A decentralised solution

Did you know that there are still more than 700 million people in the world who live in extreme poverty? These people must scrimp, starve and struggle to survive off less than $1.90 per day. By 2030, the World Bank estimates that more around 90 percent of those people will be concentrated in Sub-Saharan Africa.

This is perhaps one of the greatest developmental failures of the modern world. Despite the continent’s expansive natural resources and increasing connectivity, foreign actors still feel it’s too risky to heavily invest in their markets.

Blockchain, however, could be the key to changing that! 

Bitcoin and “Blockchain” were created in the mass wave of distrust in banks after the 2008 financial crisis. Therefore, the technology enables individual, distributed data storage that could become the perfect evidence base and financial infrastructure for a developing country.

With the right implementation, Blockchain holds the potential to completely revolutionize and revitalize such economies, especially in Sub-Saharan Africa.

So, what is this Blockchain?

How Blockchain works

Blockchain is essentially a kind of decentralized database that allows individuals to have a safe, secure way to handle their data without the need for third parties.

For example, people with Bitcoin can make or accept payments in real-time without needing a centralized bank.

“[It is] a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer,” said software entrepreneur Marc Andreessen.

“The consequences of this breakthrough are hard to overstate.”

Why Blockchain could be the perfect fit for Africa

Until the mid-twentieth century, most of Africa was ruled under a colonial system meant to exploit the people and the resources for European benefit. However, they were rushed into development according to European standards rather than homegrown ones.

The legacy of rapid development, distrust and corruption left behind an economic system failing to recover in the 21st century.

While the World Bank celebrates a decrease in global poverty levels, the number is expected to remain stagnant in Africa. Today’s poorest people are living in places with the least economic growth. Sadly enough, poverty and lack of investment in many developing countries stem from how they were integrated into the world system.

The land was cut into countries according to European treaties and agreements, rather than by traditional and tribal land divisions. This situation worsened upon the handover of colonial power to so-called “democracies,” where power often shifted to the ethnic groups that former colonizers favoured.

Corruption multiplied in the form of bribes, political persecution, rigged elections and a massive wealth gap—all of which still affect the wealth distribution and investment potentials of many developing countries.

Of course, this created a lack of trust in banks and government throughout much of Sub-Saharan Africa. During a 2012 study conducted in rural Western Kenya, Stanford University researchers waived the costs of opening a basic savings account for a number of unbanked individuals.

While 63 percent of the subjects opened an account, only 18 percent of them used the accounts. This was likely due to three factors: a lack of trust in banks, unreliable service and prohibitive withdrawal fees.

Unfortunately, the prevalence of unbanked individuals in the informal sectors scares off foreign investors, who heavily rely on transactional evidence to make investments. Otherwise, pouring money into markets is too risky. That’s where Blockchain comes in.

How would it work?

SmartContracts


Blockchain can host an entire evidence base of transactions, loan repayments and asset titles. The technology is also decentralized and requires individual confirmation, creating an element of trust and transparency beyond traditional banking systems.

According to Victor Olorunfemi, Director of Products for Pan-African tech and cryptocurrency exchange, KuBitX, Blockchain’s major benefits lie in “frictionless P2P and cross-border payments, transparent elections, land registry management [and] transparent crowdfunding.”

Let’s look at some of the different ways Blockchain could benefit developing economies, especially in Sub-Saharan Africa.

1. Creating financial infrastructure and accountability

According to a study by the Milken Institute, viable financial markets require consistent, accurate data on assets and credit histories. Luckily, Blockchain may fulfil these needs.

The use of Smart Contracts technology is ideal in areas lacking accountability, such as the real estate or land/agricultural sectors. In Africa, a lack of record-keeping practices often leads to “missing” or non-existent title deeds. In some cases, this is intentional.

Title deeds “go missing,” only to end up in the hands of benefactors other than the rightful owners. Smart Contracts could eradicate these issues through the use of special tokens that cannot be duplicated, changed or removed. See the article on tokenization.

Likewise, Bitland, a company in Ghana, currently helps individuals record deeds and land surveys. By resolving land disputes, Bitland creates more stability while accurately recording land asset data.

