South Africa has one of the most active bitcoin economies on the African continent, gauged by its bitcoin trading volumes and the amount of bitcoin and blockchain startups it has.
South Africa is one of the most developed countries in Africa and has the third largest economy in the continent after Nigeria and Egypt. While its economy has recently struggled due to corruption scandals and a weakening currency, its bitcoin economy and as well as its financial technology scene is on the rise boosted by the country’s high level of internet penetration is high and an innovation-friendly financial sector.
South Africa’s Bitcoin Startups
South Africa is the home to two of Africa’s largest bitcoin exchanges, Luno (formerly called BitX) and Ice3x, which allow South Africans to trade bitcoin in exchange for rand. But the startup landscape in South Africa is quite broad with companies leveraging the blockchain for a wide range of other non-financial applications too.
The blockchain startup Bankymoon, for example, has developed a blockchain-powered smart metering solution for power and utility grids for South Africa. The first of its kind in the world. Bankymoon smart metering solution allows South Africans to top up electricity using bitcoin and also allows them to “send” electricity to friends or family simply by topic up their meters with bitcoin.
Custos Media Technologies is another innovative South African blockchain startup. Custos aims to fight media privacy by deploying blockchain technology. The startup embeds an invisible and hard-to-remove watermark into digital content. This watermark is a private bitcoin key. Should the watermarked content end up consumable on a platform that it shouldn’t be on, there is a small bitcoin reward that can be collected by the person who finds the content.
Another innovative application of blockchain technology has been developed by the startup The Sun Exchange, which provides a peer-to-peer platform for solar energy. The platform allows investors to invest in solar panels, which they can lend to businesses and public entities for which they receive rental income. The Sun Exchange uses blockchain technology to process the rental income payments and accepts bitcoin as well as fiat currency from investors.
Bitcoin remittances for the African market have been a big topic ever since the cryptocurrency first started gaining ground. Unsurprisingly, therefore, there is also a bitcoin startup focuses on remittance in South Africa called GeoPay. GeoPay allows individuals in South Africa to send and receive money in fiat currency at a low cost by using blockchain technology to process the payments.
Bitcoin Merchant Adoption
Individuals in South Africa, much like elsewhere in the world, tend to hold bitcoin as a speculative investment as opposed to actively using it as a spending currency. Nonetheless, bitcoin adoption by merchants is high in South Africa compared to its African neighbor’s thanks to digital payments processing company PayFast.
Currently, over 30,000 merchants in South Africa use PayFast’s payment system to receive electronic payments including credit cards and bank payments. Since PayFast integrated bitcoin as a payment system in July 2014, South Africans can now also use bitcoin as a payment method at all stores that have enabled bitcoin payments through PayFast.
Some of South Africa’s most reputable stores that accept bitcoin are the country’s largest e-commerce retailer takealot.com and the country’s largest online fashion retailer RunwaySale.
A Blockchain-Curious Financial Industry
South Africa’s financial institutions have taken a keen interest in blockchain technology to reduce costs and to make operational processes more efficient.
Rand Merchant Bank has launched a blockchain initiative to develop blockchain solutions for its business, while Absa Bank and Standard Bank have joined the R3 Consortium to collaborate with other international financial institutions in the development of blockchain systems for the banking sector.
Furthermore, the South African central bank, the South African Reserve Bank (SARB) circulated Africa’s first-ever private ethereum-based smart contract among several of the country's financial institutions in an attempt to test the technology for potential future implementation in its financial system.
A Bitcoin-Friendly Regulator
South Africa’s bitcoin community is benefitting from a bitcoin-friendly regulator. The South African Reserve Bank stated in a 2014 paper titled ‘Position Paper on Virtual Currencies’ that while bitcoin is not legal tender, the central bank has no supervisory obligations over virtual currencies and it is, therefore, up to the consumer to be aware of the risks involved in holding and using virtual currencies. Thereby, the SARB has effectively given bitcoin users and startups a ‘carte blanche’ to conduct cryptocurrency transactions in South Africa.
“The Bank does not oversee, supervise or regulate the VC landscape, systems or intermediaries for effectiveness, soundness, integrity or robustness. Consequently, 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. Given the current landscape and information currently available, the Bank contends that VCs pose no significant risk to financial stability, price stability or the National Payment System. However, end-users, whether individuals or businesses that accept VCs and businesses involved in the VCs ecosystem are cautioned that any activities performed or undertaken with VCs are at their sole and independent risk,” SARB stated in its paper.
A bitcoin-friendly regulator always gives a country’s bitcoin ecosystem a boost as Japan is currently showing the world whereas the opposite can be witnessed, for example, in Kenya. The country’s central bank has instructed local banks to shut down business bank accounts of bitcoin startups and, thereby, aggressively hindering the growth of the country’s bitcoin ecosystem.
Thanks to a friendly regulatory environment, a vibrant FinTech scene and a blockchain-curious financial sector, South Africa’s bitcoin economy is growing and looking towards a bright future. It would not at all be surprising to see more disruptive blockchain solutions coming from Africa’s third largest economy in the near future.