Africa’s Future Through Blockchain Lenses

Over the last few years, blockchain technologies have been real-world utility across Africa and the world at large. The concept of blockchain is still getting traction daily and use-cases are still being understood as innovators and innovation ecosystems define new ways of bringing blockchain technologies into the real world. What we can be certain of is that these technologies have immense potential for addressing some challenges that Africa faces.

To many, blockchain is recognized as the “fifth evolution” of computing, the missing trust layer for the internet but to some, it is still unfamiliar waters. Few technologies have oscillated between public appreciation and depreciation, between hype and caution as much as as blockchain technology has since its inception roughly a decade ago. This article offers a fresh view on blockchain technology and it’s use cases as it is maturing.

Blockchain technology describes a new way of data handling. It refers to a specific form of distributed ledger architecture, which stores transactions in a list of blocks, which are linked cryptographically. In short, blockchains are a novel approach to the distributed database.

There are key principles that are inherent to blockchain, such as transparency, and decentralization which on the surface, can address many of Africa’s challenges. From elections, to international remittance, as well as energy services and alternatives to banking; Africa has many developing systems that could benefit from this technology.

The main characteristics of blockchain technology — distribution, immutability and automation — can underpin both economic growth and social progress because they complement each other in a way that fosters trust in distributed ledger systems.

There is no single point of failure or capture; records are tamper-proof; parties ideally have a shared interest in maintaining the system and automation prevents human error once information has entered the system. When put to operation with a solid off-chain governance model, this can lead to trust in transactions performed without the need of an intermediary.

A comprehensive report done by PositiveBlockchain.io identified nearly 70 active projects or completed pilots that apply blockchain technology for their focus on social good while servicing parts of the African continent. These statistics are relevant because in the African project landscape, commercial benefits and social impact often go hand in hand. Out of the impact-focused projects, 58% have their headquarters in the continent, with the highest number of projects headquartered in Kenya, South Africa and Nigeria.

Most projects with a core focus on social good are for-profit startup initiatives, followed by non-profit initiatives and public-private partnerships, the latter often including governmental initiatives and/or initiatives of key industry players. A blockchain ecosystem has started to emerge.

DECENTRALIZED FINANCE

Long ridiculed as useful for only money-launderers and crooks, decentralized finance has come of age. Some leading experts on crypto and blockchain have been examining the financial solutions for Africa. Financial solutions are the most common ones in the blockchain space. This does not come as a surprise: Africans are early adopters of mobile money — more than half of global mobile-money service operators are located in Sub-Saharan Africa. The continent has the highest unbanked population in the world, the fastest growing population, and the highest proportion of microbusinesses.

Some Africans already explore the possibilities of using blockchain-based financial services to reduce the cost of remittance payments, or speculate and invest using cryptocurrencies like Bitcoin. Others benefit from community-based lending solutions or community currencies. One of the biggest game changers, however, in the financial sector is the possible application of a digital payment infrastructure.

In 2013 and 2014, the U.S. Securities and Exchange Commission (SEC) issued a warning to investors about the potential risks of investments involving virtual currency. The warning was that investors might be enticed with the promise of high returns and would not be skeptical enough of the new investment space that was so novel and cutting-edge. According to the SEC, digital currency was one of the top ten threats to investors. Today, the SEC stands ready to engage with companies and investors as cryptocurrency gains traction within all industries.

Not even two years later, countries around the world — including the UK, Canada, Australia, and China — began investigating how they could create their own digital currencies, seizing cryptocurrency for themselves and put money back on the blockchain. The turning point was when they began to perceive that the benefits started outweighing the risks. Bitcoin, for example, had been able to stand up to hackers for several years, even when many government systems were compromised, making it an appealing system to try. Innovations in blockchain technology promised to handle the billions of transaction need to support economies, making a cryptocurrency feasible at scale.

African central banks have not been left behind as they too have decided to hop on the train by announcing they will research the issuance of their own digital currencies, so-called central bank digital currencies(CBDCs). According to a recently published study by the Bank for International Settlements (BIS) this is the case for 70% of all global central banks. Of the central banks participating in the study, 10% stated that they are likely to introduce such digital money in the short term (up to three years) and 20% in the medium term (up to six years).

Central banks’ motives for introducing a retail CBDC are manifold. The survey of the BIS shows that they differ between advanced economies on the one hand and emerging market economies on the other hand: emerging economies mainly hope to increase financial stability by lowering the concentration of money in the banking sector, to increase the efficiency of payment transactions, i.e. transaction time and costs, and increase the security of digital transactions.

