In the spring of 2022, the Central African Republic (CAR) became the first African country to adopt Bitcoin (BTC) as a legal tender.
As the second country globally to recognize Bitcoin in such a fashion, the CAR followed in El Salvador’s footsteps. El Salvador has since boasted surging tourism numbers, a resilient economy and a healthy amount of free PR since allowing its citizens to make everyday purchases with the seminal cryptocurrency.
The CAR, a substantially less economically developed economy than its Central American counterpart, would hope to emulate El Salvador’s success. Despite the nation’s vast natural resource wealth, the CAR is plagued by economic mismanagement, meager private and foreign investment, and systemic governmental issues.
It is one of the poorest countries on the poorest continent in the world, ranking right at the bottom of the World Bank’s Human Development Index. To make matters worse, up to 85% of the country’s exports are kept in French treasuries, while its currency of choice, the CFA franc, is heavily biased toward economic development in France. Consequently, tapping into a neutral, open-source and censorship-resistant monetary system such as Bitcoin could not only benefit but emancipate the country.
Similar to El Salvador, the CAR law would make Bitcoin “official money.” Naturally, this decision was lauded by Bitcoin advocates the world over. Plus, it appeared that CAR President Faustin-Archange Touadéra, a mathematician and Bitcoin supporter on social media, was inclined to support the adoption of the unique cryptocurrency. The pro-Bitcoin tweets smack of El Salvador’s laser-eyed president, Nayib Bukele.
— Faustin-Archange Touadéra (@FA_Touadera) April 27, 2022
However, celebration and support for the country among the Bitcoin community were short-lived as, despite formal visits by Bitcoin-only proponents — including Galoy Money — the country began its own token project. Just days after the Bitcoin law came into effect, the country surprised the crypto community by announcing the creation of a crypto token called Sango. The population of 5 million would also benefit from a “crypto hub” in the capital, Bangui.
Cointelegraph sat down in Senegal, West Africa with Mamadou Moustapha Ly, the Central African technician who oversaw the development of Sango Coin, to ask about the project’s development. A payments expert, Ly also runs the fintech startup Kete Cash. Ly shed light on the creation of what he called a “token, not a currency,” labeled Sango. Sango is the token that would accompany the country’s plans to adopt Bitcoin as a legal tender.
First, Ly stressed that the Bitcoin-as-legal-tender law clearly states that the country will adopt Bitcoin. There is no mention of other cryptocurrencies or even Sango Coin. He painted a clear divide between Sango and Bitcoin:
“The law states that the digital currency that is legal tender is Bitcoin. We recognize this as our official currency. […] Sango coin is a project for the Central African Republic state.”
Sango Coin offers attractive incentives to foreign investors, including citizenship by investment and eventually a CAR passport, as well as governance advantages. In a sense, buying Sango is a way of buying residency in the country, without touching government-issued fiat currencies.
A token effort
But why was this necessary? El Salvador did not create a new token to support its Bitcoin adoption efforts — so, why would the CAR?
To compare the two country’s Bitcoin adoption strategies, both countries announced Bitcoin as a legal tender. From that point onward, they diverge. In El Salvador, foreigners could initially buy residency with an investment of 3 BTC, although it was then rescinded. In the CAR, “e-residency can be obtained […] by locking a fixed collateral of SANGO Coins in the amount of 6000$ for a period of 3 years.” Plus, foreign investors can directly access the country’s strategic resources through the use of the crypto token, Ly explained.
To gain exposure to El Salvador’s rapid development without touching Bitcoin, the Central American country teed up volcano bonds. The volcano or Bitcoin bonds support the creation of a “Bitcoin City” and are backstopped by the government. In contrast, Sango is a cryptocurrency built on a blockchain “backed by Bitcoin.”