Blockchain has the potential to build up individual credit histories, as well. An individual could record on-time bill repayment or smaller transactions to obtain loans.

“There’s a massive number of people in the informal sector, but there’s not much data being collected on them right now,” said Merit Webster, co-president of the MIT Sloan Africa Business Club.

“That means you don’t have that credit history or payment history for them. If you have a decentralized approach to collecting data, you end up with more malleable data. [This] is very valuable for creating credit histories.”
The agricultural industry also has the potential to thrive using Blockchain.

“In the case of small-scale farmers, Blockchain technology helps with transportation logistics,” said Webster. “Blockchain could be used to track goods around the world. This allows farmers to earn a fair wage for their goods.”

Also, farmers could use record-keeping technology to streamline the supply chain and document resources. This would lead to better efficiency, lower transactional costs and improved logistics—especially for commercial farming activities that invariably contribute to exports.

2. Security in banking

According to the World Bank, there were 1.7 billion people with no bank account in 2017. This situation is worst in developing countries, especially African ones. For example, over 62 million of these people lived in Nigeria.

Besides, data from Google Trends reveal that Lagos, one of Nigeria’s biggest cities, ranks globally as the number one city based on the volume of online searches for Bitcoin (BTC). Clearly, for the city’s 21 million-odd people, there an immense interest in some form of an accessible payment system.

N26 Bank
N26 Bank

Of course, it’s unrealistic to expect bank branches to magically appear in every remote corner of the world. However, a digital database using Blockchain technologies has the potential to reach far beyond physical banks.

Many Africans value trust and transparency. In developing countries, this lack of trust goes beyond the Internet. Developing countries with less industrialization tend to have higher levels of corruption. This reduces national investment opportunities in the public sector and instils a lack of trust in centralized oligarchs handling international investment.

Because its power lies within the community of users, Blockchain can combat these trust issues. All data logs and amendments must pass through this community and identification confirmation tests.

Blockchain technology also secures its data incredibly. Hacking and data breaches are all too common nowadays. In 2017, for example, around 3 billion Yahoo user accounts were stolen. When information is stored in the same place, hackers have one, easy target. In contrast, Blockchain is a distributed entity. This dissemination of data leaves it far less vulnerable to cyberattacks.

3. Fostering Entrepreneurship

Coupled with the Internet, Blockchain technology could be the perfect platform for aspiring African developers. Because the ‘source code’ is free of charge, skilled coders can adopt, create and configure special applications, called DApps, via Crypto platforms provided by companies like Ethereum, Tron and even a South African firm specializing what they called the Keto-Coin.

Rather than waiting for governments to drag their feet trying to create jobs—which they tend to do—individuals on the continent can form small firms that build and sell Crypto-based Apps locally or abroad.

“Despite the frictions and impediments mentioned,” said Olorunfemi. “Blockchain can still provide an avenue for promising African tech (and even non-tech) projects to access capital (foreign direct investments) via token offerings on digital assets exchanges.”

Many courses are even readily available online to quickly learn about the new technology. Microsoft, for instance, offers a platform via Azure to build and learn about the Blockchain.

One-man shops in countries with unfavourable economic systems, like Zimbabwe, can also adopt smaller, stable, Crypto-built Apps/coins to facilitate or replace payment systems. In cases of rampant inflation, Cryptos can temporarily act as a store of value or help pay for things until the currency stabilizes again.

As with the Venezuelan hyperinflation case study, Cryptocurrency intervention could help many developing countries troubled with economic instability.

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There is also the option of Crypto-mining. Now before you pull out the high-energy (electricity needed to power PCs that mine Cryptocurrency) argument, think outside the box for a moment. What about energy sources that are free and available nearly 24/7? Like water and the sun!

The African continent is full of capable scientists and mechanical engineers. One could build special solar-powered energy centers to power Bitcoin-mining.

And without the expertise, governments or private companies could alternatively just invite Crypto companies with abundant financial resources to mine (cleanly) for a special tax/fee while creating jobs for the locals.

