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The Prospect of Blockchain Technology in Africa: A Review of Interswitch’s Whitepaper

The impact of blockchain on the technology world – How blockchain technology has hastened transactions; how it can remove inefficiencies in the financial system; introduce higher security levels and generally offer smarter ways of transacting.

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Interswitch Blockchain whitepaper

Blockchain technology is at the core of our digital future lives and environments, as it impacts virtually every sector of human endeavour. This technology has gone beyond its advent in banking and cryptocurrency to transform other industries and sectors – from the extractive, to manufacturing, distribution, and security.

For instance, it is true that the global financial system moves trillions of dollars a day and serves billions of people. But the system is not without problems; increased costs through fees and delays, creating friction through redundant and onerous paperwork, and opening up opportunities for fraud and crime.

That is to say, 45% of financial intermediaries, such as payment networks, stock exchanges, and money transfer services, suffer from economic crime every year; the number is 37% for the entire economy, and only 20% and 27% for the professional services and technology sectors, respectively. It’s foreseeable that regulatory costs continue to climb and remain a top concern for players in the banking and financial sectors. This all adds cost, with consumers ultimately bearing the burden, according to Harvard Business Review.

In search of a solution to these challenges, Blockchain Technology (BT) was developed.

Today, many sectors, like finance, medicine, supply chain management, manufacturing, and education, use blockchain applications to drive business value through efficient business operations.  BT is an enabler of trust between consumers, traders, and stakeholders. Other benefits include improved collaboration, organisation, traceability, credibility, and transparency.

Applied in finance; BT offers the possibilities of ‘owning your bank’ or processing payments without relying on third parties or worrying about exorbitant transaction fees. Businesses can also share information freely and improve processes without fear of malicious actors interfering with their systems.

In this review on the Prospect of Blockchain Technology (in Africa), TechEconomy.ng looks at a 12-page Whitepaper recently released by foremost Pan-African oriented technology-driven company focused on payments, Interswitch Group, titled: Blockchain Technology: The Future of Africa’s Digital Economy’.

What does the future hold for the Continent in the Blockchain Technology era?

The Review:

Introduction

The Interswitch Group’s whitepaper rightly highlighted that Blockchain Technology, although only just emerging, has gained popularity in modern societies and is projected to be the next big thing, just like the internet was in the 1990s.

Mitchelle Elegbe

Mitchell Elegbe, founder/GMD of the Interswitch Group – Photo Credit TechCrunch/Interswitch

This is so true considering Reportlinker.com’s report which projects that Blockchain market size will grow from USD 4.9 billion in 2021 to USD 67.4 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 68.4%.

By way of definition, Interswitch aligns with the popular saying that “The blockchain is a chain of blocks that solves the problem of centralisation, hence it is said that Blockchains are decentralised digital ledgers which utilise cryptographic algorithms to verify the creation and transfer of digitally represented information over a peer- to-peer network.”

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The Economist calls the blockchain technology “the trust machine’, because ‘people who typically have no particular confidence in each other can collaborate without having to go through a neutral central authority.”

How Blockchain Technology works:

As contained in the whitepaper, Blockchain is built on these three principles;

blockchain

blockchain – image by Information Age

Decentralisation:

With Blockchain, there is no central point of control. The absence of intermediaries promotes the ease and speed of transactions as it doesn’t require verification from any central authority.

Transparency and Auditability:

Blockchain transactions are traceable as participants have access to every record and can validate identities without intermediaries. This automatically encourages accountability between participants.

Security and Privacy:

Background checks on individuals are carried out through cryptography and permission is given only to authorised individuals.

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Furthermore, users can decide to remain anonymous, therefore protecting their identity on the network and maintaining confidentiality.

However, there are two additional principles of the technology not listed in the whitepaper. They are;

Irreversibility of Records

This connoted that once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term ‘chain’).

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Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network.

Blockchain works on Computational Logic

The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence, programmed. So, users can set up algorithms and rules that automatically trigger transactions between nodes.

Major Players

The blockchain community operates under either of these networks; often called types, we’ll refer to them as major players in this paper;

  • Public Blockchain Networks

A public blockchain is one that anyone can join and participate in. Bitcoin, Ethereum, Tezos and the likes, fall into this category. Under this network, access is guaranteed for everyone and security of the blockchain is ensured.

