.
Bitnob CEO Bernard Parah and Strike CEO Jack Mallers asserting the launch of ‘Send Globally’ on stage on the Africa Bitcoin Conference in Accra, Ghana.
Bernard Parah
It appears like a wire switch or a Venmo cost, based on Strike CEO Jack Mallers.
“It’s instant. There’s no debt. There’s no credit. There’s no delays,” explains Mallers.
The mannequin works as a result of Parah and Mallers are prepared to tackle the legal responsibility related to the switch by holding money in escrow on both finish of the trade.
Once the cash is obtained in Nigeria, Bitnob — which is a regulated entity with connections to the native banks — will take that bitcoin and switch it into their native forex.
“It’s just two regulated entities communicating over the language of bitcoin and cutting out excess fees,” mentioned Suter. “I think that’s revolutionary.”
Mallers says that they provide extra aggressive overseas trade charges through the use of bitcoin as a price-setting middleman, a type of new world reserve forex.
“The rate that we got was actually 60% better than the traditional forex market rate,” mentioned Mallers. “The way to actually think about how we’re achieving forex if we clear through bitcoin is, ‘I have dollars. How many bitcoin can I get for my dollars? And then how many naira can I get for my bitcoin?'” mentioned Mallers.
“It’s acting as the most liquid, accessible, global instrument for us to clear and settle value amongst each other,” he mentioned.
The association additionally affords a number of large ancillary advantages, together with interoperability with cost apps world wide which have tens of thousands and thousands of customers.
Block’s Suter defined that Cash App might theoretically interoperate with Bitnob.
“We’re only live in the U.S. right now, but that doesn’t mean we can’t speak to Bitnob in Nigeria and transfer value instantly and for free across these borders,” Suter mentioned of Cash App.
Meeting clients the place they’re
South African developer Kgothatso Ngako constructed a custodial lightning pockets known as Machankura.
Kgothatso Ngako
South African developer Kgothatso Ngako, who goes by KG, has built-in the Lightning Network into the GSM community, combining the very best of some worlds, in a bigger effort to fulfill clients the place they’re.
“My focus is giving people without an internet connection the ability to send or receive bitcoin,” Ngako mentioned.
KG calls his custodial Lightning pockets “Machankura” — South African slang for cash. Whereas most Lightning transactions in the present day require a smartphone and knowledge, Ngako’s service integrates lightning by way of Unstructured Supplementary Service Data, or USSD, which is the protocol that cellular cash runs on. (It is much like HTTP, or HyperText Transport Protocol, the protocol on which the online was constructed.)
Ngako tells CNBC that he presently has round 3,000 customers unfold throughout eight international locations, with a focus in South Africa, Uganda, Kenya, and Nigeria. In his dwelling market of South Africa, there are strict guidelines round forex trade, which make his product much more interesting to some customers seeking to transfer their cash overseas.
“The South African Reserve Bank regulates the cross-border flow of capital — including the exchange of currency — to and from South Africa. You need some form of approval to convert ZAR into foreign currency,” mentioned Ernest Marais, associate at Johannesburg regulation agency, Tabacks.
KG’s Machankura is suitable with any Lightning pockets on the planet. In observe, because of this somebody with the Cash App in San Francisco, for instance, might immediately ship bitcoin by way of Lightning to the cellphone variety of somebody with a data-less, fundamental cellphone residing in a distant a part of Uganda.
Ngako’s undertaking does face some dangers, together with regulatory blowback.
Marais tells CNBC that as a result of the South African Reserve Bank can’t regulate the cross-border move of cryptocurrency, it’s thought-about to be unlawful and a legal offense — although crypto regulation largely stays nebulous throughout a lot of the continent.
“All African central banks, except for Central African Republic, have made notices stating that they don’t issue bitcoin and hence they don’t regulate it,” counters Ngako, including {that a} bitcoin transaction can’t be thought-about a cross-border trade as bitcoin transactions aren’t regulated throughout the central financial institution’s establishment.
But the foundations are complicated for everybody concerned.
“The actual location of crypto assets is an anomaly. At what point does it leave the country?” continued Marais.
Ultimately, Ngako believes that after Machankura begins to scale, it is going to be a serious driver of bitcoin adoption throughout the continent. To that finish, Ngako is elevating cash and constructing — a typical chorus among the many entrepreneurs on the bottom in Accra.
As Dorsey mentioned in Africa, “More and more mass adoption will, in my belief, take away all the oxygen” from governments making an attempt to regulate habits via monetary oppression.
“So what do we do? We build, we build, we build, we build, we build, they can’t stop us. And that’s what’s important.”
Source: www.cnbc.com”