Africa

• The Reserve Bank this week released a consultation paper grappling with how to regulate crypto-assets like bitcoin.
• A major concern is the lack of investor protection, especially in the midst of increased volatility, liquidity risks, and fraud.
• But a working group proposal would also de-anonymise bitcoin and similar currencies.

In the first quarter of this year, the SA Reserve Bank (Sarb) is due to publish a policy paper on how providers of e-wallet and other services around crypto-currencies could be required to register with the government.

Such registration will be intended to help protect investors and users of the likes of bitcoin – but will also make it easier to enforce tax and other laws when it comes to what the Bank likes to call "crypto-assets", because it does not deem them currencies.

And it would de-anonymise bitcoin transactions, making service providers responsible for tracking who does what with the digital tokens, much like banks are required to know their customers.

The Sarb this week published a consultation paper on the regulation of such tokens as part of an Intergovernmental FinTech Working Group (or IFGW), which includes the National Treasury, the SA Revenue Service (Sars), the  Financial Sector Conduct Authority (FSCA) and Financial Intelligence Centre (FIC).

The group accepts the reality of crypto-assets as an important fintech innovation, but is concerned about investor protection especially in the wake of increased volatility, liquidity risks, fraud and hacking incidents.

Read more: The Reserve Bank says its Project Khokha was a success – but SA is not yet ready for a bitcoin-style payment system yet

The group acknowledges that crypto-assets may perform similar functions to those of securities and commodities, and says South Africa does not intend to ban their trade. But monitoring the currently unregulated sector is very much on the cards.

The IFGW is proposing a set of regulations to protect crypto-assets investors – and help keep an eye on decentralised digital tokens, that include subjecting crypto-asset service providers to registration. This "could lead to formal authorisation and designation as a registered/licensed provider for crypto-asset services operating in SA.

"The registration requirement will also apply to crypto-asset payment providers: wallet providers like Luno and entities that provide software that enable the storage of crypto-assets.

Crypto-asset providers would be required to comply with anti-money laundering rules – which for banks include identifying customers and knowing their addresses.

Those service providers would also have to monitor and report suspicious transactions, such as cash transactions of R25,000 and more.The paper is open for public comment until 15 February 2019 via email to [email protected].

Klaus Schwab, author of The Fourth Industrial Revolution. Photo: XinhuaJOHANNESBURG – South Africa's economic development will ride in the cockpit of the Fourth Industrial Revolution.My assertion is based on the forecasts done by Klaus Schwab in his latest book, The Fourth Industrial Revolution.

According to this book, Africa will benefit immensely from the ageing declining populations in Europe, North and South America, the Caribbean, Asia (including China), southern India, and some Middle East countries.

This view is supported by the report published in 2011 by the African Development Bank (ADB) entitled “Africa in 50 Years’ Time”.

According to this report – Africa is the only region where there will be about 1.87 billion people of working age in about 50 years’ time.

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On the other hand, Africa will have more than 3billion people by 2050. This means that around 74percent of the African population will be of working age.

Other than an increment of nationalism sentiments across Europe and the US, the Europeans are tightening their migration regulations and that is why instead of importing skilled labour, they move their firms to the countries that have such labour.In the past century, East Asia and South America were the best beneficiary of this kind of direct investment.

However, due to Asia's ageing populations, investors will move their manufacturing plants to Africa, where there will be abundant labour and consumers of produced products.

According to the ADB, there is a huge decline in Africa's child mortality rate and deaths caused by HIV/Aids related diseases. This is a significant factor in Africa's population growth.Another crucial factor in favour of Africa's massive economic growth is the fact that the continent possesses half the world's arable land.

This will lead to massive agricultural investments and Africa's food production will feed the whole world.This view is supported by the World Bank - which predicted that Africa's agriculture and agribusiness markets are destined to top $1trillion (R14.39trillion) in 2030.

According to Professor Calestous Juma of Harvard Kennedy School of Government, three technologies will be deployed to boast agricultural output in Africa; these include Geographical Information Systems, nanotechnology, biotechnology and mobile-technology.

Four technological (industrial revolution) megatrends which will play a prominent role in driving economic development in the near future are: autonomous vehicles, 3D printing, advanced robotics, and new materials. Africa will be the biggest beneficiary of these technologies.