4. Elections

In addition to the financial side of things, Blockchain technology could help eliminate some forms of corruption. For example, many African countries’ elections are incredibly vulnerable to the social scourge. In some extreme cases, some officials change or forge written ballot votes to rig elections.

Corruption


To combat this, Blockchain databases could record votes, which are nearly impossible to tamper with using Smart Contract technology. Having fair elections improves infrastructure, which then increases development and economic dependability.

Blockchain non-profit company Cardano, this year, has partnered with the Ethiopian government to battle these issues specifically.

5. Leapfrogging

While some might see Africa’s economy as underdeveloped, others might see it as a blank canvas well-suited for a large-scale implementation of Blockchain. Economic and governmental systems are shifting and slightly shaky in many Sub-Saharan African nations.

MPesa

Although these facets have been detrimental in the past, this also means that there is no rigid current economic system to upend to implement Blockchain.
Don’t just take our word for it—African nations have often implemented new, practical technologies before the Western world. Let’s look at the example of M-Pesa. Back in 2014, Americans and Europeans were amazed by Apple Pay’s launch.

However, this mobile payment system wasn’t exactly “new.” By that time, Kenyans had used M-Pesa, a very similar technology, for years.

“There’s a lot of opportunity to leapfrog the way the West developed and have these more unique African solutions, but it needs to come from within,” said Webster.

“It needs to come from entrepreneurs in the continent who want to implement these solutions. It’s important to engage people very early on. Systems incubated in the West don’t stand as great of a chance to work as African ones do.”

With the possibility of an experimental, large-scale takeover of Blockchain technology to improve African infrastructure, the nations there could leapfrog in development and growth, surpassing current World Bank expectations and its developing national counterparts.

This must begin internally. According to Olorunfemi, “Education—of policy makers and other stakeholders—which is often ignored has to be a critical factor in paving the way for the acceptance and adoption of new technologies and the accompanying investment.”

The results in Sub-Saharan African countries could help eliminate much of the world’s poverty, along with remnants of mistrust and corruption left behind by the days of colonial exploitation.

While there are some obstacles to large-scale Blockchain implementation, we can’t think of a better benefactor than there. The possibilities for business using the Blockchain are endless!

To learn more about how to get started with Cryptocurrency mining or purchasing, visit our resources page for useful links and guides.


Additional input by Bobby Quarshie (BQ). 

Citations: Christopher Lee and Jackson Mueller. 

Swan, Melanie. “Anticipating the Economic Benefits of Blockchain.” Technology Innovation Management Review 7.10. Oct. 2017.

Bitcoin Lessons from Venezuela, Where Hyperinflation Reigns. Online Source: https://www.lathropgage.com/newsletter-237.html

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A True Prisoner’s Dilemma

Banks are no strangers to controversy – we only get a glimpse of their colossal levels of errors of judgement during times like the great financial crash of 2008.

Most big banks have a mandate (without your consent) to use funds deposited to trade and participate in complex and highly risky investments like stocks, currencies, futures and derivatives – but to what extent?

This also brings to the fore a potential issue of what is known as the principal-agent problem. Where the agents – bank employees, are given a ‘license to “ deal’ in all sorts of investments, often under the radar of both local and global financial authorities.

When one of such agents makes an overwhelming error in judgement, causing a large chunk of investment monies to be lost;  the agent is said to ‘go rogue’.  Questions arise as the agents often do not operate alone without supervision or consent from their seniors/managers.

A good example is that of a convicted bank fraudster; imprisoned and released on good behaviour, 38-year-old Kweku Adoboli who was eventually deported from Britain to Ghana.  A country he has lived in for 26 years in comparison to Ghana where had lived for a mere 4 years. This ends a long-protracted appeal process to allow him to remain and continue living in the UK after serving his sentence.

Some say he was a scapegoat for the deportation policies in the UK and argue that the colour of a person’s skin has no bearing on the immigration policy of Britain. This assumption holding some substance after what happened with the Windrush scandal

Others have also contended that he was the perfect scapegoat to throw in jail as a warning shot that the UK was willing to crack down on fraudulent bankers especially after the 2008 financial collapse which banks played a significant role in.

