Africa is big, young and dynamic. What happens when a country like Ethiopia subjects Bitcoin to the ultimate stress test?
I. Little brother Bitcoin
Ethiopia, like most countries, will have a central bank digital currency (CBDC) that is similar to a US dollar-backed Ethiopian birr. This new CBDC will allow the state to continue printing currency in the digital age.
As justified by Alex Gladstein in Cato Journals recently published essay “Financial Freedom and Privacy in the Post-Cash World”, “Society is currently undergoing a historic shift away from paper-based overnight money on bearer assets to fully electronic overnight money in the corporate book. This change is part of a long trend towards the non-use of all bearer instruments such as share certificates and bearer bonds. ”
This strategic removal of cash (and some might argue privacy) from the economy will allow the state to continue spending, which will add to the inflation and debt cycle through its new digital currency. Some actors, including bureaucrats and self-serving organizations, will appreciate this increased government spending. From the perspective that oil production is propping up the USD, it can be concluded that many of the actors in this inflationary debt bubble acted with bad faith. Even more poisonously, one can say that these “fiduciary” money and political leaders are intellectually dishonest and morally bankrupt. Henry Kissinger could add, for example: “It doesn’t matter what is true, but what is perceived as true.” And honest deviants from this hegemony, when one thinks of the late Jamal Khashoggi, often encounters fatal reactions.
Ethio Telecom (the state monopoly operator) with the introduction of TeleBirr is a decade-long step in the right direction towards digital money. Integration and application development, and hardware and infrastructure challenges remain, but new capital will enable a larger customer base. Currently, only 20-25% of Ethiopians have access to telecommunications services.
Over the next few months, we will likely continue to see Bitcoin price spikes. Value continues to be created by a decentralized pool of miners and node operators and stored in Bitcoin. Since solutions in the Lightning Network and Layer 2 offer daily users almost no fees and transaction times of less than a second, the introduction in young countries like Ethiopia will take place earlier than we think. And given its limited supply and 130 year marathon of increasing computational difficulty, Bitcoin, with its decentralized pursuit of new money, could very well be the new standard as proclaimed by Saifedean Ammous.
This new standard, unresponsive to regulation or interference, will upset the Ethiopian government, just as a little brother could unsettle a powerful big brother. Both will co-exist, but because only the former heed the teachings of the past, the little brother will offer more value. Unlike the fiat currency, Bitcoin is non-inflationary, incorruptible, and immutable, backed by precious (and increasingly renewable) energy. It’s worth noting that not a single “alternative” coin has improved this protocol. More importantly, this enviable separation of state and money will lead to drastic shifts in global loyalties. After reading Befekadu Degefe in the Journal of Ethiopian Studies, “The Making of the Ethiopian National Currency 1941-45,” we can see that the history of the Ethiopian birr is one of Italian brutality and British interest. The Emperor Haile Selassie, who was cautious about accepting any proposal from foreign interests, proposed instead that the local currency be provided by the State Bank of Ethiopia and its trusted advisers to ensure convertibility into silver and gold bars through the then Maria Theresa dollar . That standard naturally fell when Richard Nixon removed the USD from the gold standard in 1971.
II. Bitcoin for billions
Most Ethiopians will always remember where they were at the time of the murder of the artist and activist Hachalu Hundessa. Between the nightfall on June 29, 2020 and the following Tuesday morning, the tragic news of Hundessa’s death spread through informal channels. When the Telegram groups got hectic and fearful of what was going to happen next, Addis Ababa went cold. 2020 should be even more fragile. Ethiopia lost the internet that morning as quickly as most parts of the city lost power. And there would be no more connections via the state monopoly telecommunications provider for the next three weeks.
Similar to the USD, Bitcoin is not legal tender in Ethiopia. And due to telecommunications restrictions, more than 70 million Ethiopians are currently unable to open a digital wallet. These are the only two challenges I can find in Ethiopia for the widespread adoption of Bitcoin both as a store of value and as a currency for daily transactions.
For practical reasons, given Bitcoin’s volatility, the US dollar may be used as the temporary unit of account. But over time, with law revisions and global alliances, and with the rapidly increasing speed of use, Bitcoin is becoming a standard that countries like Ethiopia cannot escape.
