Although bitcoin is growing more popular for raising the standards of digital payments, a lot of people still associate it with criminal activities. Marius Reitz, general manager of Africa for Luno in this interview with BusinessDay’s Frank Eleanya in Johannesburg, speaks about the anonymity of cryptocurrencies and the future of cryptocurrency regulation in Africa.
It is just four months to the end of the year. Would you say from Luno’s perspective that the cryptocurrency market in Africa has had a great year compared to last year?
As a whole, 2019 has been a good year for cryptocurrencies in Africa. We have seen more governments willing to engage in discussions focused on cryptocurrencies. The proportion of countries with hostile regulation towards cryptocurrencies is lower than it was in 2018. For example, the regulatory sandbox created in Mauritius is a progressive take on the general economic benefits that could follow a friendly and incentivised approach to cryptocurrencies.
More recently, we have seen countries like Rwanda and Senegal talking about issuing national digital currencies.
Our research also suggests that Africans are more open to cryptocurrencies than their counterparts from other continents. When asked the question “Do you think a single global currency would make the current financial system better or worse?” almost three times as many respondents from Nigeria and South Africa said it would make it better compared to respondents in the UK.
African countries are no strangers to the use of digital solutions for money transfers, nor the rapid implementation of such technologies. With the right approach and appropriate regulation, Africans could easily lead the cryptocurrency adoption process ahead of the rest of the world.
The price of cryptocurrencies has seen some stability in 2019. Do you see this changing any time soon and what are the drivers that could push it out of the comfort zone?
Nobody can predict the future price of any asset, not least of all cryptocurrencies. However, the price is just a reflection of how technology is developing, infrastructure improving, merchant adoption, improving regulation, and participation by other institutions like investment funds and high net worth individuals.
Luno does not provide financial advice and does not take a stance on the price of cryptocurrencies. That said, we do believe these shorter-term price fluctuations are an important mechanism to drive large scale adoption in the long run.
Adoption remains a big issue in the market. What needs to happen for more people to come on board?
Increased access and improved education on the benefits and risks of cryptocurrencies will go a long way toward improving adoption. At the moment, there is a lot of misconception about cryptocurrencies that are putting many people off getting involved in cryptocurrencies.
For example, there is often a public misconception that Bitcoin is mostly used by criminals, but nothing could be further from the truth. This is mainly because many people think Bitcoin is anonymous when, in fact, it’s the opposite – all Bitcoin transactions are transparent for the whole world to see.
People might not be able to link the identity to Bitcoin right away (which is why it is sometimes called ‘pseudo-anonymous’). But once they do, they can track everything you’ve ever done on the Bitcoin network. This makes it a particularly bad tool for illicit use.
Read Also: 5 important things to note when trading Bitcoin
Providing information to challenge these misconceptions, as well as platforms where consumers can safely and easily buy, sell and store cryptocurrencies will go a long way to bringing more people on board.
Earlier in the year, Libra by Facebook became the hottest topic, but that’s not the case now. How exactly is Libra a disruption for the market and what do you think regulators got wrong about it?
We’ve seen our fair share of crypto hypes over the past few years, but Facebook’s Libra is most certainly not one of them. In our view, Libra is a game-changer, not just for the cryptocurrency industry, but also for the broader financial system.
Libra is a stablecoin, meaning it is backed by a reserve of assets, including linking it to several international currencies, from several central banks to keep its pricing stable. We see these new types of crypto instruments unlocking enormous value to consumers across, impacting billions of lives positively in the process. These new crypto instruments solve a number of the more traditional cryptocurrency challenges, albeit to varying degrees of success. Most of them eliminate volatility, add some better short-term scalability, and also increase trust by being easier to understand.
The one major issue is still distribution and getting it into people’s hands as quickly and economically as possible. Libra presents us with the trifecta. Not only is it linked to a basket of currencies people already trust and understand, but it solves the distribution problem in two big ways.
If Facebook adds Libra to all Facebook products, it will instantly bring billions of people closer to the crypto realm. Second, it will indirectly solve distribution issues by instilling broader acceptance by a wider range of partners. Which merchant or company would not want to add a new cryptocurrency that will be available to billions of people all over the world already using all these social networks?
Tell us about the growth of Luno in Africa? Which country represents your biggest market and how are transactions on your platform growing?
Luno is headquartered in London and currently operates in South Africa, Nigeria, Europe, and Southeast Asia.
Earlier this month, we announced that Luno has three million customers (wallets) spanning 40 countries. Reaching three million wallets demonstrates the growing adoption of cryptocurrencies globally and reinforces our aim of reimagining a financial system where the money is cheaper, faster and safer with open and equal access for everyone.
