Popular Mechanics (South Africa) - - News - BY BREN­DON PE T ERSEN

There’s a fifty per cent chance that you’ve heard the word blockchain, but there’s an even greater chance that you’ve heard of Bit­coin. The two have be­come syn­ony­mous and in­ter­change­able, much like the terms 4G and LTE. All of that is wrong. Yes, Bit­coin is a cryp­tocur­rency and yes, it uses blockchain tech­nol­ogy, but lim­it­ing blockchain to Bit­coin or any cryp­tocur­rency is a mis­take that’s be­ing made far too of­ten.

Un­der­stand­ing what ex­actly blockchain is, is more com­pli­cated than you’d think be­cause there is no stan­dard def­i­ni­tion for this rapidly emerg­ing new tech­nol­ogy.

The most widely used one is that blockchain is a dig­i­tal ledger in which trans­ac­tions are made and recorded pub­licly. But even that does not fully en­com­pass the full po­ten­tial of blockchain tech­nol­ogy.

I headed to the Blockchain Africa 2018 con­fer­ence, which took place at the Mi­crosoft cam­pus in Johannesburg re­cently, to find out from blockchain lu­mi­nar­ies and in­dus­try lead­ers what blockchain ac­tu­ally is and how it will im­pact our lives.

Cryp­tocur­rency and blockchain has be­come fairly in­ter­change­able to the gen­eral pub­lic thanks to Bit­coin. Lately we’ve seen the rise of new cryp­tocur­ren­cies which steer away from the tra­di­tional cryp­tocur­rency model. One of the most no­table be­ing Rip­ple ( XRP).

Be­fore delv­ing into what Rip­ple does and how it’s dif­fer­ent to the tra­di­tional cryp­tocur­rency model, I asked Ste­fan Thomas – Rip­ple’s CTO (Chief Tech­nol­ogy Of­fi­cer) – what his def­i­ni­tion of blockchain is.

“When I first joined the blockchain space, blockchain and Bit­coin were in­ter­change­able terms, where say­ing things like ‘I payed you through the blockchain’ meant that I paid you through Bit­coin. Then you started see­ing alt-coins (al­ter­na­tive cryp­tocur­rency) and the per­cep­tion was that blockchain was any kind of cryp­tocur­rency that runs on a pub­lic shared ledger with a min­ing al­go­rithm.

“Then Rip­ple came out and min­ing wasn’t part of our nor­mal cri­te­ria, so the per­cep­tion shifted to ‘now it’s any kind of pub­lic cryp­tocur­rency sys­tem.’ Then Ethereum came out and then it was ‘well, it’s any kind of sys­tem...’ it just kept ex­pand­ing. So I look at it nowa­days very much like the term cloud where it’s like cloud wasn’t the first time that we used other peo­ple’s com­put­ers to host things.

“That’s not new,” he con­tin­ues. “But it did rep­re­sent sort of an en­ter­prise move­ment where a lot of peo­ple started to re­think their busi­ness use cases and in­no­vate. I think that some­thing sim­i­lar is hap­pen­ing with blockchain, where it’s like maybe the tech­nol­ogy isn’t very con­sis­tent or very co­he­sive in terms of what the def­i­ni­tion is, but there is a pretty co­he­sive move­ment around this term where peo­ple are ex­per­i­ment­ing and try­ing new things. So I think it’s al­most more valu­able in that way, be­cause very of­ten you get th­ese in­dus­tries which don’t change any­thing in twenty years and then some­thing like this comes along and then sud­denly every­one’s in­no­vat­ing.”

This clearly high­lights the fact that blockchain is still in a fun­da­men­tal startup phase, but then also makes you won­der whether blockchain is not just a very se­cure, shared data­base? What makes it so dif­fer­ent?

“At the end of 2016, be­gin­ning of 2017 we wrote a blog post ti­tled 2017 will be the year you re­alise you don’t need the blockchain. This was very much driven by the fact that we were de­ploy­ing the pay­ments so­lu­tions for banks and we mov­ing away from this idea of a shared ledger be­cause it just adds a lot of over­head,” he ex­plains.