Due to the shortage of infrastructure in the form of roads, rail, border posts, airports, seaports etc, it is cheaper for Nigeria to import food from Peru instead of Cameroon.

Due to the fact that multinationals will mainly be operating in Africa, they will work with the African governments to build infrastructure that services their operations and transports their goods. In other words, infrastructure will be built through public-private partnerships.

It will be in the best interests of the investors to participate in the construction of the infrastructure.In some instances, the public (consumers) will also have to pay for this, in the form of taxes and payments, such as tolls.

Currently, due to the lack of infrastructure, trade among African countries is limited. By 2050, intra-African trade will increase substantially thanks to the availability of regional connectivity.

The availability of multinationals and infrastructure in Africa will inevitably lead to free labour movement. Something good about labour movement is that it will increase the flow of remittances across the African countries.

The incremental growth of populations, industrial production, agricultural activities and mining will require huge quantities of water.In certain parts of Africa, there is a lot of water in the ground and technology will be employed to extract such water.

The Fourth Industrial Revolution’s mega-technology will also be used to harvest rainwater.

Africa is surrounded by two oceans, the Atlantic and the Indian.Mega-technology will also be employed to extract water from these oceans and make it consumable.

Moreover, technology will play a critical role in the recycling of water.As a matter of fact, most production activities in manufacturing plants will be done with less water. Technology will play a critical role in promoting intra-continental trading and the supply of water.

Although the South African population remains stagnant and will not grow rapidly, South Africa can become the biggest beneficiary of this African growth.That is why South Africa should cultivate better relationships with other African countries.

Among other things, we should stop being xenophobic, and treating fellow Africans with arrogance and a condescending attitude.In the absence of huge population like other African countries, South Africa's strength will be to continue to serve as African gateway to the African continent and regional financial hub.

Rabelan Dagada is Professor of Practice in Digital Commerce at the University of Johannesburg's Postgraduate School of Engineering Management. He is on Twitter: @Rabelani_Dagada

The views expressed here are not necessarily those of Independent Media.

By Mary Kan D'Andrea  |  November 8, 2018, 2:28 PM  |  Techonomy Exclusive    Andela co-founder Christina Sass will be speaking at Techonomy 2018 this Tuesday. Tune in to our homepage to see her live from our stage.“Brilliance is evenly distributed,” said Andela co-founder Christina Sass onstage at Techonomy NYC in May 2018.

She was talking about people. Her company aims to be the answer to a software development and programming talent shortage, widening the search so employers can find them in new places. In the process, Andela is creating economic opportunity in developing countries.




Tolu Komolafe, one of Andela’s most senior developers, and co-founder of the Ladies in Tech organization, at work in EPIC Tower in Lagos, Nigeria. (Photo courtesy of Andela)

According to Code.org and statistics from The Conference Board, there are more than 544,000 open computing jobs in the United States, more positions than the nation’s universities and colleges can hope to fill with recent graduates.

Andela’s response is to identify talented young people in Africa, train them in software development, and place them in jobs at companies around the world without requiring them to move.

Andela offers a window into a promising possible future for work: A distributed workforce that is more diverse and creates economic opportunity where there was little before.

Founded in 2014 and venture funded, Andela serves as a recruiter, filling open developer roles at partner companies. But it does so by turning to the largely untapped talent pool of Africa, home to some of the world’s fastest-growing internet-savvy populations as well as sophisticated tech enclaves. Using tests and boot camps, the company selects coders and programmers and then trains them for six months.

These young coders often have educational backgrounds in computer science, though they generally lack the practical experience needed to turn their studies into a career. But with Andela, they don’t get your usual workplace training experience.

On top of receiving a computer, salary, and professional training, the package includes subsidized housing and regular meals. The company’s budding developers are then contracted out to companies across the globe, working remotely.

At times the developers head to lengthy, on-site visits at their contract companies in the United States, Europe, and elsewhere, building work relationships and solidifying ties. Andela serves as the employer of record but assigns each worker full-time to the client. Some now have already worked for their companies for more than two years.

Since July 2016, Andela has partnered with The Zebra, a car insurance comparison site, which has brought 13 engineers onto their team in Austin, Texas. “In addition to [their] technical contributions, they’ve also brought an energy that is infectious,” Meetesh Karia, CTO of The Zebra says of the Andela engineers. “They’ve become a core part of our team.

”Andela has attracted $81 million in funding from investors including South African-based venture capital firm CRE Venture Capital, the Chan Zuckerberg Initiative, and Spark Capital, among others. And the company is swimming in qualified applicants, enabling it to hire only the most talented coders.

It now has more than 1,200 employees, many based in African urban hubs, including Lagos, Nigeria; Nairobi, Kenya; and Kampala, Uganda, with more to come.

Andela’s Kigali, Rwanda office is slated to open in January 2019. This company’s aspirations go way beyond its own profits. Andela hopes that the jump-start it gives trainees will not only give them work experience but inspire them to found local or global startups of their own.

• Africa cannot afford, nor does it have to, miss the possibilities of the 4th Industrial Revolution.
• By 2030, Africa will have the world’s largest potential workforce. What if every one of them was connected, digitally skilled and an empowered digital consumer and/or producer?

Historically, technology has been a major driver of human advancement. The agrarian revolution ended more than 50 millennia of a hunting-gathering lifestyle and ushered unprecedented population growth, urbanization and the development of knowledge and governance tools such as writing and democracy.

In just 2 centuries, the industrial revolution globalized the economy, with new forms of energy, organization, production and distribution capabilities; propelling industrialized countries into a golden age of prosperity.

But it also powered slave trade, colonization and two World Wars.Over the past few decades, the digital revolution made it possible for companies such as WhatsApp and Snapchat to reach billion dollar market valuations within 2 years and a few dozen staff, something that used to take the best companies of the industrial revolution 20  years and hundreds of thousands of staff to accomplish.

Today, the world stands at the cusp of the 4th industrial revolution, with the rapid convergence of technologies in the digital, biological and physical domains.

From the onset of the agrarian revolution in 10,000 BC, it took 6,000 years to double the world’s GDP. When the industrial revolution kicked in at around 1760, it took less than 100 years. With the computing revolution around the 60s, the time was reduced to less than 15 years.

The 4thindustrial revolution –digitally smart factories, cities and entire economies connected to the Internet-- has demonstrated that the rate of change will continue to accelerate.

Africa has essentially missed the opportunities of the second and third industrial revolutions. The continent is home to 16.3% of humanity but home to less 1% of the world’s billion dollar companies and only about 4% of  global GDP. 

Africa cannot afford, nor does it have to, miss the possibilities of the 4th Industrial Revolution.


Africa’s best opportunity to bridge the gap with the rest of the world is through unity of purpose: if Africa unites, connects everyone, empowers the young generation, embraces change and thinks exponentially, it could bridge the development gap with the rest of the world in around a decade.

UniteHere’s an example of what needs to be done. In 1994, MTN Group, a telecoms operator, was born in South Africa, while at the same time  Amazon was born in the United States. 25 years later, MTN is among Africa’s top 5 companies valued at $9B (as of Sept 2018) while Amazon became the world’s second trillion-dollar company this year after Apple.

What made Amazon grow 100 times faster than MTN? MTN operates a product-focused, linear business model in 24 different, low income markets, with different policy and regulatory constraints.

Janeffer Wacheke, co-owner of a fresh-vegetable stall, checks her mobile phone for a purchase order of vegetables and fruits made to Twiga Foods Ltd., while on her stall in Nairobi, Kenya, on June 11, 2018.

Wacheke's fresh-vegetable stall in Nairobi uses technology that's helping crack a problem Kenyan banks have so far failed to solve -- measuring the creditworthiness of traders in the country's $20 billion informal economy.

One needs to look back at why, and when, Bitcoin and blockchain came into being. It was 2008, post the latest global financial crisis, and there was a feeling that a better system would be needed. One where banks are not fully in control.

Satoshi Nakamoto wrote an eight page white paper that introduced the world to blockchain and digital cash, but he also spawned a massive libertarian movement.

If Bitcoin and blockchain were catalysed by a financial crisis, and seen as a solution, it should follow that where there is ongoing financial crisis, the digital cash system, with its underlying technology, could be extremely beneficial.

It is to this end that many believe that the true worth of this revolutionary technology will be felt in places across the African continent, not necessarily in the modern first world.There are plenty of problems that need solving in Africa.

 These problems potentially can also be solved with a few key principles that are inherent to blockchain, such as transparency, and decentralization. From elections, to international remittance, as well as energy services and alternatives to banking; Africa has many broken systems that could be fixed by a new technology.

