are national currencies moving to the blockchain?
When you think of Africa, technology and innovation may not be the first things that spring to mind. However, the African nation of Rwanda is a front-running nation when it comes to adopting a national blockchain currency.
Ashton Kutcher and Ellen DeGeneres recently made headlines, placing a spotlight on digital currencies and the blockchain. Kutcher and blockchain-fueled, cross-border payments startup Ripple, in which the famous actor is an investor, donated millions of dollars to a cause near and dear to DeGeneres’ heart.
“So on behalf of Ripple, we’d like to give you $4 million dollars,” said Kutcher in a surprise visit to the Ellen show. The donation will be directed toward The Ellen DeGeneres Wildlife Fund, which is a rescue effort for endangered species in Rwanda.
The gift itself is not super noteworthy, amid the current environment of $4B ICOs, but it serves as yet another signal that “non-tech” nations are benefitting immensely from digital currencies.
Is A National Cryptocurrency on the Way?
The rise of blockchain technology couldn’t have come too soon for many less developed nations. The nature of a decentralized peer-to-peer system is to cut out third-party service providers, which attach hefty fees and lengthy processes to transactions such as cross-border payments. Anyone that has sent money internationally has probably seen a significant chunk squirreled away in transaction fees, holding fees, and the like.
And while it’s common to see government officials tout the blockchain for security, they’re generally more cautious of the digital currencies that run on them. Governments have long relied on being able to control the supply of money in order to influence their economy. It seems obvious that blockchain-based currencies would see a controlling government as an unnecessary tax or fee also, and aim to cut them out of the equation.
However, some countries like Rwanda are proving it’s possible to integrate the blockchain into an existing currency, or are willing to abandon a fiat currency altogether.
Rwanda Moves Towards the Blockchain
Blockchain pioneers will often remind the cryptocurrency community that an inspiration for decentralized technology was to make a social impact in places where there’s a lack of financial inclusion. Rwanda is a model candidate, potentially becoming a cashless society and pursuing a national blockchain currency.
Rwanda’s I&M Bank partnered with Norwegian fintech Blockbonds to deliver SPENN, which is a blockchain-fueled mobile banking app for all 12 million citizens as well as businesses. While Rwanda isn’t creating a new cryptocurrency and instead is digitizing its own national currency, they’re a first mover among global economies to make the leap to the blockchain. SPENN is on a mission to digitize national currencies, and they are the first to digitize the Rwandan franc.
In a country where internet access is relatively low, and a large portion of the population is unbanked, a system like this allows anyone with a phone to (via SMS or an app) send and receive money via the blockchain. By digitizing the local currency, the franc, and implementing a public ledger, customers gain a zero-fee method of transacting via a bank account including deposits, money transfers and withdrawals across I&M bank locations. For businesses, SPENN offers zero-fee point-of-sale transactions, which is better than any credit card company can offer.
The benefits for Rwanda could be huge. First, Rwanda is a largely unbanked country.
Second, there is a technology gap that is closing very quickly. The Economist shows that mobile phones are arriving before electricity, as about 75% of the country has yet to receive electricity. For comparison, half of the homes in the US received electricity in 1925, putting Rwanda about 100 years behind that movement. But while North American cell phone ownership hit about 75% in 2007, 75-80% of Rwandans own mobile phones. Mobile phones are a key infrastructure through parts of Africa, as development can occur without electricity, landlines, or broadband internet. Where a community may not have a bank, they will have phones.
And with a blockchain-based currency, and a mobile phone, Rwandans may soon find that they don’t need banks.
Bolivar-to-bitcoin conversions are skyrocketing in Venezuela as citizens look for refuge from hyperinflation and a currency that is spiralling in value. Venezuelans are flocking to bitcoin despite the fact that the government developed its own cryptocurrency – the oil-backed Petro coin.
Backing a national blockchain currency with a country’s most valuable resource is not a terrible idea. For Venezuela, the Petro coin was intended to support international trade and quash the country’s massive debt. But Venezuela’s Petro offering was mired in controversy.
Venezuela’s economic woes are tied to slumping production in the country, and the Petro was supposedly developed in an attempt to provide stability to an otherwise deteriorating economy. President Nicolás Maduro was looking to capitalize on Venezuelans demand for bitcoin and somehow transfer that enthusiasm over to the national cryptocurrency. He had so much confidence in the project that billions of the Petrol coin were pre-mined.
His plans appear to have gone awry.