“Gov­er­nance ends up be­ing very com­plex and there are pri­vacy and scal­a­bil­ity is­sues. What our cus­tomers re­ally val­ued about Rip­ple was the trans­parency, the con­sis­tency – the full pay­ment ex­e­cutes or none of it does – and the fact that it’s in­stant, and that you could get feed­back along the way.”

Rip­ple then started to re­design its so­lu­tion based on main­tain­ing those fea­tures and avoid­ing the other is­sues as­so­ci­ated with a shared ledger.

“What we ended up with is ba­si­cally ap­ply­ing a con­sen­sus al­go­rithm on the trans­ac­tion level as op­posed to on the ledger level. For our use case it worked bet­ter, so from that point on I thought that that might be true for a lot of blockchain use cases that there is a sim­pler way de­pend­ing on the use case, so I no longer think that blockchain is go­ing to re­place data­bases. I think it’s more nu­anced than that,” says Thomas.

Rip­ple is more than just a cryp­tocur­rency, in fact, Thomas says that Rip­ple doesn’t think of it­self as a blockchain com­pany, it rather iden­ti­fies as a pay­ments com­pany. This should come as no sur­prise to any­one who’s kept an eye on news around Rip­ple lately as they’ve re­cently been rolling out their an­swer to SWIFT codes (in­ter­na­tional bank­ing codes) for banks in China.

Ac­cord­ing to him, in 2017 banks be­gan reach­ing out to Rip­ple ask­ing if they could use XRP (Rip­ple’s brand of sky money) to help ad­dress one of the big­gest prob­lems they face to­day – the need to main­tain cor­re­spon­dent re­la­tion­ships. If you have a re­la­tion­ship with a bank in a dif­fer­ent coun­try you need to do due dili­gence on them be­cause you po­ten­tially have money de­posited with them. If that bank goes un­der you have a mas­sive prob­lem, so banks would like to re­duce the num­ber of cor­re­spon­dent re­la­tion­ships. At the same time global com­merce is in­creas­ing, so there’s more de­mand for

cross-bor­der trans­ac­tions and that’s cre­at­ing the im­me­di­ate ten­sion.

Banks want fewer re­la­tion­ships, but cus­tomers are de­mand­ing eas­ier cross bor­der trans­ac­tions. XRP gives you a way out.

You can cre­ate and main­tain a re­la­tion­ship with XRP – which does in­volve some cost, but that po­ten­tially re­places mul­ti­ple cor­re­spon­dent re­la­tion­ships that you’d have to main­tain in dif­fer­ent mar­kets. The mar­kets this would ben­e­fit the most are those that are po­ten­tially very dif­fi­cult to reach into other­wise, like the Philip­pines and In­dia.

The role of XRP in re­la­tion to Rip­ple has shifted over time, sort of. This was in re­sponse to the fact that you can’t just pro­mote tech­nol­ogy, but rather pro­mote a use­ful prod­uct that peo­ple ac­tu­ally want to buy and use. And, in order to cre­ate a use­ful prod­uct, you have to find the right pain point to solve. For Rip­ple that was pay­ments. The com­pany is aim­ing to fix the global liq­uid­ity prob­lem, but be­fore it can do that it had to ad­dress the trans­parency and in­ter­op­er­abil­ity prob­lem.

“There is cur­rently $26-tril­lion that’s tied up in var­i­ous com­pany ac­counts around the world be­cause it’s very time con­sum­ing to move money on de­mand; so you need to have money pre-funded. What would solve that is some kind of as­set you could move in­stantly around the world and then if you have liq­uid­ity in some of the smaller, harder to reach cor­ri­dors, that cre­ates a lot of value,” he says. “The rea­son that the Rip­ple you see to­day is so fo­cused on the bank so­lu­tion is be­cause that’s the nec­es­sary first step to­wards us­ing XRP to solve the big­ger liq­uid­ity prob­lem. There’s a process to it and you can’t start at the end of the process.”

Rip­ple’s strat­egy is clearly a global one, but when it comes to Africa and, more im­por­tantly, South Africa, we need to look at what is be­ing done by fi­nan­cial in­sti­tu­tions in terms of adopt­ing this new tech­nol­ogy.