It is not even about using blockchain to do a patch-job on the continent, there is a real chance for many African countries to fully embrace blockchain technology even more so than their first world counterparts to become world leaders in this new space.

Africa has, through colonisation, been dictated to in terms of its infrastructure, and this has mostly been a failure. But there now exists an opportunity for the continent to build its own technological infrastructure that could leapfrog it forward.However, this ideal is more philosophical than tangible at present.

 There are a number of limitation to blockchain implementation that the entire globe is feeling, but Africa also brings in its own application issues. So, while the potential abounds, there needs to be a real effort to implement it successfully to make it work.

An African historyAfrica was until the 1950s and 60s a predominantly colonised space. In her decolonisation, countries were left to rebuild off a foundation that was mostly used to exploit the land and the people. From city plans to banking infrastructure, Africa was modeled after European structures rather than ones that suited the people and the landscape.

As such, banking for example, has been problematic for a big portion of the African population as these financial structures are limited to cities whereas the majority of the population is rural. However, to survive in the globalised world, these banks are needed, especially for people who work outside of their borders and have to send money to family.

More so, a lot of the corruption and mismanagement in leadership and government in Africa comes down to a system that is easily corruptible and monopolised. African dictators are common occurrence as there is much room for centralised control and dictatorship, as well as ways and means of distorting democracy.

As such, the African continent has been put on the back foot, trying to sustain a system built to exploit its people, and without her own particular needs in mind.

Enter blockchainOn a philosophical level, blockchain technology has at its core principles of decentralisation, as well as transparency, and anonymity. It is the two former mentioned principles that really have a lot of application in Africa.

Firstly, looking away from the financial side of things, blockchain technology is aimed at taking away intermediaries - and in Africa - there are a number of spaces where intermediaries are corrupt, and inefficient. So, with blockchain, the processes that they can replace can also be made more efficient, and less prone to corruption.

It is things like elections that often come up in this instance. Still done with paper, pen and an election box, the system is not only inefficient, it is also highly susceptible to corruption.But there are a number of other instances where blockchain technology can improve matters - such as energy and the power infrastructure across the continent.

Andy Li, CEO and Founder of Eloncity, a company that is looking to both greener electricity in Africa, but also decentralised electricity which is controlled by communities, explains how this solution works better than the current set up on the continent“ I am perhaps a bit biased, but I would say energy would be a good start for trying out blockchain in Africa.

The infrastructure is missing and there is not much modernised productivity. Many cities in certain countries in Africa have limited energy, preventing them to innovate and grow. Therefore, energy as a shared economy seems to be a good start.

”Li touches on this idea of community - a strong African value which is also prevalent in the blockchain model.

Blockchain infrastructure, with its decentralised nature, relies heavily on the community to effect its advancement and how it progresses, and in this case, energy and electricity which is community run rather than by inefficient centralised governmental agencies would be beneficial to the population.

Another view point on Africa’s best use case for blockchain comes from Lorien Gamaroff, CEO of Bankymoon, a blockchain and cryptocurrency consultancy firm in South Africa, as well as Centbee, a cryptocurrency payments and remittance company.

Unsurprisingly, he believes the financial benefits of cross-border payments and remittance in cryptocurrency are prime for Africa. “The best use for blockchain in Africa is as a currency for international remittance,” Gamaroff argues. “There is a lot of friction when it comes to cross-border remittances and cryptocurrencies allow for cheap and efficient transfer mechanisms.

There is still the issue of regulatory uncertainty and access and so it will depend on companies developing products and ensuring regulators that local KYC and AML obligations are fulfilled.

”Again, Gamaroff also alludes to the issues that are being faced in implementing these blockchain solutions, and a big one will always be regulators regardless of where in the world you are.

The problem of implementation

Both Li and Gamaroff are trying to implement blockchain solutions where they believe they are desperately needed in Africa, but they both attest to a number of difficulties in doing so; some of an African context, and some of a more general blockchain context.

Li touches on third-world issues that Africa has when it comes to blockchain application, from something as simple as internet access, which is now mostly taken for granted in the first world.

“I believe the most challenging development issue would be the lack of the Internet infrastructure,” Li said. “Most of the connection goes through satellites and the throughput is very limited.

This means nodes might have trouble stay synced with the blockchain, and that it would be probably more expensive to mine or run a node independently, rather than in developed countries.

