By: Ingy ElSafy & Moslem Ali
Cairo – Mubasher: Blockchain is increasingly carving out the space within the investment and banking sectors, with cryptocurrencies, tokens, and fiat expected to reshape the future of finance as many countries digitizate their economies.
Mohamed ElKasstawi, Chief Strategy Officer at Tribal Credit, who was founding partner of zk Capital, a research-focused blockchain investment firm in Chicago, told Mubasher about the latest blockchain technologies that emerging markets can benefit from, during the RiseUp Summit 2019.
You said earlier that you consider Talaat Harb, the founder of Banque Misr, as “The Father of Tokenization,” could you elaborate more on this statement?
Talaat Harb had issued tokens for something that did not exist. He did not have a company, he did not issue dividends yet it was just an idea that he had. He was the right person, with the right background and connections to convince nearly 126 Egyptians to contribute to crowdfunding Banque Misr.
He issued 20,000 shares (Tokens in blockchain terms) for EGP 4 each, collecting a total of EGP 80,000. He tokenized Banque Misr through issuing those shares. Talaat Harb was able to grow the bank into 15 other companies worth EGP 218.2 billion in assets in 2013.
Talaat Harb was competing, back then, with the National Bank of Egypt. He was too big that they [the regime] decided to kick him out because he poses a threat.
The difference between what he did and tokenization is just having a hard copy of the shares as opposed to taking the data and putting it on the blockchain. So, on the blockchain it says that this person bought 1,000 shares in Banque Misr.
How do you see this example similar to the current period in the region?
I haven’t seen enough in the region, but I think the real estate market has a great potential for tokenization, not for asset transfer though. What I mean is, for example, if someone wants to sell you an apartment, the ownership can be transferred [digitally].
There is an initiative in the UAE along with the Smart Dubai 2020 to move 50% of the government work on the blockchain, but they are still working on it.
Tokenization will also allow for non-stop 24/7 trading everywhere across world markets. For example, if Emaar Misr or Talaat Moustafa Group—currently trading on the Egyptian Exchange (EGX)—would like to trade internationally on Nasdaq, Hong Kong, or Australia, the only way for investors to trade these stocks 24/7 is through tokenization. Saturdays and Sundays are off in the US and Fridays are off in Egypt; which amount to three days off from trading on stock market exchanges, which only work from about 9 am to 3 pm.
In addition to non-stop trading, they won’t have to pay for listing fees in Nasdaq, NYSE, or LSE, trading at 90% less cost.
Won’t it be risky to trade 24/7, to be like a bubble for the market?
There are regulations within each exchange. here is nothing new in tokenizing the company. You are just digitizