A Cryptocurrency Protocol for Developing Countries

[jeansymolanza]

Hi all,

For the past couple of months, I've been thinking of developing a "single" cryptocurrency solution for developing nations such as the African continent. The service allows users to deposit/withdraw (from/to fiat - however the general impetus behind this effort is to discourage crypto to fiat conversions, but to actually encourage individuals to trust the crypto as a medium of exchange.) send and receive money on a mobile device within an online or offline context. Personally, it strikes me as ironic that the majority of cryptocurrency activity is focused in developed nations, wherein financial structures (as corrupt as they may be according to some) are fairly developed and properly regulated. From the outset, one could make a strong argument that cryptocurrency would be best suited to developing nations, wherein there is a class hierarchy when it comes to cash, consequently, the poor are swamped with bad money (e.g. Zimbabwean dollars) during periods of economic difficulty. But as the infrastructure is non-existent and the combined GDP of Africa is $2.24 trillion (limited profit incentive) - some way short of a European nation, there isn't much incentive from individuals to focus their efforts in this area.

I am posting a rough outline of the idea below and need some feedback on whether it is feasible, and suggestions where any changes will be made. I'd be very interested in hearing what the community has to say, because I consider it to be a wonderful opportunity to enrich the lives of the less fortunate.

Rationale

The rationale behind such a protocol is rooted in the following arguments (albeit very lofty as they are long term aspirations, short term - it would be used in local businesses, whilst the network is developed):

• An alternative currency can address the volatility associated with fiat currency on the African continent and reduce friction amongst illiquid currency pairs (which leads to the non-convertibility of some currencies). Most observers judge that these problems are linked to civil conflicts, corruption and undisciplined fiscal policies. A common currency will allow businesses across the continent to enjoy frictionless transactions, thereby promoting more economic growth and job placements within individual markets.
• The creation of a digital currency decoupled from the pervasive governance failures, which are a staple element in numerous African countries, will prove to be a stable asset which performs its function as a means of exchange, a unit of account and a store of value because its purchasing power is stable. Moreover, as it stands, trade between African countries accounts for a woeful 10%, compared to 40% and 60% between North American and European countries respectively. Therefore, a single currency will boost investor confidence and promote trade amongst intra-continental markets. The cryptocurrency will have to be decentralised, operating on the blockchain, working without the need for a central repository or single administrator. Due to lack of centralised control, the currency cannot be shut down by any one country.
• The issue of capital outflow from Africa and the absorption into Western economies deserves our attention and effort. In order to challenge this monopoly over currency, the cryptocurrency should only be transacted within the geographical boundaries of the African continent. There should be an inward looking attempt to support the African community economically, socially and environmentally, creating a counterweight to globalisation. Yes - globalisation has a lot of positive benefits, but the overall trend of poor governance and mismanagement on the African continent limits any potential gains.

Technical specification

The protocol should be based on the Nimiq payment protocol for the web, but developed in a low level language such as Go. Given the limited nature of network connections on this African continent, a mini blockchain scheme (described here) should be used. As a result, it will be possible to synchronise the blockchain in seconds with any device.

Likely to use PoW mechanism (CryptoNite algorithm) to allow mining from everyday devices.

There will also be support for off-chain transactions, so in a case where there is no network connectivity, two users can conduct a payment transaction by copying short strings of numbers between phones (as described here). Either phone can upload the transaction later, once it acquires a network connection. Prior to reconciliation, the sender’s funds are frozen so they cannot use it any longer, and the recipient is credited, even though their transaction has not yet been validated.

Distribution model

The bootstrapping phase of the project would be very difficult to achieve in a decentralised manner. Initially, the goal would be to create a complementary currency system, and support from local businesses. There is a lot of skepticism around cryptocurrency in Africa at the moment and miseducation, so the best way to go about it would be to probably acquire a few small businesses and get them to exclusively use the cryptocurrency as a means of trade. Products/services can be sold for a discounted rate at these places, but the only concern is that they face the risk of being shut down by government if they circumvent any tax regulations. Voucher cards can be sold in these locations from agents. Agents perform three key roles: they register customers, educate them, and facilitate cash-in/cash-out transactions.  The advantage with this approach is that it creates a consistent consumer experience delivered by the agent to deliver trust, particularly for customers which are new to formal financial services. Each voucher will have a 20 digit number printed onto a slip of paper which is then entered into a mobile app and tops up the user's wallet. Numeracy is not an issue in most African countries, and this means that a wider age range can be onboarded. As a result, we also have a degree of underlying collateralization.

Users will need to download a mobile app to create their digital wallet. Once they have credited their wallet, the user can purchase good and services from businesses which supports transactions (payments are handled via QR codes) or send money to other users. It will not be able to cash out within the app, in order to carry out this function, a user will need to go see an agent.

