What is blockchain?
If you’re reading this, odds are you’ve heard about Bitcoin. And you’ve heard one expression or the other that has described bitcoin using terms similar to: bitcoin is a peer to peer digital currency system that enables users directly engage in transactions, verified by nodes that use an immutable distributed ledger called a blockchain. All that gibberish really means bitcoin is a network of people running software on their computers to track the account balances of everyone in the system. It’s important to note that Bitcoin is different from the blockchain. The blockchain is the underlying technology that bitcoin uses for record keeping and is applicable in not just currency spaces but in all sorts of things from immutable contracts (e.g Ethereum) to immutable records (e.g for land registry) to immutable silly games (e.g. CryptoKitties). A blockchain is a decentralized public ledger (meaning no central record keeper: records are kept and scattered amongst everyone in the system) used by most cryptocurrencies to keep track of transactions (aka activities). Need even more breakdown? Check here — I promise, it’s good ;)
History so far?
The starting point of the blockchain was 2008 when Satoshi Nakamoto released the white paper on Bitcoin, the first application of distributed blockchain technology. It gradually found its way into the mainstream public, primarily gaining adoption in insular circles of the geeky libertarian internet before getting embraced by even established financial institutions. Since 2008, Bitcoin’s cryptoeconomic and ideological philosophy has spun all sorts of projects and is getting positioned for growing influence.
Nigeria’s involvement has been gradual, yet on the rise. Notably, late 2016 saw a boom as Nigerians used bitcoin to funnel funds into the ponzi MMM scheme. Banks attempted to crack down on the ponzi scheme and block funding or make engagement difficult; MMM resorted to the unregulated world of bitcoin. There has also been the advent of all sorts of “crypto scams” including Abjcoin, Swisscoin, Bitconnect, and Onecoin — please stay away from these nonsenses. There is also strong evidence of trading ability as seen by data from localbitcoins (referenced below), the largest trading exchange in Nigeria and as seen by data from Google Trends — it’s crazy!
Regulators have been very careful in ensuring they do not block the progress of the space but have also put in decent effort to sensitize users. The SEC in January 2017 issued a statement that aptly summarizes regulators’ sentiments:
- “The Commission, wishes to alert the public that none of the persons, companies or entities promoting cryptocurrencies has been recognized or authorized by it or by other regulatory agencies in Nigeria to receive deposits from the public or to provide any investment or other financial services in or from Nigeria. The public should also be aware that any investment opportunities promoted by these persons, companies or entities are likely to be of a risky nature with a high risk of loss of money, whilst others may be outright fraudulent pyramid schemes.”
My hope is that we start building a blockchain ecosystem that jumps in as a global first adopter of this tech to transform our instiutions and build well-adapted applications to some of our challenges. Potential interesting applications include and are not limited to the following:
- Land title application: one of the more challenging problems in Lagos (Nigeria?) is the storage, access to, and registration of land deeds. It’s very difficult to ascertain ownership and figure the corresponding history of land transfer; the blockchain is the perfect solution for this kind of problem. In fact, many cities are already looking into this including Dubai and Andhra Pradesh, India.
- Proof of Concept Digital Currency free from government’s monetary policy and legacy banking. Nigeria is one of the places in dire need of this: citizens need a stable currency system that is independent of the government’s choice of monetary policy, exchange rate policy etc and can serve as a reliable and fungible means of exchange. Transactions can be public and even serve as basis for lending; transactions can be anonymous or semi-anonymous or completely open; transactions can also be almost-zero cost and can be as simple as pressing two buttons on an app on your phone.
- Store of value: people in different parts of the world including Zimbabwe and Venezuela already store their incomes, savings and wealth in bitcoins in order to protect from inflation, hyperinflation, government exchange rate controls and other deleterious economic situations.
- ICOs and Crowdfunding for various projects.
- Elections. The potential for this is astounding, although most of the tech is, again, nascent. We can build cryptographically secure voting systems on the blockchain with properties that include all votes being transparent yet identities being hidden; this can go a long way in preventing and combating rigging: “voting privacy but verifiability”. Innovations like zk-SNARKs allow us to prove that certain things are true (e.g a citizen voted for Azikwe) without revealing any extra information (e.g not revealing voter’s identity). More on zero-knowledge proof and Moscow’s blockchain voting system built on Ethereum.
These are but a few broadly defined use cases. Blockchain applications are extensive and they provide even more applications and uses including those listed below. The extent to which these can change socioeconomic structures is exciting and we are in yet infant stages, even at the global level.
- Currency to replace or complement paper money and fiat.
- Democratization of Venture Capital (VC) and Private Equity (PE) investment and capital returns via ICOs
- Privacy and anonymity — as desired
- Complete transparency — as desired
- Fixed monetary policy (that can be agreed upon beforehand or modified unanimously)
- Evasion of bad government and Big Brother
- Smart contracts
- Immutability (unchangeable historical records).
- Unlocking new business models (what are you?)
A lot of the vision for blockchain technology is unclear but this is why it is even more pertinent that we begin to wet our feet.
