This is the first of three series of articles on Cryptocurrencies, NFTs, Metaverse, and an evolving Africa.
Read the news or use the internet of late? you most likely should have encountered these words, cryptocurrency, bitcoin, NFTs, and metaverse. But what do they all mean, and how do they fit into modern-day evolving Africa?
During the last couple of decades, following the creation of the internet and the ushering of the digital age, several industries and companies have been under serious disruption. The telecommunication industry, commerce, education, media, etc. The invention of the world wide web (www) and the aftermath effect have led to massive changes and adjustments in the day-to-day lives of humans. People found new ways to learn, trade, and communicate. Information shifted from central places such as libraries, bookshops, etc to the internet accessible by millions from the comfort of their homes or then-popular cyber-cafes. Some industries however escaped early disruption, and one which interests us is the banking sector; which we will investigate and see how disruption is now catching up with it.
The invention of personal computers in 1974, and the internet in 1983, kicked off the emergence of a world no one could have predicted in the 1900s. But what are the driving factors of this fast-changing world? A lot can be attributed to global peace, breakthroughs in science, the invention of chips, the internet, the worldwide web, the breakthroughs, and the success in medicine, eradicating numerous diseases that have plagued mankind and reduced life expectancy. But the changes are accelerating…
Whilst the new age of the internet and digital world was been ushered certain parts of the world were still struggling to catch up with full-scale industrialization. Take, for example, the industrial revolution which started in Sub-Sharan Africa in the 1920s, about a century after the American industrial revolution had kicked off. This sort of lag leaves regions like this highly underdeveloped compared to their western counterparts. They usually carry such lags into new revolutions, e.g the internet age, and the rise of personal computers and smartphones.
Disrupting money, banking sector, age of Cryptocurrencies
The banking sector is one of the oldest sectors still in strong and reliant use today. The first banks dated back to the 14th century where families dominated the early banking system; notably the Medici’s of Florence, Italy. But relatively new inventions have caused the banks to change the way they keep financial records and serve people. Even the popular use of credit and debit cards were invented in the 1950s, long before the internet was born, so we can confidently say the banking sector did not really suffer any major disruption until Now!
This is because what banks recorded were financial transactions, most cases dealing with money, a means for people to exchange goods and services while retaining value and remaining fungible. The disruptions happening now in this sector are actually in two folds, firstly, the disruption of money, and secondly the disruption of record keeping of financial transactions.
What is money?
Money is a means by which people can trade goods and services. Money was invented many years ago as a necessity for a measurable and reliable means of exchange. The then gift economy and barter trading could not serve these needs. Money has been recreated in many ways across centuries with the demands of measurability, easy transportation, durability, scarcity, etc fuelling its evolution.
In recent times, money has long assumed the paper form printed by an authority which the government usually assign to oversee this business, thus, placing a status of legal-tender to this authorized form of money. A couple of things are noticeably amiss with such a system, a major one has been the centralization of power, which gives the government the power to cause devaluation and hyper-inflation by minting excess money, an example is Zimbabwe’s banking crisis which caused hyperinflation (2007–2009). What this means is, a corrupt government would not just have many ways to cause despair amongst its citizens, but autonomously decide the fate of money, the one thing that stores value and which they depend on to trade, remit and preserve wealth. The banks are plagued by a similar fail-point in their centralized record-keeping system. A change was needed!
The Age of Cryptocurrency and Blockchain Technology
The invention of a new means to store value and allow people to transact without a need for a central authority like banks is ushering in the new age of money. These virtual currencies first made an appearance a little more than a decade ago in the first of their kind; Bitcoin. As we have come to see, bitcoin is not the only cryptocurrency but simply the first and leader of the revolution. Others quickly followed such as Ethereum which gained fast popularity within the consumer community and developers or the so-called creators in the digital age. But what are the major differences between these new forms of currencies, where do they come from, how do they solve the previous problems, and what gives them their knack?
Blockchain Technology
The short answer is blockchain, the new form of record-keeping, which is a more efficient and trusted means than what the banks have offered us for centuries. The blockchain is an immutable decentralized ledger or record of transactions that are cryptographically secured. It is decentralized in the sense of not having one single place for record storage, unlike banks, where record-keeping is centralized, the blockchain allows transparency and decentralization across the entire network. Thus, each participant in the network has a record, which is a big game-changer. Its immutability comes from its mathematical structure; each transaction is secured with cryptography and is linked to all other transactions thus ensuring difficulty in alteration, a change in one transaction breaks the chain of records that are pointing to one another. Therefore to alter the records one needs to re-validate the entire chain. This is not likely, as a lot of power is used up during validation, and power is decentralized in the blockchain network. and if by any means you alter all transactions in a ledger there are still numerous ledgers out there that will disagree with the records, thus the system is difficult to cheat!
You may be wondering why all this is important, well it is, with a decentralized currency, a government cannot decide to mint more money thus causing hyperinflation, and a bank cannot aid looting of funds in a corrupt system as is being experienced in many cases in Africa. Additionally, cryptocurrencies work with a deflation model which ensures that devaluation is difficult since the supply is finite.
The world has seen the importance of this in just over a decade, and millions are taking the first step in becoming their own banks. This new technology in bitcoin and cryptocurrencies have also created new businesses and new types of marketplaces.