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What Blockchain-Based Marketplaces Can Do For Africa, Part 2 – Proposed AfCFTA Can Be More Efficient If Decentralized

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African continental free trade area – AfCFTA
#AfCFTA Conference 2018 (Rwanda Today)

Without any doubt, the advent of Blockchain has presented numerous opportunities in the aspects of trade, commerce and finance, on a global level. In part one of this article, we discussed the problems associated with traditional marketplaces, and how blockchain-based decentralized markets can help in bringing solutions to most of the challenges faced with centralized marketplaces. 

In continuity, the article will address the potential blockchain impact on the African economy, whilst taking a look at Decentralized marketplaces from the perspective of the African Continental Free Trade Area Agreement (AfCFTA). 

AfCFTA And The Issues It Addresses

The African Continental Free Trade Area – AfCFTA is established by 54 of the 55 member states of the African Union, and it is majorly aimed at creating a single continent-wide market for goods and services, and to improve the movement of capital. 

In terms of the number of participating countries, the AfCFTA is regarded as the world’s largest free trade zone since the establishment of the World Trade Organization. The agreement is meant to improve intra-African trade considerably, up to 52% by 2022, according to analyses. 

General Objectives Of The AfCFTA

African continental free trade area – AfCFTA
African continental free trade area – AfCFTA

AfCFTA’s major objective is to create a single market that would aid in deepening the economic integration of the continent. There are vast differences in business rules and practices in Africa. However, by launching intra-African trades, the AfCFTA tends to boost Africa’s trading position in the global market, giving strength to Africa’s mutual voice in global trade negotiations.

The AfCFTA aims to establish a liberalized market, allowing for free provision of services and also reduce tariff on goods across the continent. It seeks to progressively lessen and ultimately eradicate customs duties. The AfCFTA is equally aimed at facilitating investment by aiding the movement of capital. 

The trade deal requires members to cut tariffs from 90% of goods traded within the 54 countries bloc, allowing free access to commodities, goods, and services on a continental level. Removing tariffs on intra-African trades will improve trade in the region by 15-25% on the average, consequently boosting the net income for the continent. This would impact significantly on the economy of the continent at large. 

Facilitating Cross-border Trade With Blockchain: AfCFTA Can Be More Efficient If Decentralized. 

Research has confirmed that AfCFTA symbolizes Africa’s defense policy and strategy to recover from commercial and economic imbalance. With agencies already in place to deal with several of the non-tariff struggles frustrating intra-African trade, further improvement on a technological level would provide the Trade Area a better potential to attain this height in finance and trade. 

In any marketplace, transaction parties would invariably need a trusted third party that would enable the co-creation of principle in the market. The trusted third party could be platform middlemen who would be in charge of furnishing a stable and dependable environment for transactions. Centralized marketplaces have one department that regulates them all, controlling all marketing activities. On the other hand, marketplaces based on the blockchain, often make effective trading possible, without the presence of a central authority, thereby, making the parties involved in trading responsible for their marketing activities. 

With blockchain, there’s the absence of centralization which gives censorship resistance as well as expectations for additional business values. In the first part of this article, we discussed how blockchain-based decentralized marketplaces eliminate the middleman-matching buyers and sellers. 

AfCFTA could see technological change with its integration of blockchain. Such technological change drives the removal of intermediaries, and the decentralization of transactions between members of the system simultaneously eradicating risks of centralization, poor efficiency, and elevated transaction costs. Including blockchain solutions in the Trade Area would eliminate the necessity for intermediation, allowing direct transactions between trading partners. Blockchain-based marketplace, due to its decentralized approach, can leverage smart contracts and enable members of the system to automate contract conclusions. 

Employing a decentralized approach for AfCFTA would enable the use of Cryptography. Tokenization can substantially change a business model’s value offers, and can provide a large range of advantages such as access to alternative sources of capital, lower transaction cost and heightened efficiency, amid guaranteeing authenticity behind all transactions in the system. More than just a security technology, tokenization helps reduce risks from data violations, simultaneously providing smooth payment services. Centralized marketplace makes use of regulated currencies like the US Dollar, which has an unlimited supply. These currencies are usually moved by economic prospects, as well as market strength. Decentralized market currencies are equally driven by demand and supply but by comparison, their value cannot be enforced as there are no governmental regulations and most importantly, each blockchain crypto has a limited quantity.

