Has Cryptocurrency Come Of Age?
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 hard-earned money.”
The same applies to many businesses: while cryptocurrencies can be more global and less fraud-prone, 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 financial 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.”
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 ratification 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 crypto-mining’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.