The now-defunct Luna Classic (LUNC) token was the last time a token used Bitcoin as its treasury. The token’s meltdown wiped billions of dollars from the crypto total market cap and dented confidence in the industry. So, why create a token? Why build a system liable to hacking or attack from malicious actors? And why do so despite the Bitcoin contingent’s best interest to steer a Bitcoin-only path?
Ly explained that Sango is a “government project.” Money raised through the sale of Sango Coin will be used to buy Bitcoin, which can then be used to acquire the materials necessary for development projects, as well as to pay for labor and other expenses.
It’s important to note the country’s dire financial situation. Reports continue to indicate that civil servants and government salaries are paid by its former colonizer, France, while the country is labeled a “repressed” economy according to the Heritage Foundation’s 2022 Index of Economic Freedom.
While Bitcoin advocates hail Bitcoin adoption as a panacea to most modern-day problems, in the CAR, the priorities are clean water, security, education then maybe internet connectivity. With these motivations, the country needs investment — fast.
To this point, Ly noted that the Central African Republic’s high level of external debt makes it difficult for the country to access traditional forms of financing. Sango Coin could be that alternative source of funding. Indeed, one could infer that the quick liquidity provided by Sango is a way of jumpstarting much-needed foreign direct investment (FDI) into the country.
Related: ‘We don’t like our money’: The story of the CFA and Bitcoin in Africa
In addition, the use of a crypto token allows for greater flexibility and speed in conducting financial transactions, as well as reducing the risk of fraud, he commented. In a sense, the use of Sango could sidestep the bureaucracy and slow administrative practices for which Central African governments are known. Plus, it could allow investment flows into the country without touching dollars or the local currency.
When asked why the Central African Republic did not simply use Bitcoin or the superfast Lightning Network for these purposes, Ly reiterated that Sango Coin is intended to serve as a token associated with the government project: “It’s not a general-purpose currency.”
Sango could allow for greater control over the flow of funds, therefore reducing the risk of capital flight. In addition, the World Bank points out that the country will not be able to develop its human capital without strengthening domestic revenue mobilization sustainably. Sango could be the quickest path to more robust revenues.
Bitcoin on the ground
Paco De La India, known as “Run with Bitcoin,” recently spent two weeks traveling in the CAR in the hopes of spending Bitcoin and interacting with Bitcoin people. He told Cointelegraph:
“There was no not even a single business that accepted Bitcoin. I gave my guide a tip in Bitcoin. I paid my host in Bitcoin.”
With those small successes aside, Paco told Cointelegraph that Bitcoin adoption on the ground was minimal. In a country where less than a quarter of the country has access to the internet — a basic requirement to use “magic internet money” — it’s hardly surprising.
As for the creation of Sango Coin, Paco suggested there could be external forces at play. The CAR is tremendously resource-rich, so why couldn’t a French state-run project meddle with the creation of the token? he questioned. The token was indeed created quickly after state visits to one of the world’s crypto hubs, Dubai.
Ly explained that foreign influences did have an effect on the decision-making process:
“The idea for Sango Coin came from a private partner based in Dubai who discussed it with the Head of State.”
And a deal was struck with foreign investors, but there was no suggestion that the former colonial power may be using Sango Coin to control resources. It might simply be the quickest way to raise capital and, as Ly suggested, use this capital to buy Bitcoin and build the country’s infrastructure.
Ultimately, Bitcoin adoption and the creation of Sango appear to be a ploy to inject much-needed FDI into the country and enhance the country’s standing globally. However, the creation of this token may shun interest from the wider Bitcoin community, arguably the frontline investors to places and jurisdictions that announce their plans for Bitcoin.
Why Real Regulatory Change In Crypto Has Not Happened
South Korea to deploy cryptocurrency tracking system in 2023
The Ministry of Justice in South Korea announced plans to introduce a crypto-tracking system to counter money laundering initiatives and recover funds linked to criminal activities.
The “Virtual Currency Tracking System” will be used to monitor transaction history, extract information related to transactions and check the source of funds before and after remittance, according to local media outlet khgames.
