As the year 2019 draws to a close, one thing is now apparent, the blockchain technology saw a bigger embrace by private organizations as well as public entities. Still, resistance (by government primarily) to privately issued cryptocurrencies remains while the same governments are now warming to the idea of central bank issued digital currencies.
Below we look at some of the major blockchain and cryptocurrency news and events during the year
The proposal by Facebook and its associates to create stable token, Libra, caused much excitement just as much as it caused consternation. For some of the social media giant’ users, Libra is an exciting innovation that will enable cross border payments via an organization (or network) which they are familiar with. It is rather a welcome departure from what has become the norm where tokens issued by anonymous persons or virtually unknown entities.
Moreover, Libra comes with a promise of stability, something that pioneering cryptocurrencies have failed to achieve to date. In many ways, Libra promises to be a better crypto and this should normally be a welcome development.
Nevertheless, not everyone was/is impressed with Facebook’s proposal, governments and politicians have reacted angrily to the announcement, with US president Donald Trump leading the charge in denigrating the token. For many people in this corner, Facebook is the last organization that should be trusted with user or client funds.
Facebook has failed many transparency and trust tests including failing to stop third parties from illegally accessing client data. Facebook’s integrity –particularly with US politicians—was further dented when bad actors used the network as a tool in disinformation campaigns, most notably during the 2016 United States elections.
It is against this background that the prospect of this organization handling billions of dollars of client funds is unfathomable.
For politicians, American politicians to be precise, the prospect of Libra really toppling the US dollar as the world’s reserve currency seems very real. The only way to pre-empt this likely scenario is stopping any further progress on the token by any means necessary. So far this has worked, the Libra has lost support of some founding members although Facebook insists the token will come to life.
While American officials do not like the idea of any currency competing with the USD for global dominance, there is not much they can do to stop the likes of China from issuing their own digital token. Many predict such tokens will challenge and possibly end the US dollar’s global hegemony.
China takes a giant step
China’s path towards a central bank digital currency (CBDC) was tentatively kick-started with the promulgation of the cryptography law, a first by a nation state. Next, Chinese leaders began talking up the potential of the blockchain with President Xi leading the line, a complete reverse of what Donald Trump is doing. The state controlled media has even lauded Bitcoin as the first success story of the blockchain something the western media is yet to do.
It appears China understands that the blockchain space is the next big thing and it wants a front row seat this time.
The only blemish so far with China’s story is the fact that it continues to discourage private currency issuers with reports of Bitcoin mining companies being harassed continuing. It remains to be seen what the Chinese stance on cryptos like Bitcoin or Ethereum will be when its own CBDC starts circulating.
Whatever politicians and governments do or say about Bitcoin do not seem to have a medium to long term effect on this leading crypto. After the astronomical surge in its price during 2017, the token spent the better of 2018 on the decline with some opponents gleefully predicting it would finally crash.
The crash never came. In fact, Bitcoin price began surging again, from a low of just under $4 000 in April 2019 to around $10000 by July of the same year. Some had predicted that it would end the year above $20 000 but that now appears unlikely as there are only a few days remaining in the year.
Meanwhile, after nearly ten years of denial, it seems powerful players in the financial services industry have accepted that Bitcoin is here to stay. Jerome Powell is the most prominent figure from the central bank orbit to give some kind of recognition to Bitcoin when he said the token was akin to digital gold, a vital endorsement in the eyes of crypto enthusiasts.
Powell admitted that people and possibly institutions were holding on to Bitcoin for speculative purposes as well as for hedging against inflation and currency depreciation. However, Powell was careful not to recognize Bitcoin as a currency, something that is repeated by many leading central banks.
Granting such a status is something Bitcoin supporters crave for but one which central bankers are not keen on giving for rather selfish reasons.
As we look forward to 2020, Bitcoin will remain a leading cryptocurrency yet many more tokens will be launched to challenge or as a step up from Bitcoin. There are some glaring issues with Bitcoin that need to be resolved but garnering the requisite consensus required to effect any such changes has been elusive and this will continue to be the case in 2020.
Consequently, Bitcoin will continue to be seen less as digital cash—Satoshi’s ultimate dream—and more as a store of value, and this means the opportunity to achieve this dream remains open.
Africa finally coming around
African countries have in the past fought very hard to stop cryptocurrencies like Bitcoin from taking root but with little success. It seems borderless tokens are well suited for some African countries with large Diaspora communities. However, the increasing use of such tokens threatens the dominant position that central banks enjoy.
Consequently, some African countries have issued warnings against the use of cryptocurrencies and some like the Central Bank of Tanzania felt the need to re-emphasize this point with another public warning during the last quarter of the year.
Interestingly however, some African countries are embracing the blockchain in unprecedented ways. Lesotho is the first nation from Southern Africa—if not the entire continent—to embrace the blockchain when it was announced it had partnered with a blockchain technology company, Apollo.
Ghana recently announced it will be using the blockchain technology to manage the land registry which is presently shambolic. The blockchain can potentially end cases of double selling of the same piece of land, the use of fraudulent title documents or the so-called land barons.
Zimbabwe—which previously discouraged blockchain related companies—also announced the set up of a committee to study cryptocurrencies and other financial technologies. Tunisia was widely reported to have announced it would issue its own CBDC but there was an immediate rebuttal of the story by the government.
From the few African countries openly encouraging the use of the technology, it would seem they are reading from the script as their European counterparts, that blockchain should only be allowed in areas where it does not challenge the status quo.
However, unlike their European counterparts, African countries do not have stable economies and strong national currencies hence the continent remains fertile ground for the deployment of decentralized cryptocurrencies. Private issuers of cryptocurrencies will continue to target the continent because there is a real need for alternatives to national fiat currencies.
CBDC gaining traction?
Perhaps the least told story of Libra is how this yet to be released token made governments and central banks to start seriously consider issuing their own digital tokens. As a recent study into retail CBDCs undertaken by OMFIF and IBM observed, Libra is the most recent and conspicuous manifestation of a desire by private sector players to overcome longstanding challenges with conventional payments systems.
The OMFIF/IBM study concluded that central banks must realize that the proliferation of different crypto solutions like that of Libra means it is time for them to reform and innovate or they risk being driven out.
Indeed a handful of central banks are experimenting with CBDC with hopes high that results will buttress the cause for centrally issued tokens.
As we approach 2020, it remains to be seen if African countries where the use case for CBDC is greater will follow on this advice.
Finally as the year 2019 has shown, this technology is here to stay and ignoring this will be perilous for any self respecting government or central bank. There is still time for those previously opposed (to the blockchain) to change their stance and embrace this because this revolution is unstoppable.