Pieter Heyns said, in a “trust less” environment, bitcoin has shown that blockchain is secure and resilient.
Blockchain technology was the extremely contemporary topic of discussion during a recent CFO Community Conversation, sponsored by Workday.
A highly engaged group of attendees from diverse age groups eagerly started conversations before the start of a presentation by Pieter Heyns, the co-founder and head of finance at Luno, Africa’s biggest cryptocurrency platform that allows users to buy, sell and store cryptocurrencies.
Burning questions were posed throughout the session, with attendees comfortably addressing terminology, safety and security concerns as well as regulatory matters.
During the presentation, Pieter explained the concept of blockchain and how it is being used for finance digital transformation, with multiple businesses already in the cryptocurrency space.
“The simplest way to think of blockchain is as an accounting ledger. Whenever a transaction happens, the asset value moves from one person to another person. The bank has the database of the money and who it belongs to, and the stock exchange has a database of shareholders. Blockchain moves the ledger into and onto a peer network, and tracks credits and debits,” he explained.
“It is a special ledger in the sense that we can agree globally that a transaction has happened and cannot be changed,” he added.
Third parties
The ledger is transparent, with anyone in the world able to view it, and the information contained within it cannot be changed, deleted or reversed. This is because the peer-to-peer network runs software that validates the transactions in the new ledger called nodes, ensuring that no cheating can take place.
Pieter said, “In the past, reliance was on a third party like a bank. Now, we no longer need a bank as it has moved into a computer program. Everybody knows how the program works. It is based on mathematical principles, fundamental building blocks, so to speak.” In this way, people and resources can connect and transactions can be confirmed without a third party.
This ties with the platform revolution, with companies like Facebook and Amazon being the better-known examples of a completely new platform business model. “Any industry that relies on information is an industry that will be reshaped and disrupted by platforms,” Pieter noted.
He further explained that blockchain solves the trust problem with trust moving from a traditional accounting ledger database to parties participating in an open, distributed system. “Decentralised cryptocurrencies are enabling us to upgrade to better financial systems with the benefits including faster and safer transactions, being totally interoperable, transparent yet private, controllable and programmable and providing open and equal access for everyone,” he said.
According to Pieter, there are three phases expected to be seen in the cryptocurrency space over the next 10 to 20 years, being the asset phase, the transact phase and the decentralised phase.
“More and more people are recognising it as an asset with institutional investors buying cryptocurrencies as an asset class. Luno’s first pilot product was with a bank but the bank’s risk appetite didn’t allow for it. That was seven years ago. There are more transactions now and banks are going to give recognition to cryptocurrencies as an asset.
“So, we started to build our business and, in a sense, we are a bank now. The difference is that we do not control the ledger, but bring parties together to access the new decentralised financial system,” he explained.
Regulations and security
Joel Ncube, head of finance at Standard Chartered Bank, noted, “The rise of Fintechs will continue to disrupt traditional banking. However we expect 'traditional' banks to transform for their survival.”
It was at this point that Jurgens Myburg, CFO at Mediclinic International, questioned whether there were any cryptocurrency regulations in South Africa, particularly in relation to the Reserve Bank, capital gains and foreign exchange rules.
“We are working with SARS around regulating cryptocurrency in SA. There is no specific regulation currently and there is no way for SARS to control the platform. The system is not there to support that. SARS has taken the position that it wants to define cryptocurrencies before evaluating how it impacts taxes,” Pieter said. “However, the tax act is wide enough that any gain from cryptocurrency is taxed, through capital gains or income tax – any gains or profit from any activity is caught within the income tax net.”
Nick Thomson, CFO at Reunert Group, noted, “With transactions in general, there is a lot of talk of using blockchain to increase accuracy and supply chains.”
This led to the broader consideration of blockchain being part of the broader straits of commerce.
“With the supply chain, you need both parties to agree that a transaction has happened. That requires a lot of infrastructure like a bill of landings, letters of credit and different system building blocks. It will take time to get those building blocks in place and have smart contacts. We will start to reach consensus over time, as technologies become more pervasive,” Pieter said. “When that happens, then we don’t need a title deeds office or a stock exchange as you could list your company on a decentralised stock exchange. It’s going to take time to build that trust.”
On the issue of trust and security, he further explained that with blockchain, the actual system is secure. “Bitcoin has been around for two years and nobody has been able to hack it. The value of blockchain is in a world of trust without third parties,” he concluded.
