By David Whitehouse
A plan by young entrepreneurs in Kenya to build a golf course using Blockchain and a stable coin backed by real currency highlights the regulatory challenges facing African governments. The Young Entrepreneurs Network Africa in Nairobi is developing a stable coin known as the YENTS (Young Entrepreneurs Network Token), with the launch planned for November. The coin will initially be used within the network to pay for training or participation in sports events, says the network’s CEO Kamau Nyabwengi.
He plans to extend its use to allow investment in a planned golf course in Kenya within about 18 months. “Blockchain can help move products from the supplier to the consumer,” Nyabwengi says. “It allows more efficiency and eliminates middlemen.”
Blockchains work as decentralized databases that record digital transactions in the absence of any central administrator. They are used for crypto-currencies such as Bitcoin, or for a wide range of other uses, such as delivering government services and establishing legal claims over land. Transactions are visible to anyone within the network. Stable coins are cryptocurrencies that are backed by a reserve asset. YENTS will be backed 1:1 by the Kenyan shilling or equivalent US dollar amount.
Nyabwengi argues that potential exists to use the coin for financial services, where it could be used to aggregate small-scale pooled savings for investment projects via Blockchain. Regulations need to be improved to make this possible, he says.
Currently, a physical location is needed for a savings scheme in Kenya, as well as a constitution and board. The Young Entrepreneurs project is currently being tested in Kenya’s regulatory sandbox, which Nyabwengi says will help with the process of getting regulatory approval.
According to the Global Crypto Adoption Index 2020 from Chainalysis, Kenya is fifth in the world for crypto-currency adoption, ahead of the US. South Africa and Nigeria are in seventh and eighth places.
Pan-African Regulation
National approval for YENTS in Kenya wouldn’t be the end of the story. Nyabwengi also aims to spread the use of his stable coin to other African countries.
Blockchains are immutable, and, their proponents argue, completely secure. Yet questions over the compatibility of Blockchain technology with the prevention of money laundering and terrorism financing remain unresolved, according to a report from Smart Africa.
The report says that blockchain-based systems are, in themselves, neither compatible nor incompatible with regulation. Blockchain systems need openness, while preventing crime requires “oversight mechanisms that are difficult to maintain in an extremely open environment”, the report says.
Kenya’s regulatory sandbox is an example of a trend towards “government-driven institutionalisation of blockchain,” Smart Africa says.
That process is still largely confined to the national level and “international institutionalisation still appears to be less common.” Smart Africa argues that a pan-African Blockchain strategy needs to be developed. A consensus on regulatory goals needs to be developed, including harmonisation of data protection rules. There also needs to be a pan-African classification of Blockchain-based financial instruments, as well as a focus on interoperability of different Blockchains, Smart Africa says.
Bottom Line: Africa won’t be able to realise Blockchain’s full potential without a unified regulatory approach.
David Whitehouse is Business editor at The Africa Report