Cryptocurrency

Has cryptocurrency come of age?

JAMES FRANCIS explores the need for cryptocurrency regulation in South Africa

At the start of 2009, a year after blockchain technology debuted, Bitcoin emerged as its first progeny. Just over a decade later, we are still equally excited, mystified, and intimidated by cryptocurrencies.

Has cryptocurrency’s time finally arrived? It depends on where you look, explains Bernard Bussy, software engineer at fintech developer Andile Solutions: “If people want to embrace cryptocurrency fully as a financial instrument for investment then they need to be extremely cautious. Proper research is required to ensure that they understand what they are doing, and the risks involved, if they are considering putting in any significant amount of their hardearned money.”

“If people want to embrace cryptocurrency fully they need to be extremely cautious.” – Bernard Bussy

The same applies to many businesses: while cryptocurrencies can be more global and less fraudprone, they are more volatile and sparsely regulated. There are also technical considerations that need to be ironed out. When Pick n Pay ran a Bitcoin trial in 2017, transaction speeds were slow. Such limitations are being overcome, but barriers remain against cryptocurrency going mainstream in the consumer space. “It is probably still some way off. Lots of the underlying and associated technologies are not 100 per cent yet and a sufficient regulatory framework around them is also still lacking,” says Bussy.

This doesn’t mean that cryptocurrencies and blockchain are premature technologies though. Instead, it speaks of the radical change they introduce. Ongoing efforts to create regulations will boost cryptocurrency confidence and reduce the number of bad actors blemishing its credibility. Yet Bussy believes their real impact will be elsewhere: “The exciting things to look out for are not movements in the cryptocurrency market itself, but rather the next generation of financial services and market infrastructure made possible by them and their underlying technologies.”

Cryptocurrency regulation in South Africa

The South African Reserve Bank (SARB) has shown a level of excellence in its proactive attitude towards blockchain applications and engagements with the industry’s various stakeholders. In 2016, SARB helped establish the Intergovernmental Fintech Working Group (IFWG), a multi-agency group focused on the impact of emerging nancial technologies, including blockchain.

In April 2020, the IFWG and Crypto Assets Regulatory Working Group (CAR WG) released a policy proposal paper, establishing a potential framework for managing cryptocurrencies in South Africa. According to Jonathan Ovadia, founder and CEO of local cryptocurrency exchange OVEX, the

timing and proposals are very positive: “The market is much more mature than many think, and has been outrunning the law. This is an issue, because we don’t want to facilitate bad industries such as money laundering or other crimes. Formalising regulation around cryptocurrencies helps create certainty for the industry and will attract investment.”

Facing reality

Such regulations are not academic. A 2019 Hootsuite survey pegged South Africa as the top cryptocurrency ownership market, and one major local exchange claimed R90-million in daily Bitcoin trades. OVEX, which focuses on volume trades, reported over R2-billion in monthly trades.

Both Ovadia and the IFWG document noted the same concern: an unregulated cryptocurrency market could become an unmanaged parallel to the formal market. These regulation proposals go a long way towards eliminating that problem.

The paper is currently being redrafted following a feedback period, and should gain eventual approval and rati cation by the State. In general, all concerned seem happy with the proposed policies, and the paper is an example of how proactive leadership and multilateral engagement can make South Africa a sector leader.

THE COST OF CRYPTO-MINING

To control supply and demand, cryptocurrencies such as Bitcoin have finite quantities that are “mined” by solving computational problems. Doing so requires heavy computer time, which means increased power usage. What are the energy and environmental costs of crypto-mining? A 2019 paper from the American Chemical Society found that cryptomining’s actual carbon footprint was less than predicted, though this is contextual. For example, mining in areas relying on fossil fuels indirectly contributed much more carbon than areas that used renewable energies. Yet the lesser number is still significant: global crypto-mining in 2018 consumed a considerable 31.3 terawatt hours – slightly more than a 10th of South Africa’s annual total energy demand.

CITI LEADS THE DIGITAL BANKING CHARGE IN AFRICA BANKING CHARGE IN AFRICA

Citibank is focused on providing a fully digitised and comprehensive banking solution to its clients

Aglobal corporate banking institution, Citbank is leading the digital banking Citbank is leading the digital banking revolution in Africa. Its pioneering platforms are not only creating a more streamlined service offering for clients, but also providing them with for clients, but also providing them with an unprecedented level of insight into their an unprecedented level of insight into their fi nancial activities. fi nancial activities.

Citibank’s focused investment in providing Citibank’s focused investment in providing digitised banking solutions for clients netted digitised banking solutions for clients netted the company the Global Finance 2020: the company the Global Finance 2020: Best Corporate/Institutional Digital Bank Best Corporate/Institutional Digital Bank for 15 countries in Africa, and Africa’s Best for 15 countries in Africa, and Africa’s Best Online Cash Management Services and Most Online Cash Management Services and Most Innovative Digital Bank, among numerous other Innovative Digital Bank, among numerous other accolades. And in Africa, Citibank is playing accolades. And in Africa, Citibank is playing an especially prominent role in driving the an especially prominent role in driving the continent’s push into the digital era of banking. continent’s push into the digital era of banking.