N26_banner-300x250-ENThis is also the reason why no top manager went to jail at UBS. Had Adoboli believed regulators did not know about money laundering and illegal trading in central London? The banks want to continue raking in profits and the last thing they wanted was a former insider with an appetite to take them on. These are the practices that have made them powerful. Adoboli failed to recognise that.  

“Adoboli did not syphon money to a private personal account, he did not pay himself a golden parachute, he did not launder money for terrorists or drug cartels, he did not manipulate interest rates and did not cause financial loss to the UK government. Other UK bankers who were never prosecuted however did.”

The word scapegoat is applicable because the banks that needed bailouts like RBS were savings banks, unlike UBS which was at least at that time, an investment bank. Adoboli did not syphon money for himself, he did, however, recklessly trade to make money for the Bank.

UBS is a bank which ordinary folks do not readily have access to. The very practices by Adoboli that lost the bank $2 billion led them to eventually record an overall profit of over $3 billion that same year. We, therefore, need to deprive our minds of the fact that Adoboli defrauded taxpayers of the UK and was a rogue agent of the bank.

He was, however, not alone in this practice and UK taxpayer bore no responsibility for the money that he lost. Therefore, in several ways, the own architect of his misfortune; either advertent or inadvertently.  

Let us, however, turn our attention to finance because this is what this post is about. And even before that, it is essential to get some perspective before jumping on to ‘lynch’ Adoboli. The Royal Bank of Scotland which manages cheque accounts of ordinary workers had to be given taxpayers money of £45,5 billion as a bailout.

It appears that the government will not get the money back according to the current chair of UBS, Sir Howard Davis. Interestingly enough, no one was arrested for causing financial loss to the state (that happened). UK taxpayers had to take a hit for this.

 Another interesting issue worth considering is the LIBOR scandal which was the manipulation of interbank lending rates by a host of global financial institutions. These banks, incidentally, including UBS by the way, have been implicated in manipulating interest rates for profit sharing. This was as far back as 2003 according to the counc39935_1200x628il of foreign relations. Again, no one was jailed for this ‘heist’. Before addressing Adoboli ’s case again, some large multinational banks were publicly known to launder money (for terrorists and drug cartels) guess who was convicted? That’s right, no one.

We do not refute that what he did constituted a crime –  it apparently was and perhaps he deserves the jail time he got. But the way he was plastered all over the newspapers in the UK in 2011 as some poster boy for out of control banking in the UK was why the term “scapegoat” was used.

  In investment banking, trading of commodities and currencies can go wrong which is why he should have insured his bets. But then, what no one is willing to talk about is the reward associated with high risk (uninsured) betting in the financial markets. That is the modus operandi of these banks; which does not make for sufficient juicy material for the corporate press. 

This is the height of the power of the big financial institutions and what they can get away with. Lose taxpayer’s money and there is no consequence. Fund terrorist or drug cartels and you will just be fined a fraction of your profits; fix international interest rates and all you receive is a fine. However, dare to lose their money through a risky bet and you will be undone just like Adoboli was.

Until the current financial framework is considerably changed to end monopolies of big financial institutions, the risky bets will continue. With blockchain and cryptocurrencies, who knows what the future hold? All the best to the “rogue trader” in his future endeavour nonetheless.

**This is a summarised section of a column by Julius Owusu-Paddy.  He is a staunch advocate for challenging social norms that elevate the powerful and suppresses the powerless. The full article can be read here. This section attempted to cover the issue of principal-agency problem and related issues in the financial industry.

One unanswered question is why investigators never scrutinised the practices of the entire UBS bank rather than just hauling two comparatively low-level managers to court (the afore-mentioned Kweku Adoboli and another Ron Greenidge). UBS did, however, make a profit that year despite the loss of $2 billion attributed to Adoboli.

Modern-day Profit Hunters

Dealing with Cryptocurrency has its interesting dynamics. There are, however, many hidden facets making it still a mystery to the masses. Not knowing about it makes you prone to, get rich-schemes or outright scams.