Blockchain technology permits participants in decentralized markets to continuously track their assets and settle transactions autonomously, while providing a secure model that is fault-tolerant. This would bid well for Africa in ensuring a seamless trade across the continent, on AfCFTA. Centralized systems are local, restricted most of the time to a particular region, and don’t give room for a truly global market. Contrastingly, decentralized marketplaces offer global assets, available from anywhere in the world.

Final Thoughts

Decentralized and autonomous establishments are viewed by many, as the impending future, as they have the potential to completely transform our financial systems. AfCFTA, if implemented properly, would be a game-changer for Africa. Its establishment is aimed towards bringing Africa’s fantasies of welfare into reality. However, its success can be greatly influenced by decentralization. 

With Blockchain technology,  Africa would see new ways of establishing economic activities. With the guarantee of a reduction in the time and costs associated with intermediaries, AfCFTA, coupled with a decentralized market system, could turn out to be an unmistakable economic possibility for strengthening regional trade.

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Nigeria’s Central Bank Digital Currency e-Naira Gain Traction

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eNaira

According to Governor Godwin Emefiele, the Central Bank of Nigeria’s (CBN) digital currency, the eNaira, which was officially revealed on Monday, has garnered immense interest and a positive response from both within and beyond Nigeria, with 33 banks fully integrated on the platform. The CBN has successfully minted $500 million, with N200 million going to financial institutions, according to Emefiele, who spoke at President Buhari’s historic launch in Abuja.

In addition, over 2,000 clients have been added to the eNaira platform, and over 120 merchants have successfully enrolled. Since its launch, the eNaira website has had approximately 2.5 million daily views. Customers who download the eNaira Speed Wallet App will be able to complete the onboarding process and build their wallet, locate their eNaira wallet from their bank account, transfer eNaira from one wallet to another, and make payments at registered merchant locations.

In terms of maintaining a robust payment system, the Central Bank of Nigeria (CBN) feels that the eNaira will make a big difference to Nigeria and Nigerians. The eNaira will also lower the cost of processing currency, allowing for more direct and transparent welfare interventions for citizens, as well as increased revenue and tax collection, easier diaspora remittances, lower the cost of financial transactions, and improved payment efficiency.

Governor Godwin Emefiele outlined these advantages during the historic debut in Abuja, saying that Nigeria’s Central Bank Digital Currency (CBDC) is the first in Africa and a digital version of the actual Naira. 

What is eNaira?

The eNaira is the same Naira with considerably more possibilities, Emefiele asserted emphatically, guaranteeing that the new payment system is one of the most robust in the world, sufficiently safeguarded, and thus nothing to worry about.

In 2017, the Central Bank of Nigeria (CBN) began an intensive study, consultations, identification of use cases, and testing of the CBDC idea in a Sandbox environment, in response to increased interest in Central Bank Digital Currency (CBDC) around the world.

The goal of the study was to provide a strong argument for the introduction of a digital currency in Nigeria so that all Nigerians can benefit from a more successful and inclusive economy.

Following the completion of preliminary research, the CBN’s researchers and experts were able to clearly establish that a digital currency will promote a more paperless, inclusive, and digital economy, complementing the successes of prior policy initiatives and our rapidly increasing payment systems.

As a result, the CBN decided to create its own CBDC, dubbed the eNaira. Like the physical Naira – eNaira is a legal tender in Nigeria and a liability of the CBN, which will have the same value and always be exchanged at 1 naira to 1 eNaira

To reduce the risk of the process, the CBN has carefully considered the entire payments and financial architecture, and has structured the eNaira to complement and improve these ecosystems, as well as implementing security protections and policies to ensure the financial system’s integrity.