  • Private Blockchain Networks

Although similar to the public blockchain network, an organisation is responsible for controlling participation by users. This implies that the network is accessible to only authorised and known users.

Participants and users have the right to upload data records. A few examples include Hyperledger, Ripple, MultiChain, etc.

  • Hybrid Networks

A type of blockchain technology that combines elements of both private and public blockchain. It lets organisations set up a private, permission- based system alongside a public permissionless system, allowing them to control who can access specific data stored in the blockchain, and what data will be opened up publicly.

  • Consortium or Federated Blockchains

Federated blockchain or consortium blockchain is a blockchain technology where multiple organisations govern a decentralised platform. It’s not a public platform, but rather a permissioned/private platform

Cryptocurrency as major beneficiary of the Blockchain

The whitepaper rightly observed that it is impossible to discuss blockchain without discussing cryptocurrency; a major beneficiary of the blockchain technology.

Why?

Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. Instead of physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describes specific transactions, all powered by blockchain.

Interswitch’s whitepaper has further buttressed the argument in some quarters that different Central Banks are panicking over cryptocurrency due to their inability to understand the underlying principles of blockchain.

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For instance, following the restriction by the Central Bank of Nigeria to commercial banks or other financial service providers (licensed in Nigeria) prohibiting them from carrying out crypto-trading, the citizens’ participation still persists.

In fact, Rume Ophi, an expert on Cryptocurrency and alternative finance has called on the Nigerian Senate to tow the path of their counterparts in other climes to investigate the rising adoption of cryptocurrency in Nigeria despite clampdowns on accounts associated with cryptocurrency transactions by the CBN, instead of allowing things as they currently are. The report is available here.

The Whitepaper also reports on Bitcoin; the first, oldest and most popular cryptocurrency in the world. Ethereum, although not as popular as Bitcoin, has recorded a good level of popularity and growth since its inception in July 2015.

Other Cryptocurrency worthy to note are Dogecoin, whose price skyrocketed after receiving backing from Tesla CEO Elon Musk. It has however reduced in value as a coin is currently worth only $0.25. Cardano which prides itself in being a more sustainable and balanced coin is currently worth $2.40. Litecoin, who shares similar technology as Bitcoin but generates blocks at even a faster rate is worth $180.90.

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We believe, although not outrightly pronounced in the whitepaper, that from year 2022, the Central Bank of Nigeria (CBN) needs to oil its regulatory tools on how to integrate the cryptocurrency ecosystem into the mainstream economy through regulations and partnerships.

Application of Blockchain Technology

The whitepaper identified other opportunities and use cases of blockchain. The opportunities identified are discussed below.

In the finance Sector, for instance, advantages of the blockchain technology such as decentralisation, security and transparency, have come to bear in payments. One of the areas where Blockchain penetration is fastest is payments in banking. There are P2P transfers; Clearance & settlement; KYC and Identity Verification; Fundraising; Trading; Hedge Funds, etc.

The future is bright! Recall that Interstellar Inc., an Enterprise Blockchain Infrastructure Services Company and Interswitch Group, in October this year, entered into a long-term strategic partnership agreement to jointly develop blockchain-powered infrastructure services and solutions.

Interstellar and Interswitch

L-r: Ernest Mbenkum, founder and CEO at Interstellar and Akeem Lawal, divisional chief executive officer for Transaction Switching and Payment Processing at Interswitch, in a handshake after the signing ceremony at the Interswitch head office in Lagos, recently.

The financial industry recognises the impact of blockchain technology in generating new revenue, reducing risk in business operations, delivery of efficient processes amongst others benefits, and as such, are beginning to infuse blockchain technology in their business processes.

Education: The education sector is fast adopting blockchain technology to their processes. The whitepaper recognises the full accessibility of knowledge, streamlined management, and creating more incentives to learn through gamification and rewards as among the achievements of educational institutions that are embracing blockchain technology.

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Land Management: HouseAfrica.io, a Nigeria-based startup, recently partnered with the Nigeria Mortgage Refinance Company (NMRC), to deploy a digital land/property title authentication and verification system called Propvat.com.

So, this is a very important technology that will solve the perennial mysteries around property title authentication, verification!