If the user lacks a smartphone, then they can acquire a SIM overlay card from their local shop. A SIM overlay is a paper-thin plastic sheet that sits on top of an ordinary SIM card, making two services available simultaneously. Upon launching the wallet service from their mobile, the user can carry out the above-mentioned functions.

Closing statements

To quot someone with whom I had a discussion with earlier: "crypto technology cannot reduce limitations or incompetencies of men or women - in any country. Only people within the country have the power to save a nation, not technologies. Crypto is not a technology to give money to the poor, or even to save the poor world from its poverty." . While this is true, I do think that we as citizens of the "first world" have a moral responsibility to help those in need help themselves.

Please let me know what you think of the idea so far, and your criticisms, as harsh as they might seem. The idea is very underdeveloped at the moment, as I don't have all the answers but I am willing to learn and get it up to "production standard". The issues I am facing so far is decentralising the model further, particularly during the bootstrapping, because the only way I could establish some processes is by introducing a central point of interaction. Also, if there any bits of information that I have left out, then please also let me now and I will get back to you in a timely manner.

Btw - this is my first post. Excited to be part of this community.

[muhin]

You should take a look at what Rootstock and the Bitcoin Fundation Argentina are doing.
Basically similar to what you're thinking, and they received a big grant from the Latin american development bank to develop a usecase in one of the poorest places in Argentina.
Good place to start, let me know if you need more info.

[hurry_hore]

Welcome to top forum of cryptocurrencies here, your idea is excellent to be developed further. Are you creating the protocol to all developing countries in whole the world even based on you country or African countries?

[pebwindkraft]

I'd start from the point, which problem it shall help to resolve. A "me too" product only copies existing systems, but for sure it is highly questionable, if the reasons for the product in northern hemisphere is the similiar to what can be seen in poor countries.
With Bitcoin, the problem to solve was the financial freedom, that a currency is not forgeable, and can't be manipulated by a single authority. I understand it is not an immedeate need in northern hemisphere, but highly welcome to gain some independency. People obviously share being uncomfortable, when all their financial transactions can be monitored, and history shows, that this is no good (even in trustful countries). So yes, financial autonomy was/is driving this system, and many other drivers have joined via alt coins.
Just "throwing" an altcoin over poor countries shall help to solve what?

An alternative currency can address the volatility associated with fiat currency on the African continent and reduce friction amongst illiquid currency pairs (which leads to the non-convertibility of some currencies). Most observers judge that these problems are linked to civil conflicts, corruption and undisciplined fiscal policies.

These conflicts are a good point - who brings the conflicts into these countries? Whose weapons are killing? What benefit has the population of precious metals in countries, where war is happening? Where do these precious metals go to?

A common currency will allow businesses across the continent to enjoy frictionless transactions, thereby promoting more economic growth and job placements within individual markets.

There are countries sharing the same money (french based CFA), and there is no sign that they have a better economy... However: Ghana is showing tremendous growth since they started to eradicate corruption. Yes! What about other countries, who have been ex-colonnies, like in South-East Asia? They stopped corruption as well, and began to develop their economies. Yes! So it looks to me as a primary driver... but who can help the remaining poor countries to stop corruption, and become a reliable business partner for northern hemisphere countries, so that also the country can benefit from their precious metals/ressources?

The creation of a digital currency decoupled from the pervasive governance failures, which are a staple element in numerous African countries, will prove to be a stable asset which performs its function as a means of exchange, a unit of account and a store of value because its purchasing power is stable. Moreover, as it stands, trade between African countries accounts for a woeful 10%, compared to 40% and 60% between North American and European countries respectively.

yes... as long as there are interests of foreign countries in ressources, and weapons to different groups, paired with corruption, what's the purpose of having a stable currency? It will not make people rich. The weapons will come back and destroy everything... So an understanding of a common sense of freedom is to be developed, like we see it in Europe for the last 60 years. I hope for Africa, and Bob Marley already was on the way to sing "Arfrica unite". Create partnerships in Africa? Where people envy each others... I'd like to stipulate, in Europe, 1+1 equals 3, in Africa 1+1  equals 1.1 or even 0.9...

Therefore, a single currency will boost investor confidence and promote trade amongst intra-continental markets. The cryptocurrency will have to be decentralised, operating on the blockchain, working without the need for a central repository or single administrator. Due to lack of centralised control, the currency cannot be shut down by any one country.

I am not yet convinced, that simply a technology change will bring growth or prosperity... It is cheaper for investors to promise weapons to different groups, these groups are eager to govern the country, create a kind of civil war, and make the ressources very, very cheap for northern hemisphere... No need for a centralized, non-forgeable currency?