“Our vision is to offer banking services that are a fully digitised end-to-end experience for are a fully digitised end-to-end experience for the client,” says Esther Chibesa, Citi’s Treasury and Trade Solutions head for sub-Saharan Africa. “This starts from the fi rst time the client engages with Citi to accessing payment or engages with Citi to accessing payment or fi nancial solutions when they are needed and fi nancial solutions when they are needed and being able to make use of as many self-service being able to make use of as many self-service tools as possible as well as making it simpler to tools as possible as well as making it simpler to get information instantly.” get information instantly.”

“What we’ve done is to provide customers with the ability to see the status of their payment at any the status of their payment at any handling point.” – handling point.” – Esther Chibesa, Treasury and Trade Solutions head for Treasury and Trade Solutions head for sub-Saharan Africa, Citibank sub-Saharan Africa, Citibank

INNOVATION AT THE FOREFRONT

One such innovative platform is Citi Payment Insights, which provides payment status Insights, which provides payment status updates via a visual tracker, making updates via a visual tracker, making payment tracking as simple as tracking payment tracking as simple as tracking a package. The solution applies to a package. The solution applies to multiple payment methods such multiple payment methods such as Wire, ACH, and WorldLink. The as Wire, ACH, and WorldLink. The solution can be accessed through solution can be accessed through CitiDirect BE®, CitiConnect for CitiDirect BE®, CitiConnect for Files, SWIFT, and API. This is an Files, SWIFT, and API. This is an omnichannel solution powered omnichannel solution powered by the use of SWIFT gpi and by the use of SWIFT gpi and Big Data, providing instant data Big Data, providing instant data access and control through the access and control through the entire transaction cycle. entire transaction cycle. “What we’ve done is to provide “What we’ve done is to provide customers with the ability to see customers with the ability to see the status of their payment at any the status of their payment at any handling point. With Citi Payment Insights, handling point. With Citi Payment Insights, for example, customers can see if any for example, customers can see if any queries have been raised on the queries have been raised on the payment – this improves ease of payment – this improves ease of mind for the benefi ciary and the mind for the benefi ciary and the payer,” Chibesa explains, adding payer,” Chibesa explains, adding that digital wallet payments are that digital wallet payments are also a key area of focus for Citi. also a key area of focus for Citi. Esther “In Africa, there are more digital “In Africa, there are more digital Chibesa wallets than bank accounts. So wallets than bank accounts. So we have invested heavily in this we have invested heavily in this area. We are expanding our area. We are expanding our digital wallet footprint by digital wallet footprint by partnering with FinTech companies and joining partnering with FinTech companies and joining market fi nancial infrastructures that offer wallet market fi nancial infrastructures that offer wallet and other alternative payment instruments so and other alternative payment instruments so that customers can collect or pay money in any that customers can collect or pay money in any domestic currency.” domestic currency.”

“Against the backdrop of the COVID-19 crisis, “Against the backdrop of the COVID-19 crisis, clients have valued rapid responses to liquidity clients have valued rapid responses to liquidity and working capital requests. We’re continuing and working capital requests. We’re continuing to invest in extending the markets where we to invest in extending the markets where we offer the Citi Supply Chain Finance platform to offer the Citi Supply Chain Finance platform to give our clients the ability to provide liquidity give our clients the ability to provide liquidity support to their suppliers, many of which are support to their suppliers, many of which are micro, small and medium enterprises (MSMEs). micro, small and medium enterprises (MSMEs). In so doing, we play a critical role in responding In so doing, we play a critical role in responding responsibly to and supporting smaller responsibly to and supporting smaller businesses through the crisis”. businesses through the crisis”.

SUPPORTING THE GREATER GOOD

Citi’s operations delve deeper than the desire to simply make a profi t. Among the group’s clients simply make a profi t. Among the group’s clients in Africa are organisations that are making in Africa are organisations that are making outstanding contributions towards improving outstanding contributions towards improving the lives of vulnerable people in rural areas of the lives of vulnerable people in rural areas of the continent. the continent.

Chibesa cites the example of an organisation Chibesa cites the example of an organisation in East Africa, which provides affordable solar in East Africa, which provides affordable solar power to hundreds of thousands of people. power to hundreds of thousands of people.

“We are very proud to be able to provide “We are very proud to be able to provide fi nancing support to organisations that are fi nancing support to organisations that are involved in sustainable causes. We believe that involved in sustainable causes. We believe that we can play an important role in helping to uplift we can play an important role in helping to uplift vulnerable populations in Africa and do our part vulnerable populations in Africa and do our part in creating true social impact.” in creating true social impact.”

For more information:

Megs Naidu +27 11 944 0069 Megs.naidu@citi.com www.citigroup.com @Citi www.youtube.com/citi citi citi