South Africa is currently one of our strongest markets and the appetite for cryptocurrency trades is growing daily as new customers learn about, buy and store cryptocurrencies.
Luno’s new African regional headquarters in Johannesburg continues to grow and will expand to a team of 40 people. It is important to bear in mind that Luno was the first crypto company to operate in Africa, with established operations in South Africa and Nigeria. We have local offices and teams on the ground in these markets to drive the adoption of our services and to educate people about cryptocurrencies. This is supported by an aggressive expansion plan across the rest of the African continent.
Give us some clarity about transaction fees on Luno and why globally it is going up rather than coming down.
At Luno, our fees are structured based on various criteria. These fees vary based on the method of transaction and are, in most cases, free.
When sending to a Bitcoin address, Luno charges a dynamic fee that varies depending on the Bitcoin network traffic and will be displayed before the customer confirms the transaction. The Bitcoin network traffic also varies daily, which sometimes means the necessary fee is larger or smaller (e.g. it’s often lower on weekends). These fees go directly towards paying the Bitcoin network fees – Luno doesn’t make any profit from them. Implementing dynamic fees also helps to reduce the likelihood of Bitcoin sends being delayed. A free and instant alternative for Luno customers is to send them to an email address or mobile number.
Receiving any of the cryptocurrencies supported by Luno is free. When depositing local currency, the transaction is free; trading fees on the Luno Exchange vary depending on the country and currency. Please take a look at our fees and features for more information.
You have been engaging regulators in different African countries. Where do you see regulatory direction going on the continent?
From a regulatory point of view, a lack of consistent guidance is one of the biggest challenges we face. However, this is not specific to Africa and it is the same position most governments around the world have adopted.
Cryptocurrency is a new technology that is somewhat complex and most governments are still trying to understand how it works and how to use it. The good news is that we are seeing an increasing number of governments showing interest in the space and setting up various organizations to study it. We expect this to lead to more governments taking favorable positions on cryptocurrency regulation. We are also working with other players in the cryptocurrency ecosystem to put the right structures in place that will work for everyone and guide every player in the market.
Most central banks observe and adhere to international trends in terms of the regulation of crypto assets, in particular, the implementation of anti-money laundering/countering the financing of terrorism (AML/CFT) that form part the Financial Action Task Force (FATF) Recommendations.
What role do you see cryptocurrencies playing in AfCFTA?
The AfCFTA is excellent news for trade in Africa. The new agreement opens new trade routes and opportunities and presents an excellent opportunity for businesses to expand across the continent.
In the absence of a continent-wide currency, cryptocurrencies offer an effective way for African businesses to trade goods without having to shoulder the costs associated with cross-border trading. Cross-border payments with traditional banks can be slow and expensive.
In many cases, it can be far easier to take physical cash on an airplane and hand it to the recipient than to make a bank transfer. Cryptocurrencies provide a secure, instant and almost free option for cross-border financial transactions that will make it easier for businesses to take advantage of the new business landscape.
What are the basic rules of cryptocurrencies that potential users need to be aware of?
We don’t provide investment advice, but we do encourage everyone to do their research and due diligence before buying any cryptocurrency.
If somebody promises you returns that sound too good to be true, it’s more than likely a scam. Investment scams openly trick victims into sending their money to the scammers. Typically they convince you that they have found a special or secret method to making incredible returns by trading on your behalf or exploiting technical aspects of cryptocurrency. This isn’t possible.
Our advice is never to over-expose yourself. You should not have all your money in a single investment, so rather spread your investments into different classes and different risk categories. Don’t ever invest more than you can afford to lose.
Also, unlike with cash or card payments, cryptocurrency transactions are irreversible. Once the transactions have been processed, it’s impossible to reverse. It is therefore vital to double-check that you are sending your cryptocurrency to the correct address.
Do you ever see cryptocurrencies replacing fiat soon?
Cryptocurrencies come with many benefits, but I’m not sure if it will ever entirely replace local currencies. The nature of how we view and use money is always changing and I believe we are in the process of one of the major shifts in how we view and use money.
There is no way to tell which cryptocurrency will make this happen – or if it will happen in the next year or the next 100 years. Nonetheless, the future of money will involve some kind of global currency that is completely interoperable and cryptocurrencies will play a major part in making that happen.
We believe certain cryptocurrencies or instruments will likely be more dominant than others, and that there will likely be a whole range of coins for specific use cases. Bitcoin may not replace all the existing systems, but it adds a new layer of value – similar to how we still have regular postal mail and fixed-line telephones even though we have Facebook, Skype, and Gmail. The impact has already proven to be significant.
Other currencies will likely play a different, more focused role and people may use Bitcoin to store or switch between these other currencies – something like a global reserve cryptocurrency, similar to the US dollar in the current financial system.