Similar to Greater Africa, over 70% of Ethiopians are under 27 years old. The majority of Ethiopians live in increasingly expensive conditions, which lead to inflated prices and falling returns on value. The Ethiopian birr is devalued by a number of factors at around 20% per year. These factors exist within an academic cocktail of printing, borrowing, spending and dead aid (reference to the Zambian economist Dambisa Moyo). Regardless of Ethiopia’s growth rate, exports never seem to be enough. As a result, the price of a holiday lamb (think of a holiday ham) has increased from 1,200 Ethiopian birr ($ 66.67) in 2014 to an average price of 5,700 Ethiopian birr ($ 142.50) in 2021. In the meantime the salaries have increased to increased much slower pace.
Apart from a Telegram group and an Amharic translation of “The Little Bitcoin Book”, there is little teaching material on Itcoin in Ethiopia. Apart from a Telegram group and an Amharic translation of “The Little Bitcoin Book”, there are small Bitcoin teaching materials in the Ethiopians’ mother tongue. In addition, USD activities are by law reserved for foreign investors or the Ethiopian diaspora. And given the heavy penalties incurred when an Ethiopian circumvents foreign exchange laws, Bitcoiners are firmly in the closet.
What makes the question of adoption interesting is the seemingly resentful position of Ethiopians in Africa. Kenya, Nigeria and South Africa lead the continent in owning bitcoins. These countries have built several legitimate companies that use Bitcoin as better money. Even when regulators and law enforcement officers deploy convicts, citizens boldly send and stack sats. If you thought laser-eyed fund managers in the West were upbeat, you haven’t met a 23-year-old Ethiopian freelancer doing fully digitized projects (from sourcing to contracting and invoicing) with apps and open-source, level Lightning wallets 2 perform. As humble as these transactions may be, these children take great risks in order to fulfill their basic rights to unadulterated money and sovereign value.
III. The Oracle Problem
Ethiopians love marathons. Like many populations with high fiber diets, high altitudes and picturesque landscapes, we are very good at it. And just like our love for the marathon, we have also made running in circles on the topics of money and technology a sport. A good friend in the diplomatic community commented, “As the whole world sprints for quarterly reporting calendars, Ethiopians think and act through centuries and millennia.” Because of these cultural and institutional bureaucracies and inefficiencies, Ethiopia and similar countries will continue a faulty trend of currency devaluation and inflation .
For example, “smart contract” is a term used to describe code that automatically executes all or part of an agreement that is stored on a blockchain-based platform. These smart contracts are often based on obtaining information from resources that are not on the blockchain itself and therefore have to use “oracles” or trusted third parties for this information. These oracles become a “point of failure” and can be functions of garbage, simple malfunctions or deliberate manipulation. The oracle problem is that third parties cannot be trusted.
This mistake is essentially related to a lack of understanding of a fundamental and often merged point. We, as mere people in the technology age, have not solved the oracle problem. The term comes from Greek mythology and refers to someone who is able to communicate directly with God and see the future. In programming, it refers to a similar concept that confirmation of data (often as information from the real world and in information systems or blockchains) is entrusted to decision makers or man-made “oracles”. In the noise of smart contracts and innovations, these crucial oracles can (and often are) functions of garbage data, simple malfunctions or deliberate manipulation.
The oracle problem, other than divine miracles or Hollywood magic, is not yet resolved.
In this environment, I beg the Ethiopians to capitalize on which is the most important innovation for money that they will see in our lifetime. As a country and people, we should try to escape the inflationary evils of the petrodollar (and its nasty derivatives) and instead mine, save and budget Bitcoin.
If we are to have a chance of real development out of poverty and towards sustainable growth, serious thought should be given to a state fund in Bitcoin with full state custody and transparency in accounting. As of this writing, Norway is the only country, beyond its Norwegian state pension fund, that thinks beyond oil and the US dollar. According to Arcane Research, the fund owns almost 600 BTC through its holdings as of September 2020. Based on my conclusions in “The Humanitarian and Environmental Case for Bitcoin,” published by Bitcoin Magazine, Alex Gladstein portrays a brave new future: “Could Sudan and Ethiopia with massive wind and solar resources support Bitcoin mining and a growing one Power grid, be? Norway of the future? “
Then there is El Salvador, which is introducing Bitcoin as the country’s legal tender. Although the law has not yet been officially implemented, nor have they confirmed ownership of Bitcoin on their balance sheet, the country is set to create a trust that will facilitate the use of the Bitcoin infrastructure. The simple announcement of this introduction was enough to spark much discussion about the use of Bitcoin by nation states.
As the block height increases, the hash rates become more difficult and the price of a single satoshi will of course rise above that of a penny. Knowing that poverty is indeed no fun (alluding to the meme “Have fun staying poor”), I plead again: This is a marathon that we cannot afford to lose.
This is a guest post by Kal Kassa. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. Bitcoin magazine.