By Wiehann Olivier partner and head of Fintech & Digital Assets at Mazars in South Africa
The advent of blockchain-based digital currencies, inaugurated by the launch of the Bitcoin blockchain, represented a paradigm shift in the area of financial transactions.
The Bitcoin blockchain and its native currency was initially conceptualised to facilitate peer-to-peer payments over the internet without the need for intermediaries such as traditional banks. It leveraged elements such as cryptography, distributed ledger technology, and a consensus mechanism to ensure trust, transparency, resistance to censorship, scalability and security within its functionality as a medium of exchange.
Over time, the perception of these digital currencies evolved from a mere medium of exchange to a speculative asset class and store of value. This transformation was primarily attributed to the asset class’s decentralised nature and supply, as in the instance of Bitcoin having a limited supply encoded within its protocol. Its popularity grew from being recognised by many as a novel form of money – owing to its utility as a store of value, medium of exchange and unit of account.
Blockchain-based digital currencies’ ability to seamlessly transfer value over the internet, akin to the dissemination of information, represented a formidable challenge to the traditional financial services sector. This was particularly evident in the context of cross-border payments and remittances. The decentralised nature of these assets also enabled them to be traded on a 24-hour, seven-days-a-week basis without restrictions or delays, which contributed to their volatility.
However, the inherent volatility of traditional cryptocurrencies hindered their widespread acceptance as a unit of account. This limitation spurred the development of fiat-backed stablecoins (stablecoins), blockchain-based digital currencies pegged to ‘real-world’ money such as the US dollar, to maintain a stable value. These asset-backed digital currencies therefore had all of the attributes and functionalities of traditional unbacked cryptocurrencies, such as bitcoin, but with a stable value. Stablecoins therefore allow for the facilitation of global transactions without exposure to fluctuating values.
Adopting stablecoins as a legitimate payment option enables businesses within countries like South Africa to tap into a global customer base willing to conduct transactions using stablecoins. This innovation broadens market reach and allows for transactions to be executed in fiat-backed stablecoins rather than traditional fiat currencies.
The paramount advantage lies in the ability of stablecoins to be transacted on decentralised blockchains swiftly, often within seconds or minutes, depending on the blockchain architecture employed. This facilitates immediate receipt of payments at a fraction of the cost of traditional banking, circumventing the protracted processes inherent to conventional banking systems, including interbank settlements and the utilisation of SWIFT. Consequently, businesses that embrace stablecoin payments could immediately convert these stablecoins received from customers into fiat currencies such as the South African rand via cryptocurrency exchanges or over-the-counter (OTC) desks to avoid exposure to the exchange rate volatility . This expedites access to funds, significantly enhancing cash flow efficiency.
The blockchain space further evolved, using the same fundamental principles applied with stablecoins, by creating blockchain-based asset-backed tokens, encompassing many physical assets such as real estate, art, commodities and equity. This innovation integrated tangible assets into the digital economy and expanded businesses’ reach beyond their geographical confines. By leveraging blockchain’s borderless technology, companies could offer equity to international investors without the traditional constraints of stock exchange listings. Moreover, blockchain-based asset-backed tokens represented by commodities like gold, hydrogen gas and carbon credits exemplified tokenisation’s versatility and global applicability.
Blockchain technology also facilitates smart contract technology, enabling automated, self-executing, trustless transactions for various purposes, including profit sharing, allocation of carbon credits, and transfer of tokenised property upon payment. Integrating blockchain technology with other technologies, such as solar power generation, further illustrates the potential of smart contracts in financing and managing renewable energy projects, with automated profit and carbon credit distribution to investors.
In conclusion, blockchain-based digital assets and the underlying technology have transcended its original purpose, disrupting traditional business models and introducing efficiencies across various sectors. The potential applications of blockchain technology are vast, offering significant advantages to businesses that understand and leverage its capabilities. As we continue to explore and innovate within this space, the boundaries of what blockchain technology can achieve remain expansive, promising a future where digital assets and decentralised technologies play a central role in our global economic systems.
About author:Wiehann Olivier joined Mazars in 2010 after completing his Accounting Degree at the University of Stellenbosch. He then obtained his Honours Degree in Accounting and Auditing from the University of South Africa and qualified as a chartered accountant (SA) in 2014. Olivier obtained experience in commerce working for the Apex’s (previously Maitland) Private Equity and Real Estate division and international experience working for Mazars New York. Olivier services a variety of clients in various industries, with a focus on FinTech & Digital Assets. He has featured in various South African and International publications, television interviews and online webinars for his expertise and thought leadership in the FinTech & Digital Assets sectors. Olivier holds a Master of Science degree in Blockchain and Digital Currencies, is a PhD candidate, and also forms part of Mazars South Africa’s Innovation Committee. He has completed two executive programs: one on Blockchain Technologies at MIT and another on Artificial Intelligence at Oxford University. His experience in the FinTech & Digital Assets industry includes consulting and assurance engagement services for exchanges, custodian wallets, commercial banks, listed entities and OTC. |
 Supplied by Mazars in South Africa |