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Blockchain for sustainable development: The case of Ghana

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Blockchain for sustainable development: The case of Ghana

In modern times of rapid globalization and digitization, technological developments have now reached such proportions that the usage of cryptocurrencies is no new phenomenon. The technology behind blockchain opens the internet for financial services by replacing trust, a fundamental component of the financial system for centuries, with transparency integrated into a decentralized network. Thereby, blockchain bears the potential to help achieve the United Nations’ Sustainable Development Goals (SDG) by empowering the unbanked, predominantly women, reducing transaction fees as well as creating an alternative source of liquidity.

Only 57.7% of adults in Ghana in 2021 had a bank account. Unable to afford participation in the formal financial system, the poor find themselves paying the most for fundamental financial services. Moreover, there is a multiplier effect inherent with the economic participation of women that takes wide-ranging consequences respecting a number of SDGs.

Related: The UN’s ‘decade of delivery’ needs blockchain to succeed

Financial inclusion may alleviate poverty, improve health and well-being, gender equality, take a positive effect on children’s education, and more. Access to affordable financial services thus becomes a catalyst for economic growth and opportunity. Simply put, there is a lot at stake here. Let’s dig into it.

West Africa’s economic powerhouse: Ghana

Sharing borders with the Ivory Coast, Burkina Faso and Togo, Ghana lies in the heart of West Africa. The population is about 32 million, and besides various tribal languages, English is one of the recognized national languages. Frequently seen as West Africa’s economic powerhouse, in 2020, the country’s purchasing power parity (gross domestic product per capita) was around $5,744 United States dollars. Until it was hit by a severe banking crisis spanning from 2017 to 2020, Ghana’s economic growth had been astounding — the epitome of what many countries in the region ought to achieve. Shaken by just another crisis, going by the name COVID-19, the economy is in the process of recovery.

Ghana’s wealthy remain concentrated in the south’s urban areas and lower-income households dispersed across the countryside, home to most of the population. As a result, banking services are largely located in urban areas. Despite that, a 2010 research concluded that physical access to banks is not the central barrier to banking but rather Know Your Customer (KYC) requirements that many of the unbanked are unable to fulfill. Also, 64% of the respondents stated inadequacy of income as being the prime reason for not having a bank account. Although this study may seem outdated, a new study from 2021 arrived at similar conclusions by pointing out that one of the main hardships of opening a bank account resides in the lack of financial resources.

Essential to the country’s financial services infrastructure is mobile money, which accompanies the everyday life of millions of Ghanaians — approximately 38.9% of the population in 2021 had registered a mobile money account. Mobile money, introduced in 2009, is a financial service that enables people to transfer money and handle payments without the need of having a bank account. All that is required to complete a transaction is a mobile phone capable of sending SMS.

Dependent on the network provider, mobile money allows account holders to access credit and other kinds of financial products. It has the added advantage that its KYC requirements are lax compared with that of banks. In most cases, one “only” needs proof of identity to open an account. Taken together, this may come as just another hindrance to financial inclusion (not everyone may have a phone or identification documents), but this is as low as the barrier gets. Two of its distinct disadvantages, however, are transaction and withdrawal fees. MTN, for example, charges for mobile money transfers up to 5%. Charges that may seem minor but build up over time.

Related: Here’s what’s happening in Web3 across Africa

On Nov. 17, 2021, the Ghanaian government announced the enactment of an e-transaction levy of 1.75%, intending to fill up state coffers. Initially proposed to come to pass by February, the e-levy remains postponed due to fierce opposition. Yet it’s been asserted that irrespective of the electronic tax, most people will keep using mobile money.

Lastly, foreign remittances is a topic that cannot be overlooked when discussing the situation of financial services in Ghana. Receiving remittances accounts for a noticeable portion of the country’s GDP, as it does in several developing countries.

In 2018, Ghana was the second-largest recipient of remittances in West Africa after Nigeria. With more Ghanaians migrating to Europe and North America, a substantial number of households rely on remittances to make ends meet. While banks are commonly the most expensive choice for international transactions, money transfer services deliver the money to a bank, cash pickup location or mobile account at a lower cost.

