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Tuesday, 14 July 2015

WHAT YOU NEED TO KNOW ABOUT M-PESA AND THE REALITIES OF THE BLOCKCHAIN



This is really an article about a ledger and two ideologies that compete to control it. One ascribes to a stateless society, defined by self-governed voluntary institutions. The other looks to government and state machinery for answers.

The State

As of this writing, there are more than two hundred self-governing states in the world, this development became a reality over the last 200 years as former monarchs lost their influence and power, and sold a particular brand of government to the rest of the world.

The world was taught after two world wars that one of the primary functions of a state was to offer security.

The functionaries that arose from the creation of the state; be it the military, the police, the judiciary, administrators or the tax collectors were not self-supporting so taxes were essential to allow the state to function.

However, recently, people have lost their trust on the system. The global financial crisis of 2007-08 raised questions about how much confidence was being given to the banking system, and who it was really benefiting.

Fact is, central governments have allowed trade and commerce to thrive and thus brought the rapid advances we have witnessed over the last 150 years. During this period, trade and commerce has also become extensively complicated, it cannot be compared to the barter trade that sufficed in stateless societies in the agrarian age. Today, complicated transactions require resources to be shared among multiple people for them to perform work that has no immediate value.

Technological disruption

Over the last two decades technology has disrupted every conceivable industry and inspired governments to offer better services. We are living in an era where the Western world is agitating for freedom and privacy, which in all due respect is a fallacy in a state system.

Even so, technology is offering a way out that can transform the basic pillars of our society, fundamentally affecting how governance and business systems function. 



Bitcoin, Blockchain and M-Pesa
Bitcoin is a digital payment system, a cryptocurrency invented by Satoshi Nakamoto and published in 2008. Primarily, users can transact this currency directly without needing any intermediaries.

The idea that you do not need any intermediaries is groundbreaking. Normally trade is recorded through ledgers closed and isolated from the public. To facilitate and approve our transactions we use third parties and middlemen we trust these include: banks, governments, accountants and even paper money.

The blockchain, essential to the distribution of bitcoins, is a publicly distributed ledger shared by all nodes participating in the network. Blockchain calls for us to fundamentally change to our conceptual understanding of trade, ownership and trust.

M-Pesa is a money transfer and microfinance service that allows users to deposit, withdraw, transfer money and pay for goods and services. M-Pesa is pegged on a one-to-one basis with the local fiat money.

Bitcoin’s value is not set by any single person and is highly volatile, having gone through several appreciations and depreciations, over the last four years from a low of $0.3 in 2011, to a high of $1,242 in November 2013, to a low of $293.70 on 11 July, 2015.  This volatility is driven by bad press, which scares bitcoins users into selling, and by increased speculation by investors. There are a number of ways to hedge from this volatility the only problem is that these methods have a long way to go before they become acceptable to the average consumer.


Bitcoin's volatility over time

So why is M-Pesa so successful in Kenya, and having trouble being accepted in other countries? And what are the pitfalls that bitcoin has to overcome to become a system embraced across Africa?

M-pesa worked in Kenya because regulation came after the system had attained a tipping point. This piece by Bobby Yawe, is an interesting read on the same. Two divergent views on a mobile payment system, one seen as a financial solution, and pitched to the Central Bank thus subject to red tape, the other shared with Treasury and pitched as a way to create visibility to the Kenyan cash economy, which until then was blind to the planners.

Also, M-Pesa initially was not seen as a threat by the banking industry in Kenya until it was too late, it also helped that its acceptance in the market was rapid and exponential. By the time banks were waking to the reality of the disruption at hand, they were forced to embrace what their clients had already integrated in their daily lives.

Safaricom invested in an agent network that spread countrywide, making it very easy for the local fiat to be transformed affordably into a digital format in one locale and changed back to the local fiat in another locale within minutes and at no loss of value.

M-Pesa also used something that all its mobile users utilized SMS/USSD, which allowed it to reach the rural citizen who could only afford a basic or feature phone. Some even pooled resources to buy a single phone for the village

As we stand, more than 25% of the Kenyan economy runs through M-PESA and this is speculative.  

Why is this successful run not being witnessed in other countries like India and South Africa?

The answer goes back to how M-Pesa interacts with the regulators in these countries as it launches. Does it have to go through onerous regulatory steps before being approved for the market, and how easy is it for a customer to sign up or use the system? Are there other more efficient, cost-effective systems in place to distribute the local fiat? In South Africa this has called for a revamp of the solution and the need to have agents where people live and work.

Collaboration is imperative, even as we speak the M-Pesa system in Kenya is growing in bounds because it opened up as a platform for to any business that offers goods and services. The more M-Pesa meets the needs of different entities and consumers the more it will grow and becomes central to the economy of a nation.

Bitcoin promises to disrupt the banking system internationally. A number of banks including Santander, one of the largest in the world, have taken the time to study the blockchain and even develop their own use cases.

For bitcoin adoption across the vast expanses of Africa and for it to be acclaimed as the solution for the unbanked, a few determiners have to be looked at carefully.

The technology needs to be adoptable to the masses, usable on simple and feature phones, the pillar of the mobile revolution happening across Africa. (37coins and CoinKite offer to send bitcoins by SMS). Having said this, I will not discredit the increasing number of smart phones across the continent, but the provision of Internet services to the rural areas, will take a bit longer. 

Innovatively collaborate with local mobile payment service providers and have a clear plan on how not to cannibalize their current markets. Kipochi had to learn this the hard way as they integrated with Safaricom’s M-Pesa network. They offered a service that was a competitive threat to Safaricom’s dominant M-PESA money transfer business. Kipochi, as of this writing, is no longer in operation.


Source: http://coinbrief.net/debunking-kipochi-mpesa-bitcoin-kenya/

Bitcoin Use Cases

There are a number of use cases for bitcoin in Africa.

International remittance seems well publicized; with bitcoin being touted as a cheaper alternative to high remittance fees that Africans face when sending money back home.

Digital piracy is a big problem in Africa, with estimates of less than 10% legitimate content. The problem affects music, movies, e-books and so forth. If we identify a file as unique and associate it with the blockchain, you can exchange that file for money, and even avoid its piracy.    

There is need to uniquely identify citizens in order to offer them services. In fact the blockchain can be used to implement public records (birth certificates, passports, voters IDs, land titles, the list is endless), private records (signatures, wills, etc.) and semipublic records (personal medical and accounting records) all this from a bitcoin wallet that can be integrated on a SIM card; bitSIM promises to offer this solution and more.

This becomes the precursor to a “state in a box”, a term explaining how a technology; the blockchain, is able to carry out functions that were previously the responsibility of a sovereign state be it property rights, identity registers, electoral democracy, or taxation.  

When you start to walk this path you begin to see the power of the blockchain and its centrality to the future of mankind.

Sun Tzu once said “Keep your friends close, and your enemies closer.” My advice to the incumbent, “keep your business partners close and the disruptors even closer”.