The South Korean Ministry of Justice will introduce a “cryptocurrency tracking system” in the first half of this year to strengthen the tracking of money laundering and recovery of criminal proceeds using cryptocurrencies. https://t.co/2CLkaLUrX6
— Wu Blockchain (@WuBlockchain) January 29, 2023
While the system is slated to be deployed in the first half of 2023, the South Korean ministry shared plans to develop an independent tracking and analysis system in the second half of the year. A rough translation of the ministry’s statement reads:
“In response to the sophistication of crime, we will improve the forensic infrastructure (infrastructure). We will build a criminal justice system that meets international standards (global standards).”
The South Korean police previously established an agreement with five local crypto exchanges to cooperate in criminal investigations and ultimately create a safe trading environment for crypto investors.
Related: South Korean prosecutors request arrest warrant for Bithumb owner: Report
The South Korean Supreme Court ruled that crypto exchange Bithumb must pay damages to investors over a 1.5-hour service outage on Nov. 12, 2017.
The finalized ruling from the supreme court ordered damages ranging from as little as $6 to around $6,400 be paid to the 132 investors involved.
“The burden or the cost of technological failures should be shouldered by the service operator, not [the] service users who pay commission for the service,” the court stated.
Data Shows 50% Of Bitcoin Hashrate Controlled By Two Mining Pools
Bitcoin hashrate is becoming highly centralized, with a few mining pools controlling most of the blockchain mining power. The latest data from Mempool indicates that 50% of the total hashrate is held by Foundry USA and Antpool.
A Highly Centralized Mining Network
Foundry USA has maintained a hashrate of over 30% of the total Bitcoin network for several weeks. It became the first mining pool of non-Chinese origin to lead the list in November 2021, following the ban on Bitcoin mining in China in the middle of the same year.
Back then, Foundry USA contributed 17% of the total Bitcoin hashrate. Today, the US-based pool averages 34.1% of the mining power, equivalent to about 104 EH/s, considering that the Bitcoin hashrate is around 300 EH/S.
Related Reading: First Bitcoin Mining Powered By Nuclear Energy To Open In The U.S. In Q1 This Year
Antpool comes in second with about 18.0% of the total hashrate equivalent to about 58 EH/s. The Chinese-based pool used to be the largest Bitcoin pool but was affected by the ban on crypto mining which caused several miners in the region to migrate.
What Is Behind This Trend?
The graph shows that over 80% of Bitcoin’s mining power is concentrated among just 5 pools. This contrasts with the beginning of 2022, when these five mining pools barely exceeded 60% of the hashrate.
Some factors could have contributed to this rise. One of which is the location of the servers of the said pools. The closer the servers are to the pools and mining facilities, the lower the information transfer latency. This means that a miner will likely get more shares in the mining process and earn more Bitcoin (BTC) by connecting to a closer server.
Another factor is the financial incentives offered by these major mining pools. Bigger mining pools can consistently distribute profits to their members, who pay a commission for mining with their resources, driving more miners to their ecosystem. This is evident with the high mining difficulty in recent weeks due to the bullish movement of Bitcoin, making it difficult for smaller mining pools to be profitable.
Related Reading: Why The S&P 500 Could Help Send Bitcoin Soaring Higher
However, Bitcoin’s highly centralized mining system poses significant dangers to the cryptocurrency. The miners could agree to reject transactions that do not meet a specific parameter leading to a 51% attack.
We’ve seen such attacks occur on other Proof-of-Work blockchains like Ethereum Classic, which could be a problem for Bitcoin. In addition, these pools are recognized companies and could face pressures from regulatory agencies trying to control activities on the Bitcoin network.
So far, Bitcoin is still maintaining its bullish trend, with the leading cryptocurrency up by 40% since the start of the year. As of the time of writing, Bitcoin is trading at $23,400, according to data from Tradingview.com.
Featured image from Pixabay, charts from Trading View, Coinwarz, and Mempool
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