Cryptocurrency has a competitive edge over cross-border transactions. In many cases, owing to fewer middlemen, sending money internationally is cheaper and faster via blockchain. As reported by the World Bank, the average expense of sending $200 was 6.8% in the third quarter of 2020. In fact, facilitating international remittances was pivotal for El Salvador’s policy decision of launching Bitcoin as a legal tender in September 2021. The SDGs also recognize substantial costs for remittances as a factor that impedes financial inclusion and, thus, have set the objective of reducing them to 3% by 2030.

Related: The world doesn’t need banks, policymakers or NGOs

Blockchain for sustainable development

Blockchain’s features of being incorruptible and void of intermediaries may help to better serve the unbanked. In turn, this could also lead to a diversification of the financial services market, which has traditionally been dominated by banks. Without delving into reams of technological gobbledygook, blockchain-based cryptocurrencies could do all (and more) that banking institutions can do, but without a third-party controlling user data and charging people stupendous fees for basic services.

Besides all that crypto can do, more than 10 years after the first Bitcoin (BTC), it has not yet achieved wide consumer adoption. Drawing on quantitative surveys conducted with people living in the Greater Accra Region, the country’s most urbanized region and location of its capital city, the findings indicate a lack of trust in cryptocurrencies’ future: Is it a financial bubble, or will it replace national currencies, gaining trust in the process? No one can tell for sure. Nonetheless, the findings also reported a good chance for cryptocurrencies to pick up steam and enrich the financial services market, especially if they would be easier to use, more stable, and accepted by shops to be used for daily purchases.

It appears that people do not yet have the knowledge required to perform cryptocurrency transactions (not only in Africa, as other surveys show). Indeed, it takes a huge amount of time to get your head around it.

Related: Crypto education can bring financial empowerment to Latin Americans

Lack of trust thrives on lack of knowledge that impedes crypto’s adoption — the demonizing way in which this financial tool is regularly portrayed by much of the media does not do good either. It is a vicious cycle that cannot be disentangled unless there exists an easy-to-use financial service that both individuals and shop owners can use. As soon as there is such a platform, perhaps with which one can transfer funds via SMS (thus built on an existing infrastructure a good deal of Ghanaians are familiar with), this cycle may be challenged and cryptocurrency’s adoption accelerated. That being said, there are businesses working on SMS-based blockchain transactions. Although this does not mean replacing other types of financial tools, it would diversify the financial services sector and include individuals who have so far been left out.

At this juncture, it is worth noting that the fluctuation in the price of some cryptocurrencies can be overcome by employing stablecoins, cryptocurrencies that are pegged to fiat — i.e., government-issued currencies — or precious metals. While critics are quick to point out that those coins are no longer decentralized as, in terms of fiat, their value heavily depends on the performance of the currency they mirror. Some firms in the crypto space have succeeded in developing relatively decentralized stablecoins — e.g., MakerDAO’s Dai).

Also, more than 70 countries are currently working on establishing a digital equivalent of their national currencies. Referred to as central bank digital currencies (CBDC), a digital equivalent of national currencies given out by central banks may amp up consumer protections and spark a regulatory framework, entailing fiscal and monetary policy, for a significant part of the financial system, which has so far widely eluded authorities. Of course, there are drawbacks: Users would have to give up some degree of privacy and control, while central banks would be equipped with inconceivable power allowing them to date back transactions, render them undone, etc. — away with the “tamper-proof” quality of decentralized finance. It’s a superb opportunity for the model authoritarian government that wishes to consolidate its grip over financial transactions, and citizens. Ergo, cryptocurrency and blockchain may be a medium of freedom or be misused for dystopian outcomes.

On the other hand, by providing a simple infrastructure for kickstarting crypto, CBDCs joined with a user-friendly platform could be the starting point and gateway through which people can learn about cryptocurrency and become empowered. Henceforth, people may feel encouraged to scout the cosmos surrounding cryptocurrency, grow their financial literary muscle, and move savings to decentralized solutions.

Lessons taken from El Salvador could help propel financial inclusion through crypto in other parts of the world. While this article cannot explore all the arguments around CBDCs, they may just be one way to generate trust, incite financial inclusion, and accelerate the adoption of crypto. Acknowledging the immense potential of cryptocurrency, I find that it will in all likelihood increase in relevance. What concerns me is rather how much time it requires for cryptocurrency to gain ground, considering that many of those in power hold a vested interest in keeping things as they are. Glancing at history, I am confident its adoption will be quicker than the move from cowrie shells to fiat.

