South Africa: Blockchain: The "Trust Machine" That Africa Needs?

Last Updated: 13 February 2017
Article by Simon Polrot

Africa is an ever-increasing source of growth for international businesses. Previously considered a luxury, it has become a necessity for those who wish to stay competitive in the global economy and seize the opportunities offered by the rapid development of the African interior market.

New technologies play a determining role in this, as they will enable Africa to go directly from the state of disorganization which has long prevailed in numerous areas of its economy to a state of ultimate organization using the latest technology, and this, with no transition phase. The technological leap will spare the continent from having to go through the stages where various technologies replace one another.

Lionel ZINSOU, former Prime Minister of Benin likes to say that "Economic developments which do not occur anywhere else are happening in Africa". The "leap frog" phenomenon described above is the perfect illustration of this. It is principally in Africa that the future of the telecommunications and banking sectors will be played out. The technology will determine which of the two sectors will reap the most profit. The "ORANGE MONEY" project clearly shows how this telecommunications group (who by its turnover is becoming more and more African) plans to rock the boat in the banking sector.

However, other technological breakthroughs have appeared on the horizon and should also accelerate economic development in Africa.

Among them, it is important to note blockchain. This technology gave rise to the Bitcoin revolution and money can now be sent in the same way as an SMS, without going through a financial institution. Each transaction is registered in the blockchain, a freely accessible public register, and stored in a decentralized manner, without intermediation by third parties.

Examples of African countries where Bitcoin is gaining ground include Kenya and Uganda where it is used generally for money transfers. And, in South Africa, the Standard Bank has already tested a clearing platform in Bitcoins.

Modern blockchains, starting with the Ethereum blockchain, have increased the types of possible use for this distributed ledger by making it completely programmable. The automatic exchange of crypto-currency or other digital assets thus becomes possible, along with the automatic and transparent processing of proof of existence of documents.

Beyond its crypto-currency uses, blockchain could thus bring much more to Africa, for example: the credibility of real estate deeds is a significant factor and can either help or hinder economic development. Where these documents lack credibility, individual investments in the properties concerned will obviously be limited. The situation impacts the entire economy, which suffers as a result of these legal uncertainties.

In Africa, the lack of a trustworthy land and property register is a major obstacle to the economic development of the continent. Indeed, in a majority of African countries, over 90% of rural areas are not registered.

In this context, the creation of virtual land and property registers using blockchain technology could give African land titles the credibility they currently lack by guaranteeing their trustworthiness. Initiatives in this respect have begun in Ghana and are sure to increase throughout the continent.

The possibility of accessing a virtual register, open to all, which lists the successive operations concerning an individual property (identified by its GPS coordinates) and the existence of any disputes concerning its ownership, should make it possible to accelerate real estate transactions on the African continent.

Once the deeds are secure, it will obviously be easier for banks to accept them as collateral and grant loans on this basis.

The example of the land register can be extended to other types of use. Blockchain can be used to support numerous projects: management of an identity registers, intellectual property, energy sharing, automatic payment clearing...

The success of this technology in Africa will require that the public authorities make the investments necessary to enable efficient exploration and use of this technology by the economic players in Africa. This would make an excellent project for the World Bank and, in particular the African Development Bank ("ADB").

Admittedly, Blockchain technology currently has its limits. Firstly, it is still under development. Although the essential technical foundations have been widely tried and tested on the Bitcoin blockchain (signature and security of transactions, public accessibility and immutability of the chain), the more complex protocols are still being developed (starting with the Ethereum blockchain). These technologies also suffer, in general, from a number of teething problems (issues with processing a large number of transactions, energy-intensive, complex technology, etc.).

In addition, the lack of a true legal framework, apart from a few exceptions, is a real obstacle to the implementation of the types of use identified. Estonia (where a complete body of rules is being prepared) is the principle exception which proves the rule. In this respect, questions arise concerning the means of proof for blockchain transactions, the precise legal status of crypto-currencies, or the governing law rules which would apply to contracts where the parties do not reside in the same country, the contract is made in yet another country, and the property in question is located in an altogether different country.

The creation of a specific legal framework will be necessary, but this will take time. Given the potential of this technology, it is unlikely that the economic players will wait; they will call upon legal practitioners who will use the existing legal tools to define the phenomenon and the various types of use, even where these existing tools may not be entirely suited to the job.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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