Blockchain 2.0: The next generation of blockchain technology

Blockchain 2.0: The next generation of blockchain technology

Blockchain 2.0: The next generation of blockchain technology

Moonshot by TechCabal is the conference that brings together Africa’s tech ecosystem in person to network, collaborate, share insights and celebrate innovation. Join us in Lagos on  October 11 and 12. In this first article built around the conference, Ngozi Chukwu argues for a positive outlook on blockchain adoption, made possible by persistent tech builders, growing government support and renewed investor optimism.

While blockchain technology has many doubters, many experts insist that it could solve some of Africa’s problems. Cross-border payments, inflation hedge, database management and transparency in healthcare and agriculture, intellectual property protection, and election management were some of the use cases to test blockchain’s prowess. The race to launch the definitive Web3 apps to solve these problems for Africans has been in earnest, backed by eager investors. Today, the excitement has mellowed, especially with popular exchanges like FTX going defunct or declaring bankruptcy. The future of blockchain feels uncertain with AI taking the spotlight.  

Now that hype is muted, builders—who have been accused of romanticising the technology—and critics agree on one thing: for Africa, blockchain is not just a nice-to-have but an essential solution to some of its problems. The once-bright future of the technology is now riddled with many unanswered questions, chief of which is: what does the next-generation of blockchain technology look like?

The road ahead

Toffene Kama, a principal investor at VC firm Mercy Corps, told TechCabal that he thinks “the next generation of blockchain technology will come from builders who obsess over the real problems that Africans are facing, instead of mirroring Western behaviours”. He said that startups that do the latter can’t stand the test of time.

An example is how startups that enabled crypto exchanges in Africa are shutting down completely or discontinuing the service to focus on other parts of their businesses. Nosakhare Oyegun, product partnership lead at Kuda, explained, on The Open Africa Podcast, that the serial closures of crypto exchanges are due to the African market shirking off hobbies it acquired during the COVID pandemic. “People wanting to sit down and look at charts is not normal behaviour. People do not buy Nigerian stocks and just start monitoring them.  That was never the way crypto was going to break into mainstream consciousness,” he said.

On the other hand, everyone seems to agree that banking cross-border payment is a great opportunity where blockchain technology can truly shine in Africa, especially if the user experience is simplified. Africa’s international payment space is still dollar-dominated, but what buyers and sellers interacting from different countries want is to handle the cash in their own currencies. “Nigerians still have a list of items which the government prohibits them from spending forex on. The interesting blockchain companies are those that can say I can help you send your naira and have your Chinese supplier receive it in yen [China’s currency]. Imagine doing that for exotic currencies within Africa such as sending naira to a Zambian in the kwacha currency,” Nosakhare added. 

Partnerships with traditional institutions

Oluwaseun Adeyanju, founder of web3-focused publication Mariblock is also excited about blockchain-powered remittance and foresees more blockchain startups making partnerships with legacy financial institutions like some already do. “This is because they have the distribution which blockchain startups need to scale in the space,”  he said.

There is already a trend of traditional financial institutions like banks adopting private blockchains in different African countries. In Nigeria, startups like Zone Technology reported that it was using private blockchain to facilitate payments among one-third of Nigerian commercial banks, including Guaranty Trust Bank, Zenith Bank, and United Bank for Africa (UBA). In South Africa, banks like Nedbank, Standard Bank, and the South African Reserve Bank have private blockchain networks too.

Homegrown blockchain infrastructure

Another consensus among experts like Shodipo Ayomide, an engineer and blockchain advocate, is that we should optimistically watch out for startups developing homegrown blockchain infrastructure for other developers to build with. “A really good example of startups creating tools for others to build financial products is BitPowr [a startup which poses as the AWS of Africa]. Even during the bull run, they have been reporting high volumes of transactions and they are positioned to do even more with time,” he told TechCabal. There are also startups like Mara that are building layer 2 blockchains on networks like Ethereum to enable faster transaction speeds and cost-effective gas fees.

