Columnists

How cryptocurrency space is evolving

coin

The fourth industrial revolution, which leverages on these emerging technologies, is here with us and we cannot stop it. FILE PHOTO | NMG

WhatsApp, one of Facebook’s products, is perhaps the greatest social media gift to Kenyans. Often used in combination with M-Pesa, it has become a crowd-funding platform for many social problems ranging from hospital bills to funerals. It stands in the midst of the banked and unbanked communities and largely serves the underserved.

With the addition of Libra, Facebook’s latest crypto product targeting the underserved, existing payment platforms are likely to feel the pinch. There are more than 2,000 crypto coins trading online but none was designed to address problems of the underserved. Very few of these coins have any proven utility, but millions of people keep on gambling on their performance.

Facebook saw the opportunity to leverage its brand recognition and came up with a disruptive solution in Libra (the cryptocurrency) and Calibra (the wallet).

Libra, the crypto coin and payment infrastructure, was developed as a global currency on top of blockchain technology targeting people that are underserved by the present banking institutions and bringing other organizations like Nongovernmental institutions to collaborate in Facebook’s long-term endeavours. Libra’s mission as stated in its white paper released on Tuesday, states that it’s “a simple global currency and infrastructure that empowers billions of people.”

The currency is designed for payments ranging from micropayments to remittances without fees and making it “as easy to send money as an email.” Other use cases include blockchain-based loans and insurance through smart contracts. Like the J. P. Morgan crypto coin for payments, Libra will be pegged to the dollar in addition to also being pegged on market-value of several trusted currencies.

The coin will always have a value equivalent to one US dollar. This means that the coin is not an investment that will appreciate.

It will be a reserved currency just the same way Mpesa top up is done, meaning that when a client trades hard currency for a Libra, the money goes into a reserve and stays there until the purchaser withdraws what remains after all transactions are taken into account.

Perhaps as a strategy for greater acceptability, Facebook created an association (sort of a co-operative society with equal share holding including Facebook) consisting of 100 founders also acting as blockchain nodes (validates and blocks transactions) through open invitation with each investing $10 million as initial capital for the Libra venture.

The venture earnings will come from the interest earned from the reserves. Some of the early investors include: NGOs (exempted from the $10 million investment but valuable in reaching the underserved customers); payment providers like Visa and MasterCard, telecom companies and other online platforms such as Uber. The wallet Calibra will be embedded into WhatsApp and effectively monopolise crowd funding in the local market.

Through the growing web of investors, Libra cash out points will easily spread throughout the world within a very short period.

Although over the top (OTT) platforms like Facebook, Google, Twitter and the like do not often require licences to operate in any country, their entry into creating a global currency touches on the sovereignty of nations.

That will certainly trigger regulators into developing new policies and regulatory interventions.

In a technology forum that I attending early this week in South Africa, this issue came up and some of the sentiments included the fact that OTTs have grown on the backdrop a market economy with stable economic and political environment that permeated the world from the US.

This has, however, changed and the recent government interference in directing Google not to sell Android Software to China does not help in expanding the concept of market economy to other emerging economies. Imagine if we were to become dependent on digital currency as we are with Internet to day and someone shuts down the nodes serving a particular country.

The convenience social media platforms have brought is addictive and certainly new products offering free payment solutions will spread like wild fire.

Since we cannot stop the storm and given that there isn’t a clear regulatory arrangement, each country needs to create their own digital currency and a national payment gateway managed by central banks. Each node must permission central banks’ blockchains to view monetary transactions for purposes of transparency.

The fourth industrial revolution, which leverages on these emerging technologies, is here with us and we cannot stop it.

The best we can do is to develop capacity in digital literacy, an enabling policy and regulatory framework and a FREE nationwide broadband.