The Potential Effects of Crypto-currencies on South African Business
Cryptocurrency is a digital currency that uses cryptography for security and leverages a disruptive technology called blockchain invented by Satoshi Nakamoto in 2009. Transactions are recorded by a proof of work system called mining. Mining is a critical function as it allows maintenance of the networks and verification by miners. Cryptocurrencies are monitored by a decentralised peer to peer network with no central authority or middlemen and are managed securely by using a Crypto Wallet.
As of March 25, 2018, Coinmarketcap.com listed 1,594 types of cryptocurrencies and still increasing. The total market capitalization is approximately R102,10 billion Currently the top ten of these cryptocurrencies is Bitcoin, which is the most popular in South Africa, followed by Ethereum, Ripple, Litecoin, Dash, Cardano, EOS, NEO, Stellar and IOTA.
This new digital currency may change the way transactions are done in terms of payment, investment, and other financial mechanisms. However, its potential effect on South African business and economy must be analysed through the lens of uptake i.e. usage and acceptability to do transactions, benefits and detriments, and potential future implications.
Usage and Acceptability
Today cryptocurrencies has become very popular, many investors are now trying to figure out ways to invest into this new financial instrumen. However, as with any investment into a modern technology there are many factors to consider when assessing their future.
Through PayFast, an ecommerce gateway with 30,000 local online merchants currently accept Bitcoin in South Africa, including largest online retailer merchant, Takealot. However, currently many other cryptocurrencies such as IOTA and Ethereum are not extensively supported for payment in South Africa because of the lack of local cryptocurrency exchanges. Red and Yellow Creative Business School, with campuses in Cape Town and Johannesburg, announced earlier this year that they will accept Bitcoin payments for tuition (Red and Yellow Creative Business School,2018). Cryptocurrencies may provide business with additional advantages. For instance, Litecoin confirms transactions faster than Bitcoin, providing time-sensitive transactions. Dash provides privacy focused transactions Ripple is the only cryptocurrency in this list that does not have a blockchain but instead uses a global consensus ledger.
There are many benefits that cryptocurrencies will provide to South Africa businesses and to the economy:
· No exchange rates, interest rates, nor are there transaction charges: Therefore, they are the same value everywhere, meaning South Africa businesses can transact with other businesses from all over the world, without having to worry about currency fluctuations and related transactional costs, which usually go into the cost of doing business internationally.
· No bank involved: Businesses that accept bitcoin will no longer have to depend on banks to verify and run monetary transactions for customers but will rather be able to accept funds directly from their customers, and have the security already imbedded throughout the transaction process.
· Time: Cryptocurrencies will significantly reduce the time it takes for transactions to be completed, which may revolutionize many industries.
· Cost reduced: With the use of cryptocurrencies, diaspora and local communities, who provide critical aid and capital flows to developing countries, will now be able to drastically reduce the time and costs to send money overseas.
· Reduced Fraud: South African businesses will be able to transact directly with customers and other merchants alike using cryptocurrency’s “push” mechanism, thus reducing fraud and adding a layer of assurance.
Cryptocurrency being a number in its nature has the potential to become money if it is accepted by governments in tax payments and in accounting. In a world in which cryptocurrencies are widely accepted and all South African businesses transact using them, there would be great benefits for South Africa’s economy in that businesses would have higher profit margins due to reduced costs and fraud and more efficient processes. Also, South Africa’s economy would improve due to greater foreign direct investment due to increased investor confidence, which would also increase the country’s credit rating.
However, there are some detriments of cryptocurrencies to South African business and the economy:
· Operational risk: For instance, despite a user’s efforts to keep a private key secure, vulnerabilities may still arise such as operator error, security flaws, and malware that scours hard drives in search of wallet credentials and private keys .
· Integrity risk: Hackers may try to hack cryptocurrency wallets by phishing attacks directly from the client’s electronic wallets or by exploiting software security flaws which may lead business not want to participate
· No Insurance: No assured legal cover from the government or insurance for owners, everything is on your own risk.
· Price Volatility: There is no reliable medium of exchange as the value goes up and down which may lead to great lose or a win to some for example January 4 Ripple was R45,43 and after that peak ripple drop 50.% and fallen another 30% in February.
Due to these detriments to South African businesses, the South African economy could experience lack of growth and have periods of losses, if cryptocurrencies are used and accepted broadly. For example, if a significant drop in the price of cryptocurrencies occurs, businesses may incur huge losses, which are not backed up with any loss protection using cryptocurrencies. Also, price volatility will make it difficult for South African central banks to execute monetary policies.
Future Implications
As this relates to South African business and the economy, usage and acceptability and regulation of cryptocurrency in the future will play a key role. For instance, China is South Africa’s number one trading partner, and in September 2017, China banned ICOs as an unlawful fundraising tool and began investigations into sixty ICO platforms . If this ban continues, it makes the adoption of cryptocurrencies by South African businesses, who do or would like to do business in China, less likely since South African businesses will not be able to transact with Chinese businesses using cryptocurrencies.
Conclusion
Cryptocurrencies may act as a gateway to a more versatile financial service for South African economy. This asset may be beneficial on a large scale in terms of transparency and removing corruption from business practices and building trust in the South African business brand globally. The remaining challenge of achieving mainstream adoption does not seem to be hindered by existing regulations in any major way. However, this may change at any time, and with the price volatility and potential refusal of global markets to use or accept cryptocurrencies.
Published at Sat, 17 Aug 2019 14:15:51 +0000
Bitcoin Pic Of The Moment
Etherium Meetup Hong Kong organized by Jehan Chu.
Vitalik Buterin test codes (illustrates) one of the features of Caring Currency using Etherium.
Photo: Philip McMaster, Caring Currency – World Sustainability Project
www.CaringCurrency.com
www.RepublicOfConscience.com
www.WorldSustainability.Org
By Philip McMaster PeacePlusOne_!/ on 2014-06-26 21:40:34