Decentralised finance for lending, fractional assets, and crowdfunding

“Decentralized finance (DeFi) is one of the developments I am highly excited about,” Oluwaseun told TechCabal. There are startups lowering the bar for investment and enabling people to own and earn from fractions of real-life assets like real estate.  DeFi is also enabling cross-border investment into the global south. “It is typically hard for people to invest in Africa from places like Singapore and other parts of Asia but this technology removes the restrictions imposed by borders,” Oluwaseun added. The same technology is also being applied to develop lending and crowdfunding services which already have evident demand in the market.

There is high optimism among blockchain users, but the affordability and accessibility of blockchain technology will be crucial factors in driving its adoption among more Africans. Samuel Akpan, a spokesperson for web3 company ConsenSys, told TechCabal, “Over half of the respondents in a survey, we conducted associate blockchain with the future of money, while 48% view it as the future of digital ownership.”  He thinks that things can only get better as blockchain infrastructures have evolved to become more user-friendly and developer-friendly through the introduction of things like account abstraction and EigenLayer.

Also, there are a few startups like Machankura that are already responding to barriers to the technology like low smartphone and internet penetration by making blockchain applications accessible to feature phone users. Even government digital currencies like the e-cedi and e-naira are accessible on feature phones.

Mixed feelings among investors

These questions about the future of blockchain technology are coming up amidst waning funding deals and a series of startup shutdowns. Investors have become more conservative with their funds, compared to 2022, for example, where blockchain funding soared by 1,668%, compared to the previous year, amassing a total of $91 million in countries like Kenya, South Africa, and Nigeria.

Last week, when Donovan Richards, the borough president of Queens New York, held a meeting with tech stakeholders in Lagos, Nigeria, Iyin Aboyeji, founder of VC firm Future Africa, voiced this investor reluctance. “ [Future Africa] will never invest in any field that isn’t solving a real problem. Most of the solutions in the crypto space are not solving problems we care about,“ he said. Interestingly, this assertion came after a member of the audience at the event suggested that Lagos state explore blockchain-based solutions for addressing its bad roads.

Several blockchain startups on the continent have shuttered or discontinued offerings, despite raising millions in funding. Popular examples include exchanges like Paxful, Pillow (a crypto savings and investment app) and  B2B  payment companies like Lazerpay. These closures have been significantly influenced by insufficient funding, difficulties in finding the right product-market fit, and the impact of macroeconomic conditions in the West, coupled with the crash of major crypto exchanges and startups, all contributing to a decline in investor morale.

Remaining optimistic amid challenges

However, some early-stage investors expressed unabated optimism for their portfolio companies applying blockchain technology for financial inclusion, healthcare, e-commerce, gaming, and entertainment. Vincent Li, a founding partner at VC firm Adaverse told TechCabal, “Our portfolio companies are regularly onboarding new users, creating new features, and constantly improving their products, and these are all positive signs of growth to us.”

The quiet but steady positive outlook towards blockchain in Africa is reinforced by the evolving stance of African governments. Initially banning cryptocurrencies, African governments have shifted to embrace blockchain technology in sectors like fintech, healthcare, and education.

For example, in April of this year, the Central Africa Republic took a significant step by making bitcoin legal tender, becoming the second country to do so after El Salvador. Nigeria’s stance on cryptocurrencies has become more ambiguous with the launch of its own blockchain-based currency CBDC (Central Bank Digital Currency) called “e-naira”, and a blockchain policy that does not explicitly mention cryptocurrency.

Moreover, other countries like Kenya have recognised cryptocurrencies and blockchain assets as digital assets and have begun to regulate them officially, even imposing taxes on them. Additionally, countries like Ethiopia and Kenya are adopting blockchain technology to store and manage databases in the health and educational sectors.

For builders and investors in the blockchain ecosystem, the evolving government attitudes and growing acceptance of blockchain technology in Africa present a promising landscape. 

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