When it comes to cryp­tocur­rency in South Africa the most well-known name in terms of ex­changes and cryp­tocur­rency wal­lets is Luno. If you’re look­ing to buy Bit­coin or Ethereum, then luno.com is the plat­form to go to. how­ever those are the only two cryp­tocur­ren­cies they cur­rently of­fer.

“We’re build­ing a trusted brand and we have a re­spon­si­bil­ity to make sure that peo­ple don’t lose money or get ripped off. There­fore we have to be very care­ful in terms of what we of­fer. We have cri­te­ria that we look at when se­lect­ing which cryp­tocur­ren­cies we of­fer on Luno: Who is the found­ing team? What is the tech­nol­ogy it’s built on? What’s the cur­rent dis­tri­bu­tion of it and how many peo­ple are us­ing it? Do the use cases ap­pear le­git­i­mate? It’s in­cred­i­bly dif­fi­cult to make that de­ci­sion on be­half of the mil­lions of cus­tomers that we have,” says Luno co-founder Mar­cus Swanepoel.

Cryp­tocur­rency and blockchain are very much in­ter­twined, how­ever Swanepoel de­scribes cryp­tocur­rency as some­thing that typ­i­cally runs on a pub­lic blockchain, which means that any­one has ac­cess to it, no one con­trols it, and it’s de­cen­tralised. Luno does more than just of­fer a wal­let and let you buy or sell Bit­coin and Ethereum.

Ac­cord­ing to him Luno has built their plat­form with open APIS and there are banks which are cur­rently us­ing those APIS. Th­ese banks are test­ing it for cryp­tocur­ren­cies and not blockchain. Whether they launch it their cus­tomers is de­bat­able be­cause they are be­ing very care­ful to en­sure that it’s safe for their cus­tomers.

With the over-in­flated hype bub­ble around cryp­tocur­rency and blockchain the ques­tion is whether there’s space in the blockchain mar­ket for some­one who isn’t in­volved in fin­tech or cryp­tocur­rency?

Marvin Coleby, a ven­ture lawyer and founder of Raise, is an ad­vo­cate for blockchain’s po­ten­tial in emerg­ing mar­kets – fo­cus­ing on Africa, Asia and the Caribbean. He sees blockchain as the trans­fer of digi­tised value and a new way of es­tab­lish­ing and com­mu­ni­cat­ing trust. The ties be­tween blockchain and fin­tech run quite deep but that should not sur­prise any­one be­cause ac­cord­ing to him: “Ev­ery­thing we do has a fi­nan­cial el­e­ment to it. Fi­nan­cial is not just money, it’s a trans­fer of some­thing of value in ex­change for some­thing else.” This might seem to backup the in­ter­change­abil­ity of blockchain and cryp­tocur­ren­cies, but blockchain has po­ten­tial for far more than that.

I asked Coleby what blockchain could be used for be­yond cryp­tocur­rency and what he’d seen in the space as a lawyer and founder of a blockchain com­pany.

“Peo­ple are build­ing in­fras­truc­ture. There are com­mu­ni­ties where you didn’t have an in­fras­truc­ture for trusted, se­cure trans­fer of value – dig­i­tal or not – so on the African con­ti­nent, for ex­am­ple, you see a lot of peo­ple build­ing ba­sic in­fras­truc­ture for fi­nance be­cause that’s kind of where we have to start – op­posed to Canada where I live, where you al­ready have digi­tised fi­nan­cial in­stru­ments and tech­nol­ogy plat­forms. So the ad­di­tion of blockchain has a mod­u­lar im­pact, at best. Be­cause it’s al­ready func­tioned ef­fi­ciently it wasn’t that big of a prob­lem so the ad­di­tion of blockchain just makes it more ef­fi­cient.”

In coun­tries like Coleby’s na­tive Ba­hamas, or the African con­ti­nent, the in­fras­truc­ture must be built from scratch. “We’ve seen a lot of that in agri­cul­ture, fi­nance, re­source, en­ergy and wa­ter, to make it eas­ier for peo­ple to trans­act things as a ba­sic in­fras­truc­ture.”

