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Blockchain, crypto currencies here to change our economy

Sneered at and looked at with a lot of suspicion, Uganda’s traders of blockchain technologies such as crypto currencies are about to be blessed with some sense of legitimacy, writes JEFF MBANGA.

In a couple of weeks, Uganda will host the Africa Blockchain Conference, where a seat at the two-day conference will go for just under $150 (Shs 550,000). The line-up of speakers, according to the website of the Africa Blockchain Conference 2018, is broad – from fintech entrepreneurs to government officials.

Due to the incredible gains in the price of bitcoin, the number of hedge funds with exposure to crypto currencies is rising

Let’s first get to grips with what this whole blockchain thing is all about. Blockchain is simply an online system that allows the transaction of digital assets.

So, assets such as crypto currencies like Bitcoin are traded across the blockchain system.  Bitcoin can be used to buy different stuff. For example, the online car importation firm, Be Forward, allows crypto currencies to buy cars.

The beauty about the blockchain system is that it cuts out the middleman, thereby reducing costs, improving transparency, and ultimately improving earnings between buyers and sellers.

On the list of speakers at the Kampala conference, one name is quite interesting – the indefatigable Professor Emmanuel Tumusiime-Mutebile, the governor of Bank of Uganda.

See, in February last year, Bank of Uganda issued a statement warning the public against transacting in crypto currencies. The statement was stern: “…whoever wishes to invest their hard-earned savings in crypto currency forms such as One-coin, Bitcoin, Ripple, Peercoin, Namecoin, Dogecoin, Litecoin, Bytecoin, Primecoin, Blackcoin or any other forms of digital currency is taking a risk in the financial space where there is neither investor protection nor regulatory purview.”

Has Mutebile turned from the biblical Saul to Paul? It is not clear what Mutebile will speak at the conference. However, one gets the sense that the governor will not back down from the bank’s position but will probably preach, with a softer tone, the need for caution and some need of regulation if Uganda is to fully embrace blockchain technology.

And that is precisely what we need to do as a country – be a little cautious. For all intents and purposes, blockchain technology seeks to serve a purpose – ease transactions and limit costs.

Picture this: You own a piece of land that you want to sell. You assign a few land brokers to go hunting for buyers. The process takes weeks. And when it is done, the brokers demand for their cut. Another round of haggling ensues.

When you are finally done with that, one year down the road, you are hit with some gut-wrenching news: there is another person claiming ownership of the land you sold. Apparently, two land titles to the same piece of land exist. Both look perfectly legit. Just who is the rightful owner nobody knows; not even the clueless officials at the land registry. Drama, Wakanda-style!

Blockchain technology seeks to solve some of these archaic and backward forms of transactions. Assets such as land will soon find their way into the blockchain system and traded there. Wow, right? Caution, my friend, caution.

Even before we start discussing the risks of blockchain, let us first get this clear: technology is disrupting the brick and mortar businesses as we knew them, breaking global barriers and skirting around strong regulations. The message from these rapidly increasing new forms of technology is clear – get on board or stop blocking traffic!

The presence of Mutebile at the conference is an indication that the governor and the technocrats at the central bank can no longer bury their heads in the sand and wish for these technologies to simply go away. You have to feel for them.

Blockchain technology simply presents a nagging headache to all kinds of regulators. Let us start with Bank of Uganda.

How do you regulate an opaque global market such as blockchain – the blockchain market is said to transact nearly $2 billion a day! How do you regulate an online market that knows no boundaries or laws?

Then there are our friends at the Uganda Revenue Authority. Taxation is built around three main issues: the definition of the business, its location and the identity of the taxable person.

Well, the definition, identity and location of many of the players dealing in blockchain assets such as Bitcoin are as obscure as its founder, Satoshi Nakamoto! How does one define Bitcoin? Is it a product, a currency, an asset? Where does URA find the traders for tax assessment? They could be as far as Azerbaijan for all we know!

And lastly, spare a thought for the ladies and gentlemen at the Financial Intelligence Authority. If there is a place where illicit funds are going to find a safe haven, then it is the unregulated dark market of blockchain.

The only thing criminals have to do is to convert their illicit funds into crypto currencies and they are good to go. The FIA officials will never trace this money.

So, where do we go from here as Uganda? Government officials have to dive in with both feet and try and understand this digital market as soon as possible.

Any attempt at blocking the blockchain market is simply futile. There is very useful data that government authorities can mine from this digital market. Government can then use that data to understand human behaviour and come up with some policies. I don’t see much choice beyond that.

jeff@observer.ug

Twitter: @jeff_mbanga

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