”“Another challenge would be the development itself. Programming a blockchain requires knowledge in cryptography and databases, and there is a huge demand for blockchain developers worldwide. Why should they go to Africa?

The ecosystem must be worth their while, and that creates an issue for the future.”For Gamaroff, he sees more traditional blockchain implementation issues within an African context.

“Blockchain technology exists largely in a regulatory grey zone. Companies and businesses are reluctant to invest time and resources into research and development because they feel that regulators might retroactively punish them. What is needed is assurance and frameworks provided by regulators before sufficient effort can be invested.

"“Additionally, most blockchains are not suited for the use cases for which they are being applied. This is largely due to the issue of scale. Scaling blockchain technology to many users has been difficult. This must be addressed before blockchains can gain wide-scale usefulness.

”Where does Africa stand today?It is clear the potential is there, but with that comes a host of issues in implementation, so where does Africa stand in terms of its blockchain ecosystem currently? It is clearly - not yet - taking off and leading the continent to a technological revolution, but it is neither being left behind and abandoned.

“There are a number of companies across Africa that are researching blockchain technology. There are still no implementations that are in full scale production apart from cryptocurrency related initiatives,” Gamaroff explains, going on to point out a potential pitfall in the future.

“Many companies that are offering services that leverage blockchain technology are operating outside of existing securities, currency and commodities laws.

It is only a matter of time before regulators apply pressure and those business models prove to be unsustainable. If any blockchains are to survive it will be first and foremost due to the application and adoption of a cryptocurrency. Once the currency reaches broad adoption other applications be possible.

”To this end, Li believes that it is important to engage and operate with governments and regulators to be a blockchain solution that can survive the African environment.“While I've heard IBM is conducting research about blockchain in Africa and that Binance has launched a cryptocurrency exchange in Uganda, we are trying to get pilot programs going with the help of governments,” Li said.

“We are currently in talks with governments and energy companies in African countries to begin pilots in local communities. We intend, just like in Mexico and California, to build an infrastructure for them to generate their own energy using solar panels or windmills, and sell or to share it across our microgrid, using the blockchain to utilize transactions and have supply meet demand.

”Clearly, the road is a long one for the continent of Africa if it is too embrace blockchain technology. It is all too easy to point to problems and match them with blockchain solutions for the technology is so far reaching, but it is another situation to try and get these solutions to be viable and adopted to any useful scale.

I am an award-winning journalist that has covered a variety of topics from finance to economics, technology, and even sport. With the emergence of Blockchain technology and the rise in popularity of cryptocurrencies I have focused my efforts towards this fascinating and impo... MORE

In a thumbs up to blockchain technology, the government of Kenya is planning to use blockchain technology to distribute 500,000 housing units sponsored by the state, as reported by The Star on Oct. 16. Speaking at a World Bank dialogue about affordable housing in Nairobi, Charles Hinga, Principal Secretary of Kenya’s Housing and Urban Development, said:

“Kenya will use blockchain technology to ensure the rightful owners live in government-funded housing projects.”

Kenya is tapping into the technology to ensure transparency and fight corruption, which has hemorrhaged the country, leading to underdevelopment and a sovereign rating downgrade.

Project Funding

The state-funded project will be financed by the National Housing Fund under Finance Act 2018. Three percent of the funding will come from borrowing, revenue generated from rental obtained from the current housing stock, employers and employees, and the issuance of securities to investors.Hinga said the government needs to raise Sh6billion ($59.4 million) per month in order to unlock the supply side of projects. 

He also acknowledged that houses are expensive, making it difficult for ordinary citizens to own properties. The government will build houses that cost between Sh300,000 ($3,000) and Sh3 million ($30,000) in different areas already identified by the state.James Macharia, Cabinet Secretary of Transport and Housing, said that the state requires Sh3.2 trillion ($52.5 billion) to develop a million houses. Macharia also said:

“You should not pay more than 30 percent of your disposable income to own or rent a home. For an average formal sector earning of close to Sh50,000 ($495) per month, one should pay at most Sh15,000 ($148) for rent.”

Despite the financial constraints, the real challenge in Kenya is corruption by government officials and beneficiaries. Hinga highlighted that the citizens have lost trust in the government because of how it has handled previous projects.

Kenya is one of the most corrupt countries in the world, alongside Zimbabwe, Burundi, Somalia, South Sudan, Eritrea, and Libya — all of which have suffered from conflicts or political instability.

