Nicolas Cantu was already a geek before the word existed. A French national, he spent the first seven years of his life in Guider in northern Cameroon. In 1995, at the age of just 15, he launched the website allocameroun.org, a generalist platform (networking, advertising space, etc.) targeted towards Francophone Africa. He has since founded seven companies and participated in many major innovative projects over the past 20 years in France for leading multinationals like L’Oréal (redesign of its e-commerce site) and Orange (first 2G/3G converged platform). His latest project, Chain Accelerator, provides advisory services to start-ups and major companies (including Tezos, Wanchain and Cosmos), helping them with their blockchain development needs. Always fascinated by Africa, today Mr Cantu assists the continent’s governments and central banks with the ins and outs of cryptocurrencies. Based out of Station F, Paris’s start-up campus founded by Xavier Niel (CEO of Free), he agreed to meet with us to tell us about what the continent has to look forward to as these revolutionary innovations take root.
How is the emergence of cryptocurrencies going to change Africa?
First of all, it’s going to bring in new players who have a very keen interest in African markets, starting with Facebook and its private cryptocurrency known as Libra. In addition, there’s Bitcoin-backed Blockstream and Orange, which is currently reviewing opportunities for a cryptocurrency mobile banking asset. They’ve all made it clear that Africa is their no. 1 target for these developments.
Their analysis is simple: the continent has a large number of mobile phone users who are unbanked [90% of people living in sub-Saharan Africa didn’t have a bank account in 2018] and/or don’t have access to payment services. Yet the entry cost to access cryptocurrency services involves simply owning a mobile phone. That makes Africa an extremely vast market to penetrate. These currencies are disintermediated from traditional institutions such as banks and insurance companies. In addition, cryptocurrencies don’t have barriers to entry like an application acceptance requirement and, above all, there’s no need for players to be physically present in a given location.
Is there a link between cryptocurrencies and the current rise of fintech on the continent?
The two trends are intertwined. Cryptocurrencies will help development fintech systems that are more independent and that won’t rely on banks. Of course, a legislative framework will still have to be taken into account, but disintermediation is so robust that people are able to easily access banking services and their corresponding information systems. For example, a person can use Bitcoin and at the same time access financing and even microfinancing with a guarantee provided by several credit agents.
A microcredit with several lenders?
Yes, exactly. And risk assessment is transparent since it’s visible on public blockchains [a data storage and transmission technology with no central authority], which contributes the resilience needed.
What do you mean by resilience?
A resilient system is a system that can’t be stopped in any way and that resists hazards of all kinds. Independent and neutral, it doesn’t belong to anyone. There’s no longer a need to trust a third party. You’re no longer dependent on a company, its lifecycle or its network. You’re simply dependent on the technology itself. This neutral landscape is very useful since there’s no stakeholder there to centralise our data and who could possibly do something to take advantage of them.
On top of tokens, there are now what are called stablecoins, digital assets with a fixed value. What does that change?
Stablecoins help ensure parity with fiat money [state-issued money]. They determine how much one euro is worth in a given digital asset. And it’s guaranteed. Today, on platforms such as Liquid Network by Bitcoin, you can see the actual euro value of cryptocurrencies. This means that you can exchange euros without dealing with a commercial bank or an intermediary, and that’s going to have a significant impact on existing financial institutions.
Can more Bitcoin be created?
No. The number of Bitcoins in circulation is limited to 21 million and they are distributed incrementally based on contributions to the network. Users earn a reward in Bitcoins for every contribution they make.
Who set this limit?
This number has been hard-coded into the protocol. It’s the result of a consensus reached by thousands of developers. The only way it can be changed is if a new consensus can be built between all of these developers, bearing in mind that the code is public and open source. This means that any change is visible and known to all and that any discussion on this matter is public.
Are cryptocurrencies ultimately going to compete with existing currencies?
Europe and China have already announced that cash will eventually be done away with, and this will be the case in China by 2022. The change involves an extensive digitisation of currency that could take two forms: either the development of a stablecoin backed by a central bank or a strictly public protocol similar to that used by Bitcoin. Lastly, there will be three types of currency: those dependent on central banks, full-fledged cryptocurrencies and currencies dependent on central banks but which, through a stablecoin, will be in a cryptocurrency format and thereby enjoy the same liquidity and ease of disintermediation.
Are African central banks taking an interest in cryptocurrency?
Yes. I’ve seen regulators attend conferences and take a keen interest in the possibilities opened up by cryptocurrency. I myself collaborated with Malian authorities to show them the advantages it could offer them.
And what are they?
A system to facilitate access to taxation, and thus taxes, could be created via USSD [Unstructured Supplementary Service Data] technology. USSD allows you to access the system via your mobile phone, even if you don’t have a phone plan with an operator. Cryptocurrency offers the equivalent of a bank account with an address, so it enables you to pay your taxes and receive and exchange currency.
And what advantages could the rise of cryptocurrency represent for the African private sector?
First of all, with cryptocurrencies, money transfer fees are virtually a thing of the past. The only fees are calculation and storage costs – thousands of PCs all over the world contribute to the network, run it and store it. Today, with a service like Bitcoin, the cost of a regular transaction is around €1.50, but it varies based on the Bitcoin exchange rate. Nonetheless, the work done by the network doesn’t change whether you transfer €10 or €700m, so neither does the cost. With a traditional bank, the fees would be proportionate to the amount exchanged. For a company, this is very profitable. Secondly, disintermediation is also valid for other processes, such as audits. By default, cryptocurrencies are ledgers. An audit trail is thus automatically formed by every transaction and every address. It’s possible to make certain data confidential, but the auditable portion remains accessible and anyone can audit it. Accordingly, this eliminates fees related to the auditability of international flows and their dysfunction.