We are all by now aware of the mania caused by the soaring prices and then, the subsequent decline that followed early this year. 

What people don’t pay attention to, however, is finding out exactly just how complex it is to physically “acquire” and store these Cryptocurrencies.

Mining coins can be described very basically as the process where users “or miners” become part of a Cryptocurrency network. This by making hardware (PC processors and graphics cards) available to support that specific network’s operations.

As a miner, you contribute towards the working of the Blockchain. The technology requires millions of calculations to validate transactions into what are known as public ledgers.

Click here for more about how the Blockchain works.

There are three main ways to mine these coins but we will not be highlighting them in this post. The matter to be covered here, however, is the business aspect: how the Blockchain has created a new line of commercial entities and profit takers.

These modern tech “enterprises” offer a specific or cluster of altcoins and tokens as a reward for helping them maintain their Blockchain.

Sounds like a win-win situation right?  Or is it?

Mining is hard

If you have actually looked into the main methods of  mining you will discover that only miners with high-end hardware are able to produce enough power to contribute to the Blockchain. This is called “hash power” or “hash rate”. This is  kind of like horsepower for cars, but for PC processing.

There are sites that illustrate how to calculate potential profits such as one conveniently called ‘what to mine’.

The opportunity cost of operating the customized computer systems (commonly known as Mining Rigs), will have to be offset with the cost of acquiring hardware such as the Antminer S9i. Then there are energy costs associated with running the rigs for long periods of time.

Your profit would, therefore, be the balance of the costs versus the revenue involved in mining coins – which is usually observed over a year to make a clear profit or loss assessment.

Mining profit = Revenue (quantity x price of the coin in local fiat currency)  minus cost of the mining devices + annual electricity costs (measured in local currency per KWh).

The problem with going at it alone is that it is very hard to break even. You are also faced with a conundrum:  the more powerful your hardware is, the more electricity it consumes.

It also takes a lot longer to acquire the coins which you are awarded by the respective blockchain network after successful hashing is completed.

To make it worth your while you would hope that the coin you mine’s market value exceeds the costs of the monthly/annual electricity bill.

Value proposition

There a now hundreds of these so-called Crypto/Tech companies spurting up by the day. Their modus operandi: to relieve you of the burden of the high electricity and hardware costs. This in exchange a monthly or once-off fee.

In return, they promise to mine coins and provide you with daily or monthly profits (payable in Crypto or in cash). They can do this because they presumably have bigger (and more powerful) mining setups and therefore benefit from larger economies of scale.

Some of these establishments use big rooms, whole buildings or even warehouses to run thousands of mining rigs throughout the year.

The payments you make supposedly help them with maintenance costs and pay for the said electricity bills. They are also usually stationed in countries where the cost of electricity is very low.

MiningCosts

You are likely to, however, run the risk of dealing with the occasional Ponzi-scheme – setup.  Such companies dive at the opportunity to swindle those not familiar with Blockchain and Cryptocurrencies.

By dazzling you with the price increases and potential astronomical returns which is public knowledge anyway, they take your money and make a run for it!

One can also ponder, as it is incredibly difficult and expensive to mine Bitcoin these days, if these setups are actually just people who have already made their millions from acquiring Cryptocurrency.

The acquisition naturally, would have been when they were dirt cheap, and are now offering the residue to make more profit off unknowing investors.

An example

How it would work is: let’s say you owned 100 Bitcoins mined in 2010 for the opportunity cost of $100 each (cost of electricity).

You then sold half at the height of the Crypto ‘bull run’ in January 2018 when they were worth $19 000 each.  You would have been $945 000 richer.

So, with almost a million bucks in the kitty and another 50 units of coins (which would be now worth a lot less); the natural inclination would be to look at ways to make the extra coins ‘work for you’.

And what better way than to be one’s own boss and head a Crypto company! You can with your new setup, sell off the residue of Crypto coins  in bits for profits in cash.

This is likely what some of these companies offering coins for an opportunity to acquire Bitcoins. This under the pretense of partaking in a mining operation.

