BY PETER WANYONYI
Bitcoin is in the news everywhere. The cryptocurrency skyrocketed in value as 2017 came to a close: as this article went to press in January 10, 2018, the exchange rate was closing in on $20,000 for one Bitcoin. It’s so insane that it has been labelled the latest “tuplimania”, a reference to the period in the 17th Century when tulips – yes, the flowers – briefly became the most valuable commodity in the Netherlands, fuelling a speculative bubble that came crashing down in early 1637.
Many are predicting a dramatic crash for Bitcoin, something that’s happened a few times in the cryptocurrency’s short life. Every time, however, it has seemed to recover and then go on to become even more valuable. But aside from the exuberance of the currency markets – whatever their merits – the technology behind Bitcoin is here to stay, and it’s changing the way business is done in ways that were unforeseeable just a few years ago. Most importantly, it promises to change the way African governments handle money, and with that it might help destroy corruption in African countries.
Some authorities calculate that at least 30% of aid money sent to Africa is lost to corruption. The cash simply never arrives at the intended destination, having been pilfered by NGO workers or government officials somewhere up the aid supply chain. Similarly, vast sums of money are quietly paid out as bribes to African and other countries’ officials, by companies looking for favourable trade terms or just ordinary government tenders. Kenya is particularly susceptible: we’re variously ranked the third most corrupt country in the world. For a small, poor, backward country on the wrong end of a massive but poorly run continent, with plenty of chaotic countries around us that should be more corrupt than we are, it’s quite something that even Burundi is less corrupt than we are. But there might be some technological help coming, in the form of Blockchain.
What if our money was actually smart? What if every shilling and banknote actually had a permanent indicator showing who has owned it from the day it was minted? What if we could also check to see exactly what the shilling was used to pay for, by whom, when? And what if this information wasn’t held in one location, but was replicated across hundreds of millions of computers across the world, making it impossible to hack and change a value – because you’d need to hack into all the hundreds of millions of computers and change that same value? These attributes, among others, are embedded in blockchain technology, making it a complete gamechanger for payments – and, in Africa, for corrupt officials.
Blockchain operates on the basis of three simple concepts: one, it holds a public ledger. This is just a list of all transactions carried out. In the case of Bitcoin, it’s called a distributed ledger, and a copy is held by hundreds of thousands, even millions, of computers worldwide. They are linked together using the internet and private networks, and every time a transaction is carried out and a Bitcoin changes ownership, the public ledger is updated. All the copies of the ledger across the world are updated at more or less the same time. Transactions thus cannot really be hidden – gone are the days of receiving money quietly behind some government building. If the money is held in Bitcoin, this transfer will be noted by everyone out there. It’s like having your bank statement up on the local notice board!
Second, the blockchain is impossible to change selectively. For a change to be accepted, more than half the computers with copies of the public ledger must “agree” to make the change. The transfer of ownership is appended to the ledger, and everyone gets to see it. Thus, if someone pays you in Bitcoin, everyone gets to see that a certain amount of Bitcoin has been transferred from someone to you. Can’t hide!
And third, before that transfer happens, at least half the computers with a copy of the ledger must accept that transfer. Imagine what this means: for one, money can be traced all the way from beginning to end. There’s no need for middlemen and NGOs to supervise the doling out of cash for aid or for development: the money can go directly into the Bitcoin wallets of the people it’s meant for. And no one can steal a single coin of it along the way.
Additionally, this opens the way for “smart contracts” that need no manual intervention to work. Say you’re exporting shoes to China. The shipping container can be set up with a connected detector such that, when the ship docks at Shanghai Port, the detector automatically senses this and communicates with the importer’s Bitcoin wallet, releasing payment to the supplier immediately. Even better, the contract can be set up such that the money is automatically split with some going to the leather suppliers, some going to the shoe factory, and so on.
The potential of Blockchain is vast. African governments will not like it, but it’s here and it’s here to stay. Get ready for it!