But how do you rec­on­cile the fluc­tu­a­tions and in­sta­bil­ity of cryp­tocur­ren­cies with blockchain? For many of us, Bit­coin is the poster child for blockchain tech­nol­ogy and for those of us who have in­vested in cryp­tocur­rency, or spo­ken to peo­ple around us about cryp­tocur­rency or blockchain, the re­sponse we get is ei­ther one of con­fu­sion or one of dis­be­lief that we’d get in­volved in some­thing that’s per­ceived as only be­ing used by crim­i­nals and ter­ror­ists.

Ac­cord­ing to Coleby this type of out­rage is fairly com­mon when it comes to Bit­coin and blockchain: “Bit­coin is a scam! Okay, Bit­coin is awe­some we should al­ways buy Bit­coin! I’ve seen com­mu­ni­ties go through that phase and on the African con­ti­nent. From what I un­der­stand pub­lic ac­cep­tance usu­ally be­gins with blockchain for fin­tech and then it even­tu­ally blockchain moves into ev­ery­thing.”

The po­ten­tial for blockchain to be­come the new dig­i­tal in­fras­truc­ture for ev­ery­thing is both scary and in­trigu­ing. How will we be­have in a blockchain world and how do we estab­lish gov­er­nance over this sup­pos­edly se­cure and trans­par­ent new tech­nol­ogy?

“There’s an er­ro­neous as­sump­tion that we’re go­ing to in­ter­act the same way with those plat­forms and dig­i­tal ap­pli­ca­tions as we do in the non-dig­i­tal world. There are a lot of com­pa­nies that are rais­ing a lot of money on that er­ro­neous as­sump­tion, but the value of be­ing able to trans­act things di­rectly be­tween peo­ple in a de­cen­tralised and trust­ful way, is an ex­tremely im­por­tant rev­o­lu­tion in hu­man his­tory,” ex­plains Coleby

“My per­sonal belief is that the places that will cre­ate some of the most im­por­tant de­cen­tralised ap­pli­ca­tions – not just the most imag­i­na­tive, but nec­es­sary in­no­va­tions – will be in coun­tries like SA, coun­tries in emerg­ing mar­kets where hav­ing a cen­tralised in­sti­tu­tion has been prob­a­bly the worst thing to ever hap­pen in th­ese places.”

Coleby isn’t against all forms of

cen­tralised sys­tems. He is quite com­pli­men­tary of Cana­dian fi­nan­cial in­sti­tute and gov­ern­ment ef­fi­ciency, but he does come down hard on emerg­ing mar­ket de­ci­sion mak­ers.

“As for my gov­ern­ment in my home coun­try – the same thing as here in South Africa – our in­sti­tu­tions have kept us down for a very long time. So ne­ces­sity breeds in­no­va­tion. A lot of th­ese coun­tries, you’re go­ing to see gov­er­nance struc­tures that come up out of ne­ces­sity be­cause peo­ple live through the prob­lem ev­ery sin­gle day, so find­ing prod­uct mar­ket fit is a not as dif­fi­cult for them be­cause they live through that ev­ery sin­gle day,” he says.

“Cre­at­ing gov­er­nance struc­tures in com­mu­ni­ties where there’s been rel­a­tive trust with cen­tralised in­sti­tu­tions will be a lot harder be­cause peo­ple are fine with their gov­ern­ments. Com­pa­nies in Europe and North Amer­ica will have a tough time find­ing a prod­uct mar­ket fit, be­cause the cus­tomers are say­ing ‘I’m ok with the sys­tem, it’s not that bad. My elec­tric­ity doesn’t turn off ev­ery two sec­onds.’ Whereas in coun­tries like ours it’s just like ‘No, I’m not happy with the sta­tus quo, it’s al­ways sucked and I’m look­ing for any so­lu­tion to this prob­lem.’ It will be a lot eas­ier for African com­pa­nies to find a fit for th­ese new gov­er­nance struc­tures built on blockchain.”

