Maintaining a record of digital assets – evidence of their ownership and transfer history – on the blockchain means we have a completely secure, reliable and transparent way to transact with those assets. But those assets don’t have to be currencies, he explains Ahren Posthumus.
Few 21st century buzzwords have appeared as meteoric as “cryptocurrency” and “blockchain”. The hype around these two words has led to people mistakenly treating them as synonyms.
This misunderstanding might suggest that we are ignoring the potential of these technologies to fundamentally transform the world we live in. If we cannot distinguish between the two, we risk ignoring how they can be used to help improve our quality of life.
“Cryptocurrency” entered most of our vocabulary around 2016 when the most well-known cryptocurrency, bitcoin, skyrocketed in value over a few short months. Starting at $315.21 per bitcoin at the beginning of 2015, prices had climbed to $900 by the end of 2016. By mid-December 2017, cryptocurrency enthusiasts were paying more than 25 times that amount, at $19,345.49 per bitcoin. The lucky investor who bought R3600 worth of bitcoin in January 2015 earned R254400 by December 2017, an increase of 6966.67% (considering the weakness of the rand over that period).
So stories about some millennials becoming incredibly rich so quickly have been that bitcoin — and through cryptocurrency — has become a global talking point. But this led to some misconceptions, including that cryptocurrency and its underlying technology, the blockchain, were the same.
But what is a blockchain, if not just cryptocurrency?
In other words, what is the Internet if not for email? What is sport if not rugby?
Cryptocurrency is only one type of digital asset – it owes its existence and security to the blockchain. The actual blockchain is a broader ecosystem where information is stored in an encrypted “ledger” across a global network of computers.
There is no central server with sovereign “authority” over the ledger, keeping it decentralized, distributed, and secure. This means that no one person or entity has control over the records, and everyone (or anyone) can check them. Furthermore, the mathematical algorithms built into the system (quite simply, codes like the ones you use to unlock your computer) ensure that there are constant validation checks for records.
Maintaining a record of digital assets – evidence of their ownership and transfer history – on the blockchain means we have a completely secure, reliable and transparent way to transact with those assets. But these assets do not have to be currencies. In fact, any system that requires keeping records of ownership and changes in ownership can benefit from blockchain technology.
Here are some examples.
In South Africa and across the continent, there are issues with the integrity of property records. In towns and rural areas, it is alarmingly common for people not to hold title to properties they claim to own.
Usually, this is because, at some point along the ownership chain, someone neglected to formally register and transfer ownership upon sale. The process is often expensive or inconvenient. Sometimes this can also lead to scams, many times properties are sold by someone who is not the owner, because it is difficult to verify that ownership. With the blockchain, anyone can verify ownership, as long as they have an internet connection.
This pervasive problem not only undermines property rights, but also threatens the social and economic security and stability of societies when conflicts arise.
A company based in Nigeria is already working on addressing this issue with blockchain technology. Digital assets related to plots of land are plotted on publicly available satellite maps, which contain information about the price of the land, its current owner and ownership history.
Nigerian real estate agents use the system to facilitate the sale of land and issuance of title certificates. These certifications are reliable because of the reliability of the underlying technology. Most importantly, no one has to pay to visit a sukuk office to access the information – it’s all public, distributed and decentralized.
As a result, thousands of people have been able to protect themselves from a scam common in Nigeria (and reportedly in South Africa) involving a “seller” selling land they never owned. The unfortunate “buyer” only finds out months (or years) later that the transaction was fraudulent when the real owner arrives, by which time the fraudster has disappeared.
When the “assets” in a blockchain are commodities moving along the supply chain, and the “ownership” side refers to the various points along that supply chain, the technology provides an efficient way to track the goods and their assets.
It has found application in the carbon credits market, which has been plagued by widespread fraud that threatens to undermine the entire enterprise. How do I know that the “tree” I’m buying to offset the emissions of my trip to Johannesburg, for example, is actually in a real forest? How do I know the same tree hasn’t already been sold to someone else?
Companies like IBM and the Poseidon Foundation use blockchain-based tokens tied to parts of carbon offset projects (such as trees in forests) to ensure that carbon credits are not only valid and trustworthy, but also easily transferable.
This will help us free up the flow of climate finance, not just today, but in the future as well.
Digital identities associated with individuals can also be assets on the blockchain, providing a way for people to maintain control over their personal data and simplify the process of verifying it (when voting, for example, or obtaining a driver’s license). This will also allow users to choose when and with whom they share their identity data, reducing the risk of data breaches and identity theft.
Smart contracts, linked to these identities, could reduce fraud in public payments for Social Security benefits, or NSFAS payments.
Australia is an example of a country actively exploring blockchain technology to facilitate welfare payments. Doing so can reduce duplicate payments and payments to deceased or fraudulent beneficiaries, and ensure that funds are never “lost” due to errors in providing bank details.
The future of the blockchain is much more than just a digital currency. In fact, it is already being used in South Africa to address our national energy crisis, by coding solar cells onto solar panels as well. These are just a few examples of how this technology can change the way we live and interact with each other and the country. I look forward to the day when these possibilities are reflected in our daily use of twenty-first century language.
Ahren Posthumus is the CEO of Momint, a technology company based in Cape Town.
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