South Africa banks in blockchain experiment
South Africa is just beginning to understand how blockchain can bring major changes in its financial system:
The South African Reserve Bank had run a proof of concept project in June 2018 called Project Khokha e xperimenting a distributed ledger technology-based wholesale payment system in a ‘ real world’ environment. The trial, which the central bank later described as a success, found that the typical daily volume of the payments system could be processed in less than 2 hours with full confidentiality of transactions and settlement finality. The objectives of Project Khokha were to build on the initiatives previously undertaken by global peers and to gain further insights on DLT developments in a South African wholesale payments context. The project provided the opportunity to broaden the DLT skills base in the South African banking industry.
The central bank’s initiative had one very positive outcome. Today, all the major commercial banks in the country recognize the disruptive potential of the technology and have initiated pilot projects for a variety of use-cases. Blockchain is gaining acceptance and massive investments have happened. Experts say the country is at an inflection point and banks are now starting to explore some practical ways to apply the technology to real-world needs.
NO STANDARDS, PROTOCOLS
However, while different banks are running various PoCs, the industry does not have consensus on key standards, protocols and processes. Financial and payments services regulators are still working on modalities for creating a regulatory framework that would govern the blockchain networks, ensure security of transactions and promote innovation. Also there is major issue of integration of legacy backend general ledgers and records that are already in use with the new blockchain based system.
A MAJOR INITIATIVE
One positive aspect as far as regulators are concerned is the fact that the South African government is fully positive on the use of blockchain in the country and it has empowered the Office of Digital Advantage to support projects involving blockchain. The office comes under the Council for Scientific and Industrial Research (CSIR), which is driving the Information and Communications Technology (ICT) sector in the country. The CSIR has introduced a mandate to look into new areas that blockchain has applications and run programs that will attract investment from the private sector and the government. It is also proposing to launch the South African National Blockchain Alliance later this year to develop opportunities in the blockchain industry and to enable collaboration with other sectors. Potential projects using blockchain could include digital identity, eVoting, food tracing and safety, health care and eTenders.
Today, apart from digital currency systems being used for cross-border remittances, several projects have been exploring blockchain-based solutions for problems that have eluded solutions for decades. While banking and trading hav e s e e n meaningful u s e o f t he technology, sectors like media, energy and telecommunications too are evincing interest in the technology.
SELLING SOLAR ENERGY
One outstanding use of the technology is by the Sun Exchange, which trades in solar energy. Africa has an estimated 2000 kilowatt-hour per square meter of sunshine reaching the surface on an annual basis. Using DLT, the Sun Exchange is able to create a platform for P2P solar cell microleasing for schools and businesses in Africa.
Having said these, South Africa does not have any specific laws or regulations governing the use of blockchain technology and the legal status of Bitcoin is undefined.
CONTROLLING CRYPTO
However, the regulators have proposed strict oversight over cryptocurrencies in the country. A policy paper by the ‘Intergovernmental Fintech Working Group’, the fast growing cryptocurrency asset sector is due for strict financial oversight, possibly a licensing regime and closer cash flow monitoring. A recent survey indicated 10.7% of South African internet users invest in bitcoin. The group felt crypto assets and the various activities associated with this innovation can no longer remain outside of the regulatory perimeter. The group comprises representatives from the South African Reserve Bank, the Financial Sector Conduct Authority and the National Treasury, among others. One interesting suggestions in the policy paper is a prohibition against using cryptocurrency as a settlement tool within South Africa’s financial infrastructure. However, it feels that cryptocurrency should be recognized for domestic payment purposes, and be regulated accordingly.
South Africa has some 49 blockchain startups. Among them are the Sun Exchange, VALR, which is a cryptocurrency trading platform, Centbee, an app-based Bitcoin cash wallet, Custos Media Technology, which offers a media rights management solution to content owners and providers, Wala, a neo bank, offering a variety of services to customers, Augmentors Game, a developer of augmented reality games based on the Bitcoin Blockchain, OVEX, cryptocurrency exchange, ZapGo, a wallet with a number of conveniences built into it and CashBag, a decentralized cashback store, which allows brands to attract customers by offering them rewards points.