Bitcoin may be on the way out, but don't throw away the technology that brought it to life. Image: 123RF
Bitcoin may be on the way out, but don't throw away the technology that brought it to life. Image: 123RF

Despite FNB’s crackdown on bank accounts linked to SA’s cryptocurrency exchanges at the end of 2019, experts say the digitally produced and mined coins that have facilitated a new way of paying for goods and services online will still have a place in the world’s financial system in 2020.

Cryptocurrencies have steadily shifted to the mainstream with more people investing in the alternative asset class, says Marius Reitz, general manager for Africa at Luno, SA’s largest cryptocurrency exchange.

Richard de Sousa, CEO at AltcoinTrader, a local cryptocurrency exchange, says 2020 will be a pivotal year in which blockchain technologies and cryptocurrencies move closer to implementing real-world applications.

He cites Basic Attention Token (BAT) created by web development company Brave. “This is a real-world solution whereby an individual can get paid for viewing advertising online.”

The service allows individuals to pay content creators for their YouTube, Twitch and Twitter posts. In addition, any website affiliated with Brave can also receive tips or payment from people who have earned or purchased using BAT.

De Sousa says AltCoinTrader listed the BAT token on its platform in 2019 in anticipation of 2020. He believes it will expand  in SA and international markets. “Adoption will strengthen in the year to come.”

Luno’s research conducted in July 2019 across seven markets, including SA, shows that developing states  are likely to lead the adoption of cryptocurrencies, says Reitz.

“People in emerging markets tend to be more financially savvy out of necessity. There are large remittance flows from SA to other countries in the Sadc region, of which a portion is informal  largely due to the high costs and complexity involved. Crypto can help to reduce the cost and complexity associated with moving money seamlessly across the continent,” says Reitz.

Another factor likely to drive demand for digital coin is decentralised finance (DeFi), which “has come of age”, according to  De Sousa. “Anybody who wants to obtain a collateralised loan can do so without the red tape of banks. Loans of this nature can be obtained within minutes.”

Such capabilities will make cryptocurrencies more attractive and “take the world by storm”.

Stumbling blocks

Some of the major stumbling blocks for the digital coins backed by blockchain technology are wary regulators sceptical about the prospects of subverting normal financial systems as well as  aiding criminals to make anonymous payments.

Mainstream financial institutions such as FNB have distanced themselves from the blockchain currencies but it remains to be seen if others will too.

“We do not anticipate that other banks will follow suit, but appreciate that regulation of cryptocurrencies across the globe continues to be shaped and is one of the biggest challenges cryptocurrencies face globally,” says Reitz.

In the absence of formal regulations, banks will continue to assess their exposure to cryptocurrencies. Reitz says Luno has established relationships with a number of South African banks and is continually working to open additional accounts.

FNB’s decision to shut down crypto-related business bank accounts was premature, according to De Sousa. It was done due to international pressure and a lack of regulation.

The Reserve Bank is working feverishly to bring about regulation, he says.

Nedbank has stopped taking on new crypto-related business accounts while Standard bank has chosen to work closely with the industry “and has embraced the new technology”.

With the crypto space now maturing, Reitz says regulators around the world are accelerating efforts to either embrace or regulate cryptocurrencies. The pace escalated in 2019, no doubt motivated by Facebook’s Libra project.

“In 2020, we expect to see this continue,” Reitz says. The Bank is expected to announce regulations governing cryptocurrencies in the first quarter. “Internationally, we will also see a number of planned guidelines come into effect.”

In October, the G7 group of nations outlined the need for stablecoin (digital currencies backed by real-world assets) regulation and implied that guidelines may be produced in 2020, while Japan also passed a bill to reinforce its existing cryptocurrency laws which comes into effect in April 2020.

Another major regulatory development expected this year is the introduction of the EU’s 5th Anti-Money Laundering Directive. “While the specifics of how these regulations will affect the space are hard to predict, we are excited at the opportunity to learn about best regulatory practices that can be emulated in other regions,” he said.

Looking ahead, both Luno and AltCoinTrader expect bitcoin to remain the dominant cryptocurrency. Reitz says they will add more coins to their exchange depending on demand, while De Sousa expects more stablecoins to enter  the market. This will  likely encourage uptake by traditional retail and e-commerce players.