Why blockchain is critical to SA’s VC investment landscape

Venture capitalists are naturally skilled investment professionals, risk takers and incredibly entrepreneurial. They are visionaries, looking a decade ahead and beyond, identifying the embryonic start-ups and ideas they see becoming disruptive future behemoths. 

As we consider and mine for the technologies that will benefit society and affect the fourth industrial revolution and future economies, we believe no business can ignore blockchain technology.

Blockchain and its evolving capabilities have been the remit of start-ups and NGOs. However, governments, regulators and big tech companies are now paying attention to how this technology gets used as a basis for economies built on decentralised finance, transparency and financial inclusion — all of which are limited in the current internet milieux.

The SA venture capital (VC) industry is small and fragmented. However, it is followed global trends by focusing on recent investments in fintech, software and business products and service, according to the Southern Africa Venture Capital Association’s 2021 industry report.

Though investments into digital assets and blockchain by the VC industry are currently limited, the industry is taking notice of the applications and opportunities for blockchain technology and its associated digital assets. There’s also a growing global acceptance of blockchain as an alternate and new technology that will disrupt economies and financial services in the future.

The Reserve Bank recently announced its intention to declare cryptocurrency a financial product, which aligns with current worldwide trends and growing excitement about the yet-to-be-unlocked blockchain opportunities.

What makes blockchain a viable investment for the future digital economy

Web 2.0 is the internet of sharing and connecting across social media applications that resulted in a few tech giants controlling the entire data space, which they and third parties have heavily exploited. Cybercrime, identity theft, data selling without consent, leaking and or hacking are also defining features of our current version of the internet. 

In 2021 Google, Apple and Mozilla objected to one of the key open standards (W3C DID) for self-sovereign identity, which threatened their entrenched positions. Web 3.0, built on blockchain technology, has as its defining features digital identity in the form of self-sovereign identity (SSI), decentralisation and data privacy. Web 3.0, the Semantic Web, aims to make internet data machine-readable.

Blockchain and SSI can foster democratic values 

It’s improbable that communist governments, dictatorships or autocracies will embrace blockchain technology to enable citizens to have self-sovereign identities (SSIs). This viewpoint is because it would place citizens in the power seat when controlling their digital identities, sharing their data and enjoying online privacy. Blockchain technology can promote democratic values by improving transparency, enhancing service delivery, reducing corruption, and increasing security. 

SSI is key to enabling Web 3.0 as it’s about decentralisation and data privacy. With a SSI the user oversees their own data, which does not have to be stored on a central database controlled by big tech companies, governments or third parties. It is decentralised. 

Unlike the existing internet protocol, Web 3.0 is a user-centric, user-controlled approach to securely exchanging authentic and digitally signed information. Historically we have relied on public bodies to verify our identities, whether using a passport, ID or driving license. With SSI you no longer require many documents to open a bank account or sign up for a home loan to prove who you are. SSI makes it possible by sharing your digital identity with a service provider.

Currently, Estonia leads the digital identity frontier with its highly developed national ID card system. Its mandatory system does far more than identify an Estonian citizen; it provides digital access to all of Estonia’s e-services. Estonia implemented a digital identity verification platform, placing their citizens in charge of their own data and how they store and share their personal information. 

Addressing concerns of regulation

According to the World Economic Forum (WEF), blockchain “enabling the decentralised and secure storage and transfer of information, could become a powerful tool for tracking and transactions that can minimise friction, reduce corruption, increase trust and empower users. While still nascent, cryptocurrencies built on distributed ledger technologies have emerged as potential gateways to new wealth creation and disrupters across financial markets...”

Further, the WEF recommends that a “systemic and inclusive approach to this technology can help ensure that everyone — from the most marginalised members of society to the most powerful — benefits from its transformative potential”.

To achieve its enormous potential, blockchain companies, developers and investors will need to invest in building trust, strong governance and regulation to protect citizens against inherent weak links and loopholes and build on the technology’s enormous potential for good. 

• Makhathini is CEO of Empowerment Capital. Baumann and Fitzjohn are executive directors at Empowerment Capital and Imvelo Ventures.