Blockchain technology can be a solution to Kenya’s (and any other country’s) corruption woes as it is a transparent and immutable ledger of entries that can act as an auditing mechanism.

Kenya’s Relationship With Blockchain Technology

While African countries have taken an overall backseat in adopting blockchain, the technology can help to address some of the challenges facing the continent.

In August, Bloomberg reported that Kenya’s Independent Electoral and Boundaries Commission (IEBC) was planning to implement blockchain technology in its voting process.

This, given the history of Kenya’s disputed elections that have led to violence and deaths, it could be a huge leap in increasing the efficiency of Kenya’s elections. IEBC’s plan, as expected, received support from the Blockchain Association of Kenya.

Early this year, Cabinet Secretary for Information and Communication Technology Joe Mucheru said that he was setting up a task force within his ministry to study how the technology can be used to improve transparency in both the public and private sectors.

African blockchain and crypto businesses have been raising funding despite regulatory issues in some markets.

A new report by Weetracker highlights that most of the capital raises and moves towards ICOs have predominantly been in South Africa, Kenya and Zimbabwe.

The report looks at the first quarter 2018 activity across the continent. It also notes that African fintech start-ups have been the most attractive for funding flowing into African tech start-ups.It details that “Kenya’s crypto exchange platform SureRemit raised $7 million in an ICO” during the first half of 2018 while “South Africa’s The Sun Exchange launched a $5 million ICO”.

In Zimbabwe, Golix is moving ahead with its plan to launch a $32 million ICO after the Reserve Bank of Zimbabwe was ordered to lift its ban on crypto businesses in Zimbabwe.

Other notable developments in crypto and blockchain across Africa include installation of bitcoin and crypto ATMs in Zimbabwe and South Africa among other markets.

Although there is growing awareness and interest in cryptocurrency across Africa, Europe and Asia, the report by Weetracker says the last two weeks have been chaotic for cryptocurrencies across the world amid mixed fortunes for blockchain and virtual currencies in Africa.

“Globally, bitcoins and cryptocurrency have seen notable downfall with a scare of coming close to end, just like the dot-com crash. Last two weeks especially have been chaotic for the global markets as all the cryptocurrencies were trading at lower rates than preceding weeks.

“Africa too has had its share of surprises in this sector in H1 2018, taking many tumultuous turns,” says the report.

Global crypto markets have tapered off significantly throughout 2018, and this lack of volume does not bode well for the prospects of a market recovery in the short-term.

Featured image from Shutterstock.

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• South Africa has highest worldwide with interest for Bitcoin
• Countries policymakers keen to engage with the industry for harmonised approach

South Africa is luring big payers in the crypto ecosystem driven by populous demand. According to data from Google trends, South Africa is the highest ranking country worldwide with interest for Bitcoin. Demand is drawing international exchanges and major asset managers to set up their services in the country.

South Africa has a well-established legal framework that governs the financial services’ industry and this is attracting industry leaders. However, while the crypto industry is still growing, regulators are mindful that defining crypto-activities may risk limiting the extent the industry evolves in the region.

In April, policymakers and regulators gathered to engage with the industry and identify key considerations, working toward developing a harmonised approach to fintech-driven innovations across the region. One of their key concerns was cryptocurrencies and the government’s role in regulating them.

Recent crypto developments in the country include:The established cryptocurrency exchange, Luno, already operates across 40 countries, which also includes South Africa. The exchange allows South Africans to buy Bitcoin and Ethereum directly with rand after a FICA process.

SygniaCoin launches, and is expected to be operational by the third quarter of 2018. SygniaCoin is a new exchange platform, run and founded by CEO, Magda Wierzycka. Sygnia’s exchange will give users the option to purchase crypto with Rand and will base their rules and regulations on exchanges in New York.

Large international exchanges are also starting to see the potential for adoption across Africa, with Binance set to launch a cryptocurrency-fiat exchange in Uganda.

Cryptocurrency exchange Coindirect has also recently launched trading pairs between rand and a range of cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ripple.

The Intergovernmental FinTech Working Group (IFWG) has released a report on its inaugural market outreach workshop.

Held in April, the workshop gave a platform for regulators and policymakers to engage with industry, and to identify key considerations, working toward developing a harmonised approach to FinTech-driven innovations for the benefit of all South Africans.