Another hope by central bankers in emerging market economies is to increase financial inclusion by introducing a CBDC. A consumer-friendly CBDC with low entry barriers such as the opportunity to transact small units of CBDC without know-your-customer (KYC) requirements could ease the access to digital transaction services for citizens, who are currently excluded from the financial system (financially excluded).

One can think of the example of M-Pesa in Kenya and Tanzania, where holders of mobile phones can transfer money from phone to phone. If a CBDC is implemented in a similar fashion and can be transferred peer-to-peer via phones more citizens would get access to the financial system. Nowadays, IDs and bank accounts are most often necessary to transfer money. However, many citizens in developing countries do not have an ID nor a bank account. On the precondition of eased KYC requirements such a CBDC could be a gamechanger and allow citizens even to some extent without ID and bank
account to conduct payments.

GOVERNANCE AND EXPENDITURE

From the global Aid Effectiveness Agenda we learn that partner country institutions should have a strong role in development cooperation. In reality, however, donors have developed their own customized procedures designed to minimize risks for the disbursement of development aid. Partner countries are left with the onerous task of collecting financial data and coordinating various donor requirements. As a consequence, the structural impact of development cooperation remains limited, as local systems struggle to adequately absorb funds.

Blockchain-based workflow tools can allow for efficient project implementation by offering functionalities to track expenditures in a collaborative and transparent way. They can help to coordinate the implementation of donor-funded investment projects by providing a shared and up-to date view on project-related expenditures and by allowing multiple parties to lock transactions in real time.

Public spending applications of this kind can benefit partner countries and donors in several ways:

• The partner country is in full control of donor funded projects.
• They promise to reduce transaction costs on both sides.
• Donors may channel funds through country institutions and trace project-related payments.
• The systems facilitate communication and data management.
  This, in turn, has the potential of increasing the structural impact of development cooperation by strengthening domestic governance structures and public financial management systems.

IDENTITY AND OWNERSHIP

The topic of identity and ownership spans both legal personal identification as well as ownership of assets e.g. land or property, and personal attributes, e.g. a doctoral degree. Proving one’s identity in the digital space as a way to access resources or exercise rights has become increasingly important.

Blockchain technology may now deliver the needed infrastructure to provide digital proof of such claims. Therefore, applications of the technology for digital claims have sprung up across the globe with specific promises for the African continent.

When it comes to identity management, projects like Gravity Earth provide trusted identities for the economically excluded, while initiatives like Lawyer’s Hub in Kenya aim to tackle the issue of continued exclusion of minorities when moving from physical to digital identity systems. Another initiative in this area is the partnership of the Rwandan Government with WiseKey & Microsoft Azure for digital authentication, secure transactions, and legally binding signatures.

In the case of land registration, blockchain technology can increase the transparency of ownership changes reducing the possibility of manipulation of existing titles. Similar to the registration process with a traditional land registry, two citizens who have agreed on the sale of a land parcel go to the governmental administrator responsible for transactions of land. As they sign the sales contract, the administrator enters the details of the transaction into a blockchain-powered land registry database.

Now, the public ledger will be provided with a privacy-shielded set of data. This would specifically entail a checksum computationally generated based on the details of the new land title, i.e. the fingerprint or hash of the full transaction. While the hash is captured and permanently stored on a blockchain, the full transaction details are being stored privately. Once the transaction is computationally approved by the network and added to the ledger, the transfer of ownership is immutably recorded and the blockchain becomes a single point of truth. This prevents document forgery and corrupt land transfers.

This decentralized land registry adds value through its immutability and resilience. The fraud and corruption scenarios that rely on the forging or “disappearing” of documents, or attempts to sell land more than once, are effectively discouraged by a timestamped hash on a public ledger. Once land titles are appropriately digitized and secured using blockchain, this would especially benefit marginalized groups in society, such as women or indigenous populations, who are often the victims of land fraud. For this, however, a quality assured and safeguarded approach throughout the implementation phase is required.

If there are doubts as to the validity of a land ownership claim, anybody can consult the public ledger for validation. A smartphone app or web platform could be used as a user interface to that end.

EDUCATION

Across the globe, the future of work shifts the focus from manual labor to knowledge work. Individuals now find themselves in a global labor market where it is key to differentiate oneself through a unique, up-to-date and continuously progressing skill set.