Risks and Headaches:
There is no technology without risks: ATMs and bank cards meant people could clone your cards and perform other hacks to pilfer your funds; the advent of the internet ushered in Yahoo! Yahoo! There is an increased level of risk as this space and ecosystem evolves:
- Scams (MMM etc)
- Terribly structured ICOs with terms that favor the rich or with founders looking for get-rich quick schemes
- Government and over-regulation
- Security and hacks
- High barrier to entry which might exclude some segments of the population and revert us to centralization in certain aspects
- Latent adoption and unequal distribution of wealth and power
- Uncertainty and new space
- Ignorance and gullibility
Why People should buy crypto:
- Purist concerns: you might have libertarian dreams of a world with even better governance across industries, economies, and money. You might be tired of the status quo and ready for an Exit. The blockchain seeks to eliminate barriers to entry and attempts to decentralize power by democratizing voting, control and governance. It’s a truly fundamental paradigm shift.
- Smother Marginalization: Africans and Black people in the diaspora have been heavily underrepresented in most of the recent tech waves. From latency in the adoption of technology to reduced access to funding to barely existent returns from VC and other internet-era successes, tech has been fertile ground for increased marginalization; in fact, tech’s exponential growth by nature ensures that gaps keep getting wider. As we approach the cusp of another tech breakthrough, it is essential that Africans and African countries are positioned to share in the successes, and are armed to fight to create opportunities through which the citizenry can be leaders in the space. To feed off Andela’s maxim: “brilliance is equally distributed but opportunity is not”; this is one space in which Early Adopters and the Early Majority become gatekeepers and it’s important to recognize that this is of course still a predominantly white and Asian male space.
- Investment: I don’t need to show you all those funny log graphs. Money dey there — for the patient.
Stakeholders and Roles:
Everyone needs to play a part in safeguarding the ecosystem. We need to develop a culture and community that is very well involved, invested and at the forefront of some of these innovation. In addition, a huge part of decentralization is social and community governance; the network effect nature of the blockchain makes it essential to watch out for the best interest of other users. Different stakeholders have different primary roles to play.
Government: one of the better parts of the emergence of blockchain technology has been the calmness of the world. Putin has been bullish on it, the IRS in the USA has been responsible with guidance, and regulators in Nigeria have taken a very cautious approach: taking a step back, watching and learning and working out the best course of action. These are very laudable steps that should be encouraged and we can only hope regulators continue to be cautious and offer careful guidance to let the ecosystem grow, enable users take advantage of the tech growth and ensure Nigerians have the freedom to build and use these amazing technologies.
Developers: just do what developers do. Build honest products. Shun scams.
Users: users are potentially the most vulnerable segment in the ecosystem. Even the most sophisticated and technical users can quickly find themselves victims of hacks, brutal irrational exuberance, and overwhelming dismay at the deluge of information and complexity in the space (UX of communicating technical Computer Science knowledge is still egregious!). The best option as a user is to pursue knowledge and understanding, avoid day trading (like, just let it go, Sis!) and maintain a conservative portfolio; you’re an Early Majority in a high-risk space, it’s really fine to be risk-avoidant.
Exchanges: at this point, exchanges are potentially the most important entities in this space. They are the gateways to this space for most users and serve as the custodian of their funds, it’s important we always pay special attention to their actions every step of the way; they can make or break culture. Some best practices to foster trust, encourage transparency, and avoid or prevent government anger
- Open source your code (community reviews help to prevent hacks and ensure more rigorous testing and enhance trust).
- Educate: help defuse scams, don’t promote, list or encourage scams, encourage users to learn
- Privacy and audit reviews: be transparent about proper security mechanisms put in place to store and safeguard users’ funds and to ensure there are fail-safes in the events of hacks, DDoS and other actions of malicious agents (Coinbase has a brilliant blogpost detailing what they do).
- Compliance: it’s important to not alienate governments and to work hand-in-hand to influence policy positively, maintain transparency and educate government and media on blockchain technology and its potential. Even preemptive steps like helping to properly calculate earnings and encouraging tax filings (for your users) might be steps in the right direction.
- Accessibility: as blockchain spreads, most of the world remains in the dark. And as we continue to see great imbalances in the rewards for Early Adopters, it becomes increasingly important to ensure that as few people as possible are marginalized. Exchanges have the responsibility of thinking about the marginalized as center in the development, adoption and expansion process. They absolutely shouldn’t be an afterthought.
We need to create and foster an ecosystem where all these parts work together: developers build beautiful decentralized applications and running experiments, users act as informed agents and pursue rational moves, exchanges are honest actors who understand that users winning is essential for their own success, government gives us more time to mature before they bring their guns, the community self-regulates. It’s a tough world to build but it’s a set of critical moves to make.
Call to Action
What should everyone do?
- Read a lot
- Evaluate your risk: invest and adopt
- Read and research
Editor’s Note: This is Work-in-Progress and was written ~November 2017 before the new wave of crypto speculative madness.