There were many hurdles, not the least of which involved the impression that the country was looking to use the Petro to circumvent U.S. sanctions. As a result, Americans were unapologetically banned from transacting in the Petro. Features of decentralized currencies are generally transparency and trust – both were lost in the Venezuelan government’s efforts to bring a national blockchain currency to the world.
It was billed as the world’s maiden sovereign coin, but instead, it’s turned into a disaster. The Petro coin has been labeled everything from a fraud to a scam, which is only fueling the stigma that the broader cryptocurrency industry is trying so hard to shake.
Estonia is perhaps the most blockchain friendly of the Baltic states, and it is a country that historically has embraced technological innovation. After all, the tiny country gave the world Skype, and is pioneering an E-Residency program, wherein anyone can get a government ID, set up a company, and operate under EU regulations.
The small European nation has already released a national cryptocurrency, given the name “estcoin.” The vision involved an ICO and the linking of a national cryptocurrency to the euro. Intentions were to provide increased stability, and avoid the volatility that’s normally associated with the digital currency market, particularly the bitcoin price.
The plans were shortlived, however. Pushback came from the European Central Bank (ECB), and in particular, ECB President Mario Draghi who reportedly said: “No EU member state can introduce its own currency.” As a result, the Estonian government, which joined the EU in 2004, decided to direct all of its support behind the euro rather than create competition with a national cryptocurrency.
Impact on the Digital Currency Industry
To see governments around the world pursuing a national blockchain currency evokes mixed feelings among the digital currency community. For many participants, the inspiration of digital currencies is the lack of any centralized authority. Market participants from both the traditional financial landscape and the newer digital currency side have maintained that there’s enough room for both fiat money and digital currencies to coexist.
For instance, in recent days EY’s head of blockchain Angus C de Crespigny told Bloomberg that “banks and bitcoin can coexist.” Brad Garlinghouse, who is at the helm of Ripple — the blockchain startup that teamed up with Kutcher for the Rwanda wildlife investment — has maintained that Ripple is “not anti-government” nor are they “anti-fiat” money.
Not everyone feels that way, with the likes of Twitter and Square’s Jack Dorsey suggesting that bitcoin will emerge as the sole global currency in the coming decade. Perhaps that’s why many governments are viewing the market as a threat rather than an opportunity, with the above exceptions of course, and several others.
For now, cryptocurrency in Canada remains decentralized, without any attempts to create a national cryptocurrency. The banking system also remains skeptical of cryptocurrency, which is why it used to be so difficult to buy Bitcoin in Canada using Canadian Interac. That’s changed thanks to Bitbuy, which now allows you to buy Bitcoin with Interac or e-transfer.
Until Bitbuy came, it was hard to find a Canadian cryptocurrency exchange that allowed you to buy Bitcoin without having to exchange it into USD. Now you can save on currency exchange fees and get directly into cryptocurrency. To take advantage of low fees and fast transaction times, sign up today with Bitbuy.
What Would Happen if a Country Moved Towards Bitcoin?
It’s an interesting thought experiment to consider the implications of a country shifting entirely to bitcoin. Given bitcoin’s limited supply of 21 million bitcoins, (of which an estimated 23% are lost), a nation moving to transact entirely on bitcoin or another digital currency would have massive ramifications.
Some quick back-of-the-envelope math suggests that $9 billion USD (Rwanda’s GDP) being converted into bitcoin would cause a jump of about 8% in bitcoin’s price. (Bitcoin’s market cap is currently around $110 billion USD.) Of course, the real effects would likely be much higher, as the true bitcoin circulation, increased network effects, transaction increases, improved liquidity and stability, and numerous other factors would factor in.
Keep in mind that Rwanda is a tiny population (about the size of Ohio) that is relatively underdeveloped when compared to western nations. Any nation adopting a digital currency as its own, (or even gaining significant traction) would be like having an enormous purchase of that currency take place, plus a massive increase in network activities.
Is a National Digital Currency Likely?
Governments burying their heads in the sand, rather than exploring the benefits of a national blockchain currency, could do more harm than good. A recent Forbes article pointed to some of the drivers toward more national cryptocurrencies, including regulation such as Europe’s PSD2, which is focused on transparency and data privacy – both features of the decentralized blockchain. Also, digital payments are on the rise, with some countries even pursuing a cashless society. The rise of fintech has already altered the banking landscape and blockchain could be the next logical chapter.
Whether or not global economies decide to pursue national blockchain currencies remains to be seen, and even those countries that are implementing the public ledger are in the early stages of doing so. But one thing that policymakers are increasingly agreeing on is the fact that blockchain, and often much to their chagrin digital currencies, aren’t going anywhere.