When previously an individual may have undergone one-off training for a specific skill at a (physical) institution that has a reputation among a local community, the new reality of life-long learning, micro certificates and the unbundling of educational programs from various institutions worldwide leads to new challenges. To provide employers or other administrations with an overview on a learner’s complex educational history, they would need reliable information about a learner’s educational path. The promise of blockchain-based education credentials is exactly that.

In order to increase trust in educational certificates, blockchain-based systems can be used for the verification of digital documents. This helps to re-establish trust among employers and the global labor pool by limiting the forgery of documents and increasing their recognition across national borders.

The added value of verifying digital documents through a public blockchain is twofold. First, it lies in its reliability and robustness, resulting in an extremely high degree of availability and trustworthiness of the information provided by the blockchain-based verification process. Second, such a digital verification process with machine-readable certificates is quick, fair and globally accessible. In comparison, manual verification processes may involve time-consuming requests to issuing institutions and work flows prone to human error and corruption. Ideally, learners, educational institutions and third parties will benefit equally from forgery-proof certificates and reduced costs from efficiency gains.

There are three user groups in the blockchain-based credentialing systems:

1. Education providers such as universities or schools issue certificates as digital originals and store so-called hashes of these files — which can also be called digital fingerprints — on a blockchain.
2. Students receive their certificates in digital form and can pass them on to third parties or upload them to professional online social networking platforms (such as LinkedIn) that are exploring automatic
   verification of digital certificates.
3. Third parties such as employers or administrations can then validate the submitted certificates electronically by comparing the document’s fingerprints with those stored on the blockchain. They do not have to go through the cumbersome process of contacting the issuing institutions anymore.

AGRICULTURAL SUPPLY CHAINS

Almost half the African population relies on agriculture for employment and food, and the percentage can reach 70% in East Africa. Yet, the sector and the farmers are not delivering their full potential as they are facing several issues such as the lack of access to financial resources and insurance, as well as the complexity and opacity of supply and value chains.

Supply chains are intrinsically complex flows of goods, money and services. Their traceability refers to the collection, documentation, and application of information related to all processes in the supply chain in a manner that provides guarantee to the end-customer and other stakeholders along the supply chain on the provenance, location and life history of a product. It represents the ability to conduct a full backward tracking to determine characteristics of the goods by means of records.

Often, the opaqueness of supply chains hinders customers from understanding the provenance of a product, as well as its social and environmental impact for smallholder farmers and other participants of the supply chain. While increasing numbers of customers seek out organically produced goods, industry fails to provide such goods at a satisfactory standard. Currently, the only way for customers to be promised higher standards is through certification schemes. These schemes tend to be too costly for single smallholder farmers and even corporates may shy away from the investment. Hence, farmers and workers may carry on receiving low prices for goods that could be distinguished as sustainably sourced.

In blockchain technology, a token is a digital asset that is stored on the chain and can be connected to a real-world value. Tokenization in this context allows to uniquely associate information to goods and services of a certain time period. The advantage here is that every movement along the chain will be recorded. The traceability of transactions enables higher transparency on how goods are being sourced, processed and transported as each step along the chain of custody can be immutably recorded in real-time on a blockchain.

This capacity to shed light on the origins of consumer goods is one of the more promising attributes of blockchain technology for local producers, logistical partners, and stakeholders along the supply chain. All logistical information would be secured on-chain and all parties would trust this single source of truth. Hypothetically, it could reward those using sustainable practices thanks to the increased price consumers may be willing to pay based on more trust that has been created using a distributed ledger.

However, there is no one-size-fits-all solution. Each supply chain has to be checked for its potential to leverage distributed ledger technology. The capacity to run blockchain-powered supply chains will largely rely on the willingness of all stakeholders involved and the ability to tokenize a traded good. The more unique and identifiable the good is, the more its digital twin will faithfully reflect its attributes. Unprocessed coconuts or pineapples for example are easier use cases for traceability as they can be easily marked and traced — off-chain and on a blockchain.

Crucially, the technical infrastructure should be governed by a reputable consortium of institutions that is deemed trustworthy, similarly to how trust and power is (explicitly or implicitly) present in today’s educational systems. A key role of this consortium would be to authorize schools and other educational institutions to issue digital certificates with their credentials.

Discussed above are some of the use cases that when implemented in the blockchain ecosystem, will not only solve our problems as a continent but also create a great future for generations to come. It is important to offer a critical view of blockchain technologies and to be objective about what can work in Africa and what cannot work. We need to be certain that the use of blockchain does not amount to the surrendering of sovereignty and data protection rights. The technology we adopt must enhance Africa’s progress towards a single digital economy.