To maintain the integrity and stability of Nigeria’s payment system, strict adherence to anti-money laundering and counter-terrorist financing regulations would be enforced, according to Emefiele.

The eNaira, like other digital revolutions, is a journey, and Nigerians should expect more features in the coming months. Accessibility and onboarding of consumers without BVN, as well as the usage of the eNaria on the phone without access to the internet, are among them. 

Nigeria will be one of the first countries in the world to implement the CBDC using USSD on phones, bypassing the need for internet access. The CBN also plans to use the eNaira platform to onboard revenue collection agencies in order to increase and simplify collections, as well as to create sector-specific tokens to support the Federal Government’s social programs and distribution of targeted welfare schemes in order to lift millions of people out of poverty by 2025.

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Jack Dorsey‘s Square to develop open source Bitcoin mining

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Jack Dorsey Bitcoin

On Friday, October 15, Twitter CEO Jack Dorsey announced that American fintech company, Square, would be looking to get into Bitcoin mining. Jack Dorsey who is also Square’s CEO announced this on Twitter which subsequently sent waves through the bitcoin market, surging its price to almost a record high, rising over $62,000 over the weekend. According to the Twitter boss, Square is looking to building an open source Bitcoin mining system that would be available to individuals and businesses.

Sharing his thoughts further on the initiative, he stated that “Mining needs to be more distributed” and that “the more decentralized [mining] is, the more resilient the Bitcoin network becomes. He also mentioned the apparent inaccessibility of mining stating that “Bitcoin mining should be as easy as plugging a rig into a power source.

Dorsey also believes that bitcoin mining “needs to be more efficient and that “clean and efficient energy use” would be undoubtedly beneficial to the digital currency in the long run.

Dorsey ended the thread by saying that a “technical investigation would be undertaken by a Square team led by Jesse Dorogusker, Square’s hardware lead. If successful, this initiative would be another of Square’s bitcoin focused projects which includes a Bitcoin hardware wallet.

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Financial Leaders from G7 Release Guidelines for Central Bank Digital Currency

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Source: World Atlas

At a meeting that was held in Washington, yesterday, October 13, G7 leaders discussed central bank digital currency and endorsed 13 public policy principles with regards to their implementation. The financial leaders from G7 agreed that CBDCs would complement cash and should not be detrimental to the monetary system. The G7 leaders have been discussing CBDCs this week concluding that they should do no harm and meet rigorous standards.

It should be noted that G7 includes finance leaders in advanced economic nations comprising of Canada, France, Germany, Italy, Japan, the U.S and the U.K. the G7 leaders make it mandatory that any newly launched CBDC should not harm the central bank’s ability to perform its duty of maintaining financial stability. In a joint statement by the G7 finance ministers and central bankers, they said that, 

“Strong international coordination and cooperation on these issues help to ensure that public and private sector innovation will deliver domestic and cross-border benefits while being safe for users and the wider financial system.” 

The joint statement further states that CBDCs are complements to cash and could serve as a liquid or safe settlement assets with an added advantage of anchoring existing payment systems. CBDCs issuance should be entrenched in a long-standing public commitment to transparency, rule of law, and sound economic governance. The statement added at CBDCs must be so efficient that they are fully interoperable on a cross-border basis. 

The G7 leaders agreed that they had a duty to minimize the incidence of ‘harmful spillovers to the international monetary and financial system” 

The G7 statement reiterated a similar statement earlier made by G20 that no global stablecoin project should begin operation until such a token has addressed legal, regulatory and oversight requirements. 

Countries like China and Nigeria are ahead of the pack with regards to the adoption of digital Yuan and Naira respectively. China’s crackdown on cryptocurrency may be a step forward for the country’s plan to promote its digital Yuan. Nigeria, on the other hand, postponed the launch of its eNaira in deference to the 61st anniversary of Nigerian independence on Oct 1. 

However, countries like the US and the UK are dragging their foot with regards to the introduction of CBDCs to their financial system. There are insinuations that America is in danger of being left behind technologically and financially if it doesn’t get serious with the implementation of CBDC in its financial system.

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