This is our future, whether we like it or not, and we’d better get educated on how best to use the technology
Whether it is a pure cryptocurrency such as bitcoin or an asset-backed stable coin such as the one proposed by Facebook, in 10 years everyone will be using cryptocurrency. There is no turning back the clock.
Regulators around the world are sceptical at best, and untrusting and hostile at worst. In SA the Reserve Bank has cautioned people, but is making an effort to understand the technology, taking a considered, phased approach. Committees are in place to try to align the tax regime to deal with income related to cryptocurrencies. The space is fluid, but legislators are always a step behind.
One of the biggest barriers internationally is a lack of education on the nascent technology.
In 2017, when bitcoin went mainstream, there was a clamour in SA and the rest of the world and a lot of people lured in by dodgy get-rich-quick schemes lost a lot of money. In some quarters cryptocurrencies have taken a reputational knock as a result.
Referring to the Libra cryptocurrency Facebook wants to launch, Democratic senator Sherrod Brown said during a digital currency hearing in the US that Facebook was delusional to think people would trust it with their money. “We’d be crazy to give them a chance to let them experiment with people’s bank accounts,” she said. US treasury secretary Steven Mnuchin called cryptocurrencies a national security risk.
Crypto exchanges, which offer a legitimate and secure means to buy and sell cryptocurrencies, as well as the actual currencies themselves, have been conflated with headlines of huge financial losses and dodgy dealings by criminals. Recently an angry mob in KwaZulu-Natal torched the house of a man accused of running a Ponzi scheme. They took the law into their own hands because they had allegedly invested in a company called Bitcoin Wallet, lost their money and could not find the mastermind.
Then there are publicised cases of fraud, such as identity theft and phishing that online scammers make use of, not to mention other types of crime such as theft from exchanges, which US-based cybersecurity firm CipherTrace claimed totalled $1.7bn globally in 2018. In the same report CipherTrace said investors lost $725m in cryptocurrency in 2018 to scams such as fraudulent initial coin offerings, “phony” exchange hacks and Ponzi schemes.
One of the biggest barriers internationally is a lack of education on the nascent technology. Empowering everyone with real knowledge will mean better decisions will be made around investing in digital assets. We need to get to a point where decisions are not based on hearsay or fear-mongering.
Despite a lot of people burning their fingers, and a general sense of fear and foreboding being spread, cryptocurrencies represent the future of wealth storage and transfer and are here to stay. Reputable companies and legitimate exchanges continue to provide safe and reliable ways for people to deal in cryptocurrency. Put bluntly, money launderers, terrorists, scammers and Ponzi scheme operators have always found ways to exploit the traditional financial system, and just as they are moving with technology, so too must the rest of the world. Every effort needs to be taken by all stakeholders to protect the integrity of the industry.
A proactive approach to security, transparency and freedom is the foundation of a reputable crypto industry. The space is changing so rapidly that there is no internationally co-ordinated approach to regulating the industry. This is complicated by the fact that some cryptocurrencies act like actual currencies, some act like commodities, others like liabilities and others still as arcade tokens.
However, in the absence of a co-ordinated approach to regulation, reputable service providers proactively implement security best-practice mechanisms. These include know your customer, which means service providers have to obtain the identities and verify users, and antimoney-laundering policies.
We have to protect the integrity of the industry because the democratic nature of cryptocurrencies means they will continue to provide an alternative to the established financial system. Cryptocurrenices, and bitcoin in particular, allow any individual to enjoy the same privacy, security and sovereignty of a Swiss bank account — the kind of privilege previously reserved for the ultra-rich. All anyone needs to access this type of financial freedom is a smartphone, an internet connection and basic knowledge of technology. The disruption to the financial status quo is precisely because of this lowering of barriers to entry.
Using cryptocurrency has become as easy as using Facebook, WhatsApp or Telegram. Progressive exchanges aim to exploit this ease of use and make it as seamless as possible for South Africans, and Africans in general, to enter and exit this new financial world as they see fit. This is something that has been prohibitively difficult for many on this continent. Money and the transfer of value is already mostly digital, the only difference being that previous technology made it necessary for legislators and regulators to impose expensive and cumbersome licences and frameworks, allowing rent-seeking middle men, the banks, to obtain legal monopolies on the storing and transfer of wealth.
The disruption by cryptocurrencies is not necessarily the digital mastery or actual blockchain technology that underpins them, but the fact that people are now able to perform the storing and transacting of wealth for themselves. They are now able to transact without a trusted third party. That’s the fundamental freedom that is both alluring for some, and terrifying for others.
As is evident, the horse has bolted. A far more proactive approach nationally, and internationally, would be to divorce scaremongering from the inevitability and potential of the new financial reality. While much of the negative hype is built around legitimate security or criminal concerns that would be in everyone’s best interests to address, we should all be wary of attempts to kill the new disruptor by those with a vested interest in the outmoded and outdated mainstream financial sector, which has not exactly covered itself in glory.