The issue of capital outflow from Africa and the absorption into Western economies deserves our attention and effort. In order to challenge this monopoly over currency, the cryptocurrency should only be transacted within the geographical boundaries of the African continent.

Huh, you want to define rules on how to use the money? Noooo, I don't think so...

The "today's" technical problems (limited infrastructure) are addressed correctly in an approach with technical solutions, still the root cause problem (what for crypto currency?) is unanswered.  Really I think it boils down to the question, what problem can be solved with crypto. One cannot define a set of (complicated) rules, and say if then all rules are followed, growth and prosperity will establish itself... Change must come from internal forces! And development aid as of today is aligned at interests from foreign countries, not interests of the receiving countries. I think South-East Asia is a very good example, Ghana is a very good example, and other countries should follow them.

[jeansymolanza]

Welcome to top forum of cryptocurrencies here, your idea is excellent to be developed further. Are you creating the protocol to all developing countries in whole the world even based on you country or African countries?

It would be rolled out to all developing countries. However, I use the example of the African continent because I am most familiar with it.

[jeansymolanza]

I'd start from the point, which problem it shall help to resolve. A "me too" product only copies existing systems, but for sure it is highly questionable, if the reasons for the product in northern hemisphere is the similiar to what can be seen in poor countries.
With Bitcoin, the problem to solve was the financial freedom, that a currency is not forgeable, and can't be manipulated by a single authority. I understand it is not an immedeate need in northern hemisphere, but highly welcome to gain some independency. People obviously share being uncomfortable, when all their financial transactions can be monitored, and history shows, that this is no good (even in trustful countries). So yes, financial autonomy was/is driving this system, and many other drivers have joined via alt coins.
Just "throwing" an altcoin over poor countries shall help to solve what?

Here are the reasons:

• The majority of Africans are unbanked, and I personally feel that introducing them to the formal banking sector will not alleviate any difficulties that they face. Most financial institutions do not actually have an long term "Africa" strategy because they do not perceive it as an attractive retail/corporate banking market, or they rip their customers off. As we all know, cryptocurrency allows participants to express the transfer of value amongst themselves within a trustless network, and in doing so, it does away with the need for a traditional intermediary. Having a tailored solution for the continent will enable African populations to leapfrog traditional banking institutions, just as the mobile money phenomenon allowed them to do.
  
• Africa has a history of economic dysfunction and suffers from frequent occurrences of hyperinflation. For instance, South Sudan struggles with an inflation rate of over 280%, or Nigeria, where inflation was ‘only’ 15.37% in 2017. In such cases, a cryptocurrency would offer a relatively stable alternative to volatile local currencies. The holy grail for this cryptocurrency protocol would be for it to have some degree of stability, but this would require some collateralization... collateralization requires custodians which introduces centralization.
• Unfortunately right now, most cryptocurrencies are tailored towards "first world" environments wherein a constant internet connection is required to actually express a transfer of value. Low internet penetration rates affect the quality and speed of African networks. I fail to see an end-to end role for bitcoin even in those small enclaves in less developed countries where the communications are good enough. Burning 150KWh of electricity to process a single transaction is insane. We're talking about communities where people use pay-as-you-go solar because they don't have the capital to pay $200 for their own solar panel, where their income might be $3 a day, and they'd think themselves fortunate if they could use 150KWh in a year. An ideal protocol would make it possible for individuals to transfer value in a trustless offline environment, and would have a security mechanism built in which doesn't require so much energy to be wasted (I know I said PoW initially, but I am open to hearing other ideas on how to get this done).
• Having a cryptocurrency that is perceived by the African population as the defacto approach of transferring value between individuals/businesses would spur cross-border payments. I can send money from the US to my cousin in the Congo, and he can take the money and go buy himself something nice from the shop. Six African countries rely on remittances for 10% or more of their GDP, with 19 countries relying on diaspora remittances for 3% or more. For instance, in Kenya, diaspora remittances reached $1.95bn in 2017, up over 13% from 2016. As cryptocurrency transactions are subject to lower fees compared to traditional international money transfer alternatives, cryptocurrency transfers would be significantly preferable.

We shouldn't be creating a solution that merely replicates what is working here... we need to understand the context we are dealing with and then build a protocol that works for that specific environment.

These conflicts are a good point - who brings the conflicts into these countries? Whose weapons are killing? What benefit has the population of precious metals in countries, where war is happening? Where do these precious metals go to?