One more time about inclusion

By offering a fairer and more transparent financial system, cryptocurrencies and blockchain pose an alternative to conventional financial services. Recognizing cryptocurrency and blockchain for financial inclusion and looking beyond mobile money and banking infrastructures are critical to catering to people’s need for access to affordable financial services. A user-friendly platform is needed to facilitate the usage for individuals and businesses. With this, anyone could access the benefits without extensive knowledge of blockchain. Crypto would likely be accepted by shops, helping foster the delivery of financial inclusion on part of the U.N.’s Sustainable Development Goals. Nevertheless, regulatory frameworks and financial education should not be understated when tackling financial exclusion.

Ultimately, it becomes apparent that what blockchain threatens to replace is the very nature of the financial system by bypassing the issue of trust. Due to its brevity, the article left out many technical aspects of blockchain, such as custodial and noncustodial wallets, decentralized and centralized exchanges, and different types of blockchains, cryptocurrencies and consensus mechanisms, but I encourage everyone to set out on the journey of exploring (“googling”) these and other concepts. Having done research on this matter for a considerable amount of time, albeit it is a tedious undertaking, I can assure you it is a thought-provoking and knowledge-enhancing one. Since much of blockchain is still in its infancy, it’s a good time to start reading about it now.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Dustin Jung is a blockchain enthusiast. He holds two master’s degrees in the fields of social science and management studies from the University of Freiburg, International Business School Budapest, and the University of Buckingham. Having lived in Ghana from 2018 to 2019, Dustin quickly became passionate about how blockchain can drive sustainable development in developing countries.

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Bitcoin Miner Sell-Offs Could Keep Prices Low, Says JP Morgan

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Bitcoin Miner Sell-Offs Could Keep Prices Low, Says JP Morgan

Strategists at JPMorgan Chase & Co. believe the current Bitcoin sell-off by miners could make it difficult for the price of the asset to bounce back, especially if the trend continues.

In a note released yesterday, they pointed out that publicly listed Bitcoin miners account for 20% of all reported Bitcoin sales in May and June. It’s likely that private miners are also selling at the same rate or even higher, given that they have limited access to the capital markets.

The massive sell-off is a sharp turn in the strategy that has mostly been about holding block rewards until the market conditions get better. But the drop in Bitcoin prices and its effect on miners’ profitability means many are now struggling to meet operating costs.

According to the strategists,

Offloading of Bitcoins by miners, in order to meet ongoing costs or to deliver, could continue into Q3 if their profitability fails to improve.

Already, it has likely “weighed on prices in May and June, though there is a risk that this pressure could continue.”

However, JP Morgan strategists point out that it’s not all gloomy. One silver lining is a drop in the cost of mining Bitcoin from around $18k – $20k earlier in the year to $15k this month. This is due to the drop in hash rate and mining difficulty over the past two weeks.

Meanwhile, the cost of production varies based on the size of the miner. According to Arcane Crypto, large miners spend around $8,000 to produce one Bitcoin. Meanwhile, Securitize Capital says the cost of production might be over $20k for some miners after adding overhead costs and interest rates.

Bitcoin Price 69% Away From ATH

Bitcoin price has declined by more than half compared to its value at the beginning of the year. It’s also down 69% from its all-time high as it hovers around the low 20k range in the last few weeks.

Several factors have pushed the crypto markets over the edge, including the crash of Terra’s ecosystem and the near-insolvency of crypto firms such as Celsius and 3AC. But the Fed hike in interest rates has been the primary factor behind the drop.

Almost every other niche in the space, like non-fungible tokens and decentralized finance, has reported losses too. With most miners also having debt obligations, selling their Bitcoin stash appears as the best course of action to stay afloat.

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All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bitcoin Energy Consumption Declines as Miners Grapple With Falling Revenue

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Bitcoin Energy Consumption Declines as Miners Grapple With Falling Revenue

Bitcoin mining is no longer consuming as much energy as before, according to a Cambridge Bitcoin Electricity Consumption Index report, which shows a 25% decline in energy use since the start of the month.

