“Web-1.0 = read. Web-2.0 = read/write. Web-3.0 = read/write/own”.
This is the mental model articulated by Chris Dixon, Head of Crypto Investments at the investment firm Andreessen Horowitz. His firm recently closed a $4.5b fund to invest in this sector, arguably making him the the most important capital allocator in this space. In short, the first iteration of the internet decentralised information. The second decentralised publishing. The third will decentralise ownership.
I’ve previously written about how web 3.0 can help Africa overcome its general political, economic and technology deficits. I’ve also specifically explored how web 3.0 technologies can help Africa leapfrog its broadband internet penetration hurdles - through the use of decentralised technologies that allow for people to monetise their existing internet capacity via ISP-as-a-service platforms.
Blockchain technologies combine considerations of game theory, economics, governance, and network effects to produce mechanisms for people to facilitate economic, political and social interactions. Why does this matter? It matters because, if leveraged properly, these technologies will enable the African economy to grow into a global competitor.
But what is a blockchain; and what are the elements that make up its architecture?
Blockchains
A blockchain is a transparent, immutable database. The database is made up of a sequence of encrypted blocks that contain data such as financial transactions, public records or other information. Each block is cryptographically tied to the one before and after it - thereby creating a ‘chain’ - and they collectively store the entire historic record of all transactions on a network. This record is accessible to the public as every blockchain has an ‘explorer’ feature that allows for such transparency.
Blockchains are secured by “miners/nodes” (i.e. anyone with a suitable computer) that each stores a full record of the database and verifies new transactions added to it. Transactions are verified when at least 51% of the nodes on the network reach a consensus as to the state of the blockchain database and its historic data. Effectively, this means that the blockchain cannot be changed or updated without at least 51% of all computers maintaining the network (anywhere in the world) agreeing to and verifying the change. Where a node tries to undermine, manipulate or adversely influence the network, it is immediately penalised economically. Nodes compete to add blocks to the chain and receive the economic rewards for each new block added. They compete for eligibility to add new blocks by committing resources (technological/financial) to meet the relevant criteria of the particular blockchain.
People access a blockchain network by creating a wallet (i.e. an account). They pay fees to use the network - which are shared to node operators as their earlier mentioned ‘economic rewards’. These fees can only be paid in the form of tokens created specifically for use on the blockchain. Users acquire these tokens by either buying them (with fiat currency or other tokens) or receiving them as economic rewards for securing the network. A token’s economic value (i.e. price) varies based on its total market supply and its demand at any given point in time. This therefore makes a token’s economic characteristics (referred to as ‘tokenomics’) an extremely important factor in determining its value. Tokens can be sold for gains, exchanged for other tokens or held to allow their holders participate in the governance of the network.
The above-described elements of a blockchain operate without any human intervention. This is possible through the use of smart contracts - the final element in a blockchain’s architecture. Smart contracts are agreements programmed as computer code, and that automatically run on a blockchain based on their pre-programmed parameters (i.e. instructions). It’s through smart contracts that blockchains are able to facilitate transactions with minimal fees, given that central intermediaries are not required. Smart contracts, coupled with the transparent and immutable features of blockchains, are the reason why this technology is viewed as capable of potentially changing human civilisation.
Blockchains provide a secure permission-less means of maintaining and verifying information, and for the cheap, instantaneous global transfer of value. They leverage human nature by providing participants with incentives to maintain, secure and grow the network, whilst also punishing bad actors seeking to manipulate or corrupt it.
This is the kind of architecture Africa requires, not only for its technological development but also for its overall political and economic growth.
Africa and Decentralised Governance
Africa is very ethnically diverse. This diversity contributes to the myriad of cultural complexities that are a primary feature of the continent. But despite the frictions caused by historic (arbitrary) colonial delineations of territories on the continent, almost all African countries have maintained these same structures left behind by the colonialists - even though decades have passed since they gained their independence.
The key feature of these colonial structures is centralisation. Centralised governance prevents the accountability of authority as it is not accessible to those it affects. This has led to an increased push for devolution of powers and localisation of government structures, as was seen in the recent constitution amendment public consultation undertaken in Nigeria by the country’s National Assembly. Decentralised governance structures are better suited to manage the cultural and ethnic diversities (and resulting complexities) of African countries. Such structures bring authority closer to those it affects, thereby enabling its oversight.
In addition to decentralising governance structures, African countries require greater transparency regarding their public records, economic data and government expenditures. Enabling the public to easily review and scrutinise budget spending is also key to increasing government accountability. Moreover, providing citizens a means to participate in such decisions would incentivise further accountability.
Asides governance reasons, decentralisation is also required for economic reasons; particularly capital formation. It’s estimated that Nigeria’s infrastructure deficit (a large portion of which is electricity infrastructure) is $3t - requiring $100b annually over the next 30 years to fund. Funding infrastructure development in Africa, therefore, also requires decentralisation to spread these costs across more economic participants.
Blockchain technologies provide a viable means to solve these challenges in an inclusive an efficient way.
Possible Blockchain Infrastructure Design for Africa
Based on the current state of blockchain technology globally, it is possible to design energy-efficient, fast and secure blockchains for use in Africa, that utilise tokens granting both governance and economic participation.
With the right structure, it would be possible to deploy such blockchains to facilitate the proposal, budgeting and funding of all public infrastructure projects and government databases. It would also be possible for countries to tokenize their natural resources and automate revenue sharing in a smart contract (as is currently being explored by the Central African Republic). Digital SME transactions will likely also scale given that the use of smart contracts would remove the counter-party risk that has thus far hindered the mass adoption of e-commerce on the continent.
The initial allocation of tokens on blockchains used for government projects could be tiered to give first priority to those most local to (or otherwise affected by) the relevant project, then to the wider citizenry, and lastly to international participants. “Citizens”, in this context, would include corporate entities.
The blockchain’s development team would also be entitled to an allocation of tokens, particularly where they develop innovative solutions to spur adoption rates. For example, a USSD-compatible interface/design to enable (or at least trigger) blockchain transactions via GSM networks. Such innovations would prove crucial given that of the estimated 1 billion mobile phones on the continent, the vast majority can only access GSM networks due to inadequate (though growing) levels of broadband penetration.
Final Thoughts
When one truly ponders on the root causes of the lack of development in Africa some inevitable conclusions arise. Conclusions such as the fact that a lack of accountability for non-productive behaviour, and a lack of adequate economic incentives for productive behaviour fuels the vicious cycle the continent has been embroiled in for decades. Or the fact that Africans living in developed economies are highly productive and contribute significantly to their adopted countries - whilst also remitting significant amounts of economic capital back home to loved ones.
Within this context, a framework that provides the right economic incentives (and disincentives), and that genuinely liberalises governance participation, will allow for the average African citizen to be as productive as possible. Removing the human element - via smart contracts - in economic transactions, in addition to public oversight of government expenditures, significantly reduces the means and opportunity for misappropriation of funds.
Some interesting applications of blockchain technology are already being tested in Africa. For example, IOHK Ltd (operators of leading blockchain, Cardano) is building a national ID blockchain for Ethiopia’s education system - to enable administrators create tamper-proof records for the country’s 16m students. Auranet and World Mobile have separately completed testing of blockchain powered decentralised internet distribution in Nigeria and Tanzania respectively. Numerous more applications of blockchain technology are being tested to solve for specific challenges on the continent.
Though there is a long way to go, the journey of a thousand miles starts with a single step. This step is to first conceptualise and buy-in to the journey and destination. Once this is achieved, human ingenuity, creativity and hard work of the builders on this continent will do the rest.