There are countries sharing the same money (french based CFA), and there is no sign that they have a better economy... However: Ghana is showing tremendous growth since they started to eradicate corruption. Yes! What about other countries, who have been ex-colonnies, like in South-East Asia? They stopped corruption as well, and began to develop their economies. Yes! So it looks to me as a primary driver... but who can help the remaining poor countries to stop corruption, and become a reliable business partner for northern hemisphere countries, so that also the country can benefit from their precious metals/resources?

You're right, cryptocurrency is not a magic wand that will solve all these problems. And like I said, the idea posted above is a culmination of many notes I have taken down over the last couple of months as I work towards a preferred solution. A lot of it needs to be re-worked, but I need criticism from others, especially the cryptocurrency community.

It is not perfect. It might be unworkable in its current state but through discussions with individuals on the internet, I hope to come closer to a solution. I am a young optimistic man, hence the naivety in my prose is very apparent.

Prosperity in Africa will establish itself once people look away from centralised institutions and believe in the power of their own self determination. Corruption exists because of the opaque structures which most organisations operate in. In showing people that a decentralised solution could work, there could perhaps be a change in mindset towards "the current normal". There are a plethora of issues on the continent, but you start with the small problems (as outlined above): the relative lack of financial sophistication on the continent, and then allow people build solutions that utilise the protocol to meet their own needs e.g. new microfinance solutions etc.

Huh, you want to define rules on how to use the money? Noooo, I don't think so...

Ignore that comment then... stupid idea  

[pebwindkraft]

The majority of Africans are unbanked, and I personally feel that introducing them to the formal banking sector will not alleviate any difficulties that they face. Most financial institutions do not actually have an long term "Africa" strategy because they do not perceive it as an attractive retail/corporate banking market, or they rip their customers off.

so true 

Africa has a history of economic dysfunction and suffers from frequent occurrences of hyperinflation. For instance, South Sudan struggles with an inflation rate of over 280%, or Nigeria, where inflation was ‘only’ 15.37% in 2017.

one could add Simbabwe and probably other countries as well, I see were you go. It looks better in countries, which share a common currency (like the CFA).

Burning 150KWh of electricity to process a single transaction is insane. We're talking about communities where people use pay-as-you-go solar because they don't have the capital to pay $200 for their own solar panel, where their income might be $3 a day, and they'd think themselves fortunate if they could use 150KWh in a year.

I was wondering, how the 150kWh per tx are calculated. To process a single transaction, you don't need this power. Every PC can process/verify a transaction, even mobiles could do so. Only when it comes to mining, then a transaction goes into a block, and calculating the block's nonce   requires so much energy. From my point of view the miners provide a service to the network, and they must not be resident in Africa? The idea of localization is so 19th century, when talking crypto. Anyhow, an Antminer S9 consumes 2kw, so if you run it 24 hours, you consume ~50kWh, three days = 150kWh. Of course there is no garantee, that your Antminer created a valid block. But this is a bit off topic. In general I fully agree, the bitcoin world is consuming too much power to be a solution for poor countries. At prices, where a kWh costs 1/4 of a daily income, it is simply way off... But as I said, mining doesn't need to be in Africa.

I can send money from the US to my cousin in the Congo, and he can take the money and go buy himself something nice from the shop. Six African countries rely on remittances for 10% or more of their GDP, with 19 countries relying on diaspora remittances for 3% or more. For instance, in Kenya, diaspora remittances reached $1.95bn in 2017, up over 13% from 2016. As cryptocurrency transactions are subject to lower fees compared to traditional international money transfer alternatives, cryptocurrency transfers would be significantly preferable.

Doing the same with Benin and Togo :-) Hence my business model is, to allow people to pay in bitcoin in Europe, if their family members need some urgent medical support. Imagine you need the money Friday evening...

It is not perfect. It might be unworkable in its current state but through discussions with individuals on the internet, I hope to come closer to a solution. I am a young optimistic man, hence the naivety in my prose is very apparent.

yes please, continue this work! 
Everyone willing to support Africa and Crypto is doing good for the world. The inequality of richness distribution over the globe cannot be a basis for future living. Hence I love to see, how the US declines, and China grows, and will pass the US this year in many, many areas (patents, school/training, one day also GDP, ...). So this is the east/west distribution, next step must be South/North equality.

There are a plethora of issues on the continent, but you start with the small problems (as outlined above): the relative lack of financial sophistication on the continent, and then allow people build solutions that utilise the protocol to meet their own needs e.g. new microfinance solutions etc.

I agree to the step by step approach, can't save the world in a day :-) Microfinance was one of the worst things brought to 3rd world . The interest rates in microfinance were 30-50%, driving many poor people to commit suicide (especially India). I think this interest based money system is like cancer to humanity, and a new system is ready to come in. I hope crypto will help us to get there.