Per the index, the current energy consumption of Bitcoin is 10.65 gigawatts, significantly lower than the 14.34-gigawatt on June 6. This means its annualized consumption is at 93.33 terawatt-hours, putting it below countries like Argentina and Norway in energy consumption.

At its peak, the BTC network needed 16.09 GW of power. The drop in the consumption from its record high of 150 terawatt-hours in May is likely due to the drop in mining hash rate. 

Bitcoin hash rate is the computing power needed to create a block on the Bitcoin network and has dropped to 199.225 exahash per second (EH/s) over the last two weeks. This came after the mining difficulty reached a record high of 231.428 EH/s on June 13. It has now dropped by almost 14% since then.

The index estimates the energy consumption by using a profitability threshold using “different types of mining equipment as the starting point.” 

With Bitcoin prices nosediving to below $20,000 this month, some miners have also gone offline as mining proved less profitable. This explains the consecutive drop in the consumption and hash rate.

Miners are Selling Their Bitcoin Holdings

Additionally, the drop in the price of Bitcoin has left several miners in a lurch as they struggle to sustain their operations. A recent report by Arcane research shows that publicly traded Bitcoin miners sold all the coins they mined in May.

This is usually against the strategy of most miners, which is to hold their Bitcoin for better market conditions. But with profitability nosediving and many miners struggling to generate a positive cash flow, they are selling their holdings. 

According to the report, many miners sold their Bitcoin to cover operational expenses and pay off debts. One of such is Bitfarms which decided to sell 3000 Bitcoin for $63 million to improve corporate liquidity.

Energy consumption of Bitcoin mining has been one of the major criticisms of the network and cryptocurrency industry. But recent research by Michel Khazzaka reveals that the traditional banking sector uses 56% more energy.

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Coinbase to Offer Nano Bitcoin Futures Contracts via Third Party Brokerages

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Coinbase to Offer Nano Bitcoin Futures Contracts via Third Party Brokerages

Coinbase will list a derivatives product called the nano futures contract on Monday.

This will be the first product listed on the Coinbase Derivatives Exchange, offering investors the opportunity to buy a contract linked to the price of one-hundredth of a bitcoin. Customers can purchase the Nano futures contract through third-party brokerages. Customers will not be able to buy the nano futures contract from Coinbase directly until the exchange receives a license to operate as a futures commission merchant. The exchange first applied for the license on Sept. 16, 2021.

U.S. customers have a healthy appetite for crypto derivatives

Coinbase floated the idea of bringing derivatives to its U.S. customer base after purchasing derivatives exchange FairX in January this year.

Americans have long been trading derivative products on foreign exchanges, sinking their teeth into high-leverage products that U.S. exchanges have lacked, indicted by the volume of crypto derivative trades in December 2021 surpassing that of spot trading. Binance alone recorded $52.5 billion in derivative trade volume during the 24 hours ending Friday afternoon, compared to $12.7 billion in spot products. Coinbase enjoyed $1.7 million in spot trading during the same period.

It’s worth bearing in mind that the new nano futures contract will not offer leverage-type bets that drive volume on exchanges like Binance.

Challenges Coinbase faces

A report by Barron’s suggests that it would take a long time for derivatives products to generate significant income for the company.

The new Coinbase product will enter a market of established crypto derivative products, while the company battles cash flow problems.

In March, the CME Group announced micro futures contracts linked to one-tenth of the price of bitcoin and Ethereum.

To add pressure, Moody’s Investors Services recently reduced Coinbase’s guaranteed senior unsecured notes from Ba2 to Ba1, relegating its corporate debt to “junk” status, with the potential for future downgrades. Ba ratings are assigned by Moody’s to credit obligations containing speculative components, considered to be a serious credit risk. Moody’s cited Coinbase’s reduced revenue and cash flow due to the current crypto market downturn as reasons for the downgrade. Coinbase’s recent employee layoff did not count in its favor, with the rating agency still seeing threats to the company’s profitability.

Dan Dolev, a senior analyst at Mizuho, believes that the new product does not address the central issue of competitors offering zero trading fees, which would severely affect revenue if Coinbase were to compete.

Coinbase’s shares fell precipitously on May 3, 2022, from $130.15 to $62.71 at market close on Friday.

What do you think about this subject? Write to us and tell us!

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