One of the key focuses of the report was cryptocurrencies and government’s role in regulating them.

While there seems to be no silver regulatory bullet, there are a few issues that should be considered when thinking about how to regulate cryptocurrencies in South Africa, the report said. Below are the seven key issues that were discussed. How cryptocurrencies and tokens should be classifiedDelegates put forward a view that regulation should consider the activity and purpose of an underlying token.

As tokens can perform a multitude of functions, the delegates are of the view that regulators would be ill-advised to regulate the blockchain technology.

Delegates discouraged new definitions and new regulation as the technology is evolving at pace and this could make any new piece of regulation obsolete quickly. Advocacy bodies are helping to coordinate the industry and campaign for an aligned view on regulation.Regulation should also be proportional to the risk.

Regulators were encouraged to review the possibility of introducing thresholds. “Key operational risks across the cryptocurrency value chain should be identified and solved, including ‘Know Your Customer’, anti-money laundering, and the governance and processes around the conversion between cryptocurrency and fiat currency,” the delegates said.

Consumer and investor protection is necessary

There was immense support for the protection and education of investors.As exchanges were the most common touch-points for public investors in cryptocurrencies and as such, the delegates believed they should be accredited and regulated.It was suggested that a centralised platform, where all ICOs eligible for the South African public could be listed would be a starting point and an opportunity to standardise information flows and create a set of minimum expectations in terms of white papers published, disclosure of key information and source code.

The idea of registering all ICOs with a central body was also put forward as a way to monitor the quality and creditability of issuers.Appropriate and purposive regulationDuring the workshop, the fintech firms present were calling for light-touch regulation that is clearly communicated.

The South African Revenue Service (SARS) guidance note on the taxation of cryptocurrency earnings was cited as a positive and effective example of communicating a regulatory position.

Guidance notes defining what is considered acceptable and not acceptable in terms of ICOs were discussed as a favoured approach going forward.

Alignment and leverage of current legal frameworks versus new regulation

South Africa has a well-established legal framework that governs the financial services industry.

The role and impact of cryptocurrencies was discussed in reference to the SARB Act; the National Payment Systems Act; the Banks Act; the Financial Markets Act; the Financial Adivisory and Intermediary Services Act; the Financial Intelligence Act ; tax laws; the Collective Investment Schemes Control Act; and the Companies Act.

As such, regulators have two options at their disposal: to either amend existing legislation by changing current definitions to cater for emerging innovation or to create new regulations, the delegates said.

Pursuing the former option requires significant coordination among regulators and there is a risk that changes to legal definitions could have material knock-on effects on existing financial instruments, products or services.

While the crypto-industry is still budding, defining crypto-activities may risk limiting the extent of the regulation as the technology evolves.Creating an altogether new piece of regulation aimed at start-ups or fintechs also risks creating a potential un-level regulatory playing field where existing or incumbent players involved in similar financial activities (perhaps using different instruments) are subject to more onerous regulation.

Some delegates at the workshop were of the view that the existing regulatory framework could sufficiently meet the needs of the cryptocurrency industry.

Regulators did, however, clarify that they needed to understand what they were trying to regulate, whether and how a fintech activity was covered in existing regulation, and where any regulatory adjustments were needed.

Delegates also noted that these needs could be clarified through position papers or guidance notes on particular subjects. Beyond crypto-assetsThe application of blockchain technology in the wider financial services market and the impact of incumbent banks was also discussed.

The South African Financial Blockchain Consortium (SAFBC) articulated some of the benefits of developing a blockchain ecosystem. These include improved convenience and efficiency, a decrease in the cost of transfers, and safety and privacy protection. The importance of perspective and balance – is this time different?

Cryptocurrencies are often promoted as a way to transform financial services as it is known, as a way to improve inclusion and provide access to finance to the millions that are excluded.However, an important question debated at the workshop included whether cryptocurrencies were an answer to financial inclusion?

In providing some perspective to this question, workshop delegates were reminded that throughout history, whenever regulation is decreased or is not present, novel institutions and instruments emerge.

A speaker noted that following the 2008 financial crisis, Basel III imposed additional costs on banks and possibly led to lowered intermediation activities.

Fintech firms positioned themselves as a competing force to address underserved markets. As an example, ICOs have emerged as new financial instruments leveraging gaps in regulation, in the same way that credit default swaps emerged in the 1970s