Are there other, more sector-specific advantages?
In terms of logistics monitoring, cryptocurrencies incorporate insurance mechanisms into processes. Cryptocurrencies implement smart contracts, i.e., in most cases, signature processes. Insurance rules are going to be able to be automated, meaning that right when you pay, a small piece of code will execute and manage the insurance mechanisms. If there’s a wreckage or accident at some point along the supply chain, or if something is lost, automatically, with no need to request anything, proof is issued on the ledger and reimbursement is automatically triggered. Some players already operate in this manner. In addition, as long as you’re using the same cryptocurrency, you can track every transaction and monitor all supply chain flows. This makes for an extremely high degree of traceability in any industry. It also means that there will be virtually no room for disputes. The rules defined at the outset will be applied no matter what happens, which comes with the added bonus of enhancing trust.
Presumably, this is an advantage for small players vs. large players…
Yes, that’s right. Cryptocurrencies are going to facilitate widespread cooperation between players. You’ll be able to trust a small player located at the opposite end of the planet. No one will have an advantage over the system. Since the system doesn’t belong to any particular party, it can be trusted, or rather, you won’t have to worry about trusting other parties. Whatever happens, the code will be executed, with nobody at a particular advantage.
Are there other benefits in the long run for the continent?
Yes. In a second phase, what will be really interesting to see is the impact decentralised systems are going to have. For the first time, we’ll have a decentralised system that is more efficient than a centralised system. Yet, when it comes to how communities are organised in Africa, we find these decentralised models which up until this point didn’t have a tool. Take tontines, for instance. They manage very considerable sums and were never successful in cooperating with banks. With cryptocurrencies, tontines can define their own rules. Of course, there is much education-related work to be done and we’re not there yet, but it’s totally conceivable.
How are African governments reacting to these developments?
The new generation is pretty well informed. You’ll notice, for instance, that digital ministers are expanding their influence within governments. This is happening simply because the share of the telco business in the economy has become huge. People are increasingly using their phones to make payments, thereby going through operators or banks, which gives rise to transparency- and tax-related issues. What’s more, countries also need these data to better understand their economy.
Is the informal sector going to disappear due to the emergence of cryptocurrencies?
I don’t think so. Instead, I think the informal sector will have its own technology that will enable it to structure itself in such a way that it’ll no longer be completely ad hoc and it’ll be possible to work with the sector.
But it’ll still exist outside the tax system?
These systems address the alignment of interests. They’re incentive-based systems. As a general rule, it’s beneficial to get on board with the system. It’ll be up to countries to come up with clever ideas on what incentives they can offer to get people to go along with the game and to pay their taxes.
Is the weakness of national African currencies a differentiating factor?
In international trade, yes, clearly. Acquiring a strong currency by way of a weak currency is in most cases an unfavourable transaction. With cryptocurrencies, on the other hand, you can keep your money for quite a long time without needing to exchange it into euros or US dollars, which dramatically decreases fees and foreign exchange delays. Many African start-ups are cropping up in this field, including Danapay and Byom, and there are even specialised cryptocurrencies such as Dash, which enables people to make international payments without long waiting periods or overly expensive conversion fees.
What could hold back the emergence of cryptocurrencies on the continent?
First of all, these technologies need to be accessible and the same is true for the equipment required to use them. Although it’s profitable to contribute to the network, investing is still necessary at first. However, investment channels have yet to reach full maturity in Africa. Secondly, despite the rise of solar power, energy costs – a key factor in business models – are still too high on the continent. They represent a significant obstacle to get in on the action and expose African countries to platform offerings that are going to propose “turnkey” solutions that they have no ownership over, such as Facebook’s Libra.
What kind of risks do these offerings pose?
Libra is a private, not a public, currency. It’s owned by Facebook and some 20 big stakeholders, including Visa and Mastercard. The problem is, these stakeholders are going to share the payment history of their users. Africans will be especially vulnerable to this and will be attacked as a market, and there’s a risk that just a few stakeholders will own the entire payment history of everybody. And this is particularly worrying in countries where governments treat their citizens in a manner far from beyond reproach. So, the fact that the entry cost – technological expertise and proper infrastructure – is high could render the African continent dependent on private interests.
Are there other risks that could prevent the circulation of cryptocurrencies?
Yes, excessive regulation. But this risk isn’t specific to Africa. If the legal environment is restrictive and people can’t easily exchange cryptocurrencies for national currencies, that will considerably limit their distribution.
When do you think the democratisation of cryptocurrencies could occur in Africa?
That depends on certain legal green lights and on the progress made in building certain start-up ecosystems. Blockchains count on developer communities to spread their technologies. In Africa, this doesn’t work as well as elsewhere because cryptocurrencies have to be profitable from the outset, not a gamble on the future. So, it’s necessary to find a way for developers to make a profit right off the bat. Initiating projects, contributing and learning through contributing. If these types of ecosystems don’t emerge, then I don’t see cryptocurrencies being adopted quickly. Once again, cryptocurrencies are disintermediated. They rely solely on developers and infrastructure. If they don’t have both, they’re not going to take off.