Meanwhile,  in reality, the actual mining probably took place almost a decade ago!

All in all, do stay alert and do your research before parting with your money to join a mining pool or Crypto investment scheme!

Can’t Get No Satisfaction

In economic terminology, the term “utility” has not much to do with multifunctionality nor completing specific useful tasks.

It does in context, relate to the level of satisfaction or “completeness” one derives from the consumption of a product or service. For example, there is only so much pizza one can eat before feeling ill from satiety.

On a broader and more macroeconomics spectrum, our utility levels will also help determine how resources are allocated and consumed.

Definition

The concept, a brainchild of Daniel Bernoulli, has so many relevant connotations. As humans, we individually have a maximum biological boundary which when reached, signals absolute satisfaction. This in economic terms is called maximum (total) utility.

Total utility as the complete satisfaction that you can get from consuming all units of a specific item.

Economists are more interested in the changes in levels of utility or what is referred to as the marginal utility.

We will return to its application to the economy.

Applying utility

Incidentally, utility has no formal unit of measurement – though some have coined the term “utils”. These so-called utils equate a number to utility levels in a controlled sample experiment.

Understandably it can be quite a feat to quantify utility as it is based on human behavioural preferences. The closest we got to quantifying such was via the marketing concept of the consumer black box.

N26_banner-160x600-ENAs an illustration, the concept can be applied to something as basic as eating a delicious meal.

Depending on how hungry you were, you would derive the highest utility from the first few bites of your meal.

As you progressed and depending on your appetite, each additional fork, spoon, handful more would provide fewer levels of satisfaction. As you reach your stomachs capacity (inch towards satiety) your utility diminishes.

This can be applied to the taste of the meal. It specifically explains why we tend to eat something sweet after a main (savoury) meal.

The appreciation of ice cream when you are starving would diminish quickly as you concentrate on filling up your stomach. This as opposed to enjoying the taste.

When applied properly to the running of an economy, governments and policymakers can determine which goods and services yield the most maximum utility.

This helps them to consequently direct expenditure to identified priority areas (products/services).

It is a long term concept

Education, for instance, may not provide immediate utility (gratification) for scholars and pupils. However, when appropriately harnessed, it could yield higher levels of satisfaction as individuals enter the job market with better remuneration packages.

Tweaking education curricula, taking into consideration levels of utility to whip up interest for the good of the individual. This should, therefore, be a prime focus for legislators.

Inputs such as maximum times that students can concentrate and the length of study for a degree, diploma or course should be offered without compromising the substance.

Without a doubt, there would be considerations, at a micro-level to assist in enhancing both marginal and total utility in the education sector.

Read more about fiscal policy and budgets here

More life-related uses

The concept of utility is a lot less ubiquitous as we think and relates to the unsavoury phenomenon of megalomania and why we have greed.

When the level of satisfaction or self-gratification diminishes quickly, you find that it takes longer for those experiencing lower levels of marginal utility to reach a plateau of pleasure.

Drug addiction, sexual appetites, and fetishes would then kick-in in such cases where people upgrade the “product or service” that they have already maximized their utility. At that stage, another level of fulfilment would be sought.

Utility applied to finances

120x600It also explains why people lose a lot of money gambling or investing in stocks. The satisfaction of gaining more for a little outlay based on your decisions, will often drive you to take more risk until a level of risk aversion kicks in.

High-risk equity investors “called whales”  are now delving into the Crypto market to maximize their utility. They are diverting their funds from property and stock trading into digital currencies like Bitcoin and Ethereum.

The saying too much of a good thing is inevitably bad for you applies and can be countered by diversifying the things that deliver pleasure or satisfaction.

This is to ensure that you do not maximise utility on them too quickly and lose interest.  Worse case, delve too deep into the dangerous territories of addiction.

Economists need to be relevant, more than ever before. They also need to formulate a means to measure and quantify utility or provide “utils” for at least, the most common goods and services.

With such a strategy, policy-making, product pricing and the efficient allocation of resources would be more effortless.