South Africa’s Pro-Bitcoin Stance Is Boosting Innovation In Africa’s Largest Economy
South African regulators have taken a positive stance towards Bitcoin and are thereby contributing to the creation of a favorable environment for bitcoin and blockchain startups to flourish.
In a white paper published by the South African Reserve Bank in December 2014, South Africa’s central bank stated that, while cryptocurrencies (referred to as Decentralized Convertible Virtual Currencies in the paper) are not considered as official legal tender, “any and all activities related to the acquisition, trading or use of VCs (particularly DCVCs) are performed at the end user’s sole and independent risk and have no recourse to the Bank.” In other words, the use of bitcoins and other cryptocurrencies are at the discretion of the individual user and the central bank has no intention of restricting this use.
Furthermore, in a speech at a recent cybersecurity conference held in Johannesburg, the governor of the South African Reserve Bank (SARB), Lesetja Kganyago, stated “as a central bank, we are open to innovations despite the different opinions of regulators on matters such as cryptocurrencies. We are willing to consider the merits and risks of blockchain technology and other distributed ledgers.” His statement is a reflection of South Africa’s regulator’s open-minded stance towards bitcoin and blockchain, which has been a key driver of bitcoin innovation and adoption in South Africa.
Incubators are Supportive toward Bitcoin
South Africa’s leading fintech incubators and innovation hubs have also been very supportive towards Bitcoin. Rand Merchant’s fintech hub AlphaCode hosted the Afrikoin conference in December 2015 in Johannesburg, while the Barclays Rise accelerator in Cape Town hosted the first Africa Blockchain Conference in February 2016, where potential future applications of bitcoin and the blockchain were introduced and discussed.
Furthermore, leading blockchain start-ups Bankymoon and Bitsure are currently members of the AlphaCode fintech innovation hub, while blockchain-based data authentication start-up Consent is a graduate of the Barclays Rise accelerator and has started to work with Barclay’s Bank to integrate their service into Barclay’s KYC procedures.
Campus Incubators Help Young Entrepreneurs, Boosting Bitcoin Innovation
An issue that young entrepreneurs are facing in South Africa is that access to innovation hubs and incubators are usually only accessible to startups that have already obtained funding and are led by more experienced entrepreneurs. However, two of South Africa’s leading universities have started their own incubators to address this issue. The Stellenbosch University and the University of Cape Town (UCT) have launched on-campus start-up incubators to encourage young entrepreneurs to work on innovative new solutions in a supportive environment.
Stellenbosch University established a startup incubator called LaunchLab, which offers infrastructure and support but also invests in promising new startups, while UCT launched an on-campus start-up incubator aimed to encourages social entrepreneurship.
Stellenbosch University’s LaunchLab was the breeding ground for bitcoin-based digital privacy prevention start-ups Custos Media Technologies. Custos offers bitcoin bounties embedded within digital content to those who find them when they appear online without proper licensing. Speaking to Quartz Africa, Custos CEO, G-J van Rooyen, stated that their “invention would have been unlikely to arise outside of a dense-network research environment like a university,” which is a testament to the benefit of University-based incubators.
South African Banks are Trialing Blockchain Technology
In July, one of South Africa’s big four banks, Absa, joined the international blockchain banking consortium R3, with the aim to leverage blockchain technology to lower costs and to reduce infrastructure inefficiencies. Absa, which is a subsidiary of Barclays Africa, is the first African member of the R3 consortium. R3’s aim is to create blockchain-based solutions that address financial services needs, with the resulting intellectual property being shared by all consortium members.
Andrew Baker, Barclays Africa’s Chief Information Office of corporate and investment banking, said it a statement: “We see huge potential for financial institutions in Africa to embrace disruptive technologies like blockchain, and use them to empower individuals and improve the lives of their customers. However, its true value will only be realized if we work together to co-develop and share solutions to common problems.”
Absa, however, is not the only South African bank with an interest in distributed ledger technology. Standard Chartered Chief Innovation Officer, Anju Patwardhan, stated in 2015 that “the blockchain has the potential to become a technology model for a low-cost and transparent transaction infrastructure,” and believes that if Bitcoin “takes off, prices for trading, money transfers, remittances, credit cards and other products could potentially be undercut drastically to the benefit of consumers.”
Rand Merchant Bank (RMB) is also working on blockchain solutions for its business. RMB launched a blockchain initiative headed by Farzam Ehsani who firmly believes that the blockchain technology will play an integral role in global banking in the future.
Having said that, South Africa’s banks are not the only financial institutions looking to leverage the blockchain to alleviate inefficiencies and to lower costs. The South African Central Securities Depository aims to do so as well, as seen by its recent signing of a letter of intent with the Russian National Settlement Depository to collaborate on distributed ledger technology.
Central Securities Depositories Leveraging the blockchain
The South African Central Securities Depository, Strate, announced toward the end of September at the Sibos conference that it has signed a Letter of Intent to collaborate with the Russian National Settlement Depository, NSD, to create their own distributed ledger to reduce costs and inefficiencies. The initial focus of the collaboration will be on leveraging the blockchain technology to improve proxy voting.
In their press release, Strate announced that both “parties believe that through industry-wide collaboration, CSDs will be better positioned to face the changes presented by DLT technology and develop innovative solutions for the benefit of the financial market,” and that the blockchain “has emerged as a relatively new and rapidly growing innovative technology [and] is set to revolutionize the financial markets.”
Central Securities Depositories hold financial securities, such as stocks and bonds, on behalf of banks, brokers and institutional investors in a central place, so that settlement and clearing can be processed efficiently.
A Bright Future for Bitcoin in South Africa
South Africa’s can be viewed as an excellent case study for how a cryptocurrency-friendly regulatory environment can boost bitcoin and blockchain innovation. It will be very interesting to see what kind of solutions Bitcoin startups will bring to South Africa and the rest of the African continent in the future and looks to become a global hub for cryptocurrency.