De­spite the some­what vary­ing an­swers to what blockchain is, the one unan­i­mous agree­ment is that in­ter­op­er­abil­ity and reg­u­la­tion is key.

Ste­fan Thomas ex­plains in­ter­op­er­abil­ity as hav­ing two sides to it: a tech­ni­cal side and a le­gal side.

“On a tech­ni­cal side, the stan­dards that win are the ones that are usu­ally sim­ple and cheap to adopt and widely ap­pli­ca­ble across a range of use cases. Over the past cou­ple of decades, you see com­plex, bloated in­dus­try stan­dards go up against some light­weight thing that some player came up with and the light­weight thing winning out – like Project Xanadu ver­sus the world wide web,” he says of dis­rup­tive in­no­va­tions.

“There are all th­ese cases show­ing that peo­ple like prag­matic, sim­ple so­lu­tions to their con­crete prob­lems. So I think it’s the same for blockchain. I also think that blockchain is kind of a weird ver­ti­cal to talk about in­ter­op­er­abil­ity be­cause ac­tu­ally there are smart con­tract blockchains and there are pay­ments blockchains and there are other things. So I like to think of it as pay­ments in­ter­op­er­abil­ity be­cause that’s what I un­der­stand and think about, and I think that peo­ple in th­ese other ar­eas, like smart con­tracts, should also think of in­ter­op­er­abil­ity and that ap­plies to them. That’s how I think of it from a tech­ni­cal side,” he con­tin­ues.

“From a le­gal side it’s more the in­ter­net when it came out first. There were all sorts of le­gal un­cer­tain­ties – if you ran an ISP you were es­sen­tially mak­ing copies of ev­ery packet that you for­ward, so did that mean that you were vi­o­lat­ing copy­right? There had to be safe har­bours cre­ated for th­ese com­pa­nies do­ing that in order for this won­der­ful tech­nol­ogy that we now all use for our daily lives to grow,” Thomas ex­plains.

“It’s sim­i­lar with blockchain where there are cer­tain things where we can ar­gue one way or the other about how the cur­rent law ap­plies to it, but re­ally law­mak­ers need to think about how to cre­ate safe and pro­duc­tive reg­u­la­tions around how peo­ple use this tech­nol­ogy. It’s ob­vi­ously a tall order be­cause it’s very dif­fi­cult for th­ese non-tech­ni­cal reg­u­la­tors to re­view, but it has to be a col­lab­o­ra­tion be­tween tra­di­tional fi­nan­cial in­dus­tries, the blockchain in­dus­try and the reg­u­la­tors.”

Thomas be­lieves that siloed so­lu­tions by dif­fer­ent ven­dors with­out blan­ket reg­u­la­tions is the way for­ward. “It’s not that Bit­coin is bet­ter than Rip­ple, Rip­ple is good for some use cases. There isn’t go­ing to be one so­lu­tion that’s go­ing to fit ev­ery use case and peo­ple need to re­alise that. Peo­ple should care about and sup­port in­ter­op­er­abil­ity be­cause that’s the thing that ul­ti­mately cre­ates net­work ef­fects that can com­pete with Visa or Paypal. As long as we have th­ese lit­tle si­los that have no in­ter­op­er­abil­ity nor cross­col­lab­o­ra­tion, nei­ther of them is go­ing to get any­where. It’s just such an easy thing to do and come to­gether and work on mu­tual, in­ter­op­er­a­ble so­lu­tions.”

Blockchain does not have a solid def­i­ni­tion be­yond the fact that it’s an ex­cit­ing, brand new tech­nol­ogy which looks set to help estab­lish and fos­ter trust in an open, de­cen­tralised man­ner. What it will be used for other than cryp­tocur­ren­cies re­mains to be seen.

On a tech­ni­cal side, the stan­dards that win are the ones that are usu­ally sim­ple, cheap to adopt and widely ap­pli­ca­ble across a range of use cases... Peo­ple like prag­matic, sim­ple so­lu­tions to their con­crete prob­lems”

Ste­fan Thomas, Rip­ple CTO

Mar­cus Swanepoel, Luno co-founder

Marvin Coleby, Raise founder

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