“The problem of land management with respect to ownership and forgery of documents, can be easily solved through blockchain. Information can be stored on the ledger. As a result of the decentralised nature of blockchain, information cannot be forged, and transparency is maintained with transfer of property ownership. For example, Sweden, Georgia and Ukraine 16 property registers are being moved on to the blockchain”, the whitepaper noted.

Blockchain is also being deployed in Law to achieve smart contracts; a set of promises, in digital form that relies on blockchain technology to prevent falsified documentation.

In other words, “Contracts, transfer of ownership, delivery of goods and services can be traced without the need for a trusted third party”.

Governance: Transparency of government processes, secure online voting system and control of public expenditure are some of the benefits of implementing blockchain technology in governance. Citizens’ data can also be managed and securely stored on blockchain enabled platforms.

Health: Patients or medical reports can be stored on a blockchain. This ensures a smooth flow of operation, in terms of transfers, within hospitals. Patient care and health personnel’s, duties are generally improved, as records are easily accessible and continuously updated.

Supply Chain: With the blockchain technology, companies make supply chains, shipments, and deliveries completely transparent. By using the blockchain, companies will benefit from more trust for users.

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Travel: Blockchain allows loyalty programs to be managed transparently for the customers and streamlined for the company. It also provides a reliable and automated system for on-line booking as well as identity or insurance management.

Insurance: Intelligent contracts, or self-executing contracts, have emerged with this technology, more precisely thanks to the Ethereum network. These stand-alone programs execute automatically the terms of a contract, without human intervention, based on reliable data sources capable of providing the required information”.

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Africa and Blockchain Technology

Based on reliable data sources capable of providing the required information “In Africa, the adoption of the blockchain technology is low but progressive”. Interswitch said. Popularsied by the upsurge of bitcoin, individuals and businesses are beginning to embrace the new phenomenon. Motivated by the several advantages attached to the revolutionary technology, it is expected that this new trend will be the order of the day in several African communities in the years to come.

“A few African countries have adopted the decentralized approach, especially in the banking and finance sector. Banks in South Africa such as BSA, First National Rand, Investec, Nedbank, Standard Bank, and the South Africa Reserve Bank, utilize an encrypted, secure distributed database. The private banks have adopted a private blockchain while the rest have adopted public blockchain”. The Whitepaper recognizes Kenya as not left out. “The introduction of BitPesa, a money remittance platform that converts digital currency such as Bitcoin to local African currency without the involvement of third parties, is gaining ground in the country”.

eNaira, blockchain

Nigeria, through the CBN recently launched its digital currency, eNaira, with Bitt Inc as technical partners. Remember that the Nigeria Customs Service (NCS) has also indicated interest to deploy blockchain technology.

In the Land Management sector, Rwanda has an initiative called Bitland, which leverages the Ethereum blockchain to protect land ownership   by  making  land  details   available  to  the  public.

There are many other examples of the application of Blockchain in Africa outlined in the whitepaper.

Challenges

“We cannot deny that poor infrastructure, lack of human resources and capital, and political forces pose major challenges to the success and general adoption of blockchain technology in Africa. But even more, technical, regulatory and institutional challenges are major aspects that are crippling the acceptance of Blockchain by both businesses and individuals in Africa.

“Although these challenges seem to have been slowing down the adoption of cryptocurrencies and blockchain technology, the future of decentralised models of trust remains optimistic,” Interswitch noted.

Way forward

Considering its very promising future, Interswitch recommends that it is important both private and public stakeholders make necessary adjustments and infuse blockchain technology into their policies.

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The whitepaper also calls attention of stakeholders to invest in proper infrastructure, engage responsible bodies with the aim of influencing policy and regulation changes that will favour the adoption of blockchain technology.

“Skills and development are also key, there needs to be a critical mass of skilled human resources in terms of developers, integrators and administrators that can build and maintain the system this technology will be operating.

Finally, Blockchain technology has the potential to foster innovation and broaden access to banking systems for entire countries and provide greater access to financial services in developing and emerging markets like the African continent”, Interswitch noted.

We join Interswitch in calling on African financial institutions to position their business strategically to embrace this new and disruptive technology.

Also, the Interswitch Whitepaper on BT should be adopted by both government institutions and private organisations as it clearly identifies prospect of the Technology for the continent while educational and research institutions should see these topics as starting points for future research to foster the BT for economic development and beyond, especially in the long-term.

The Interswitch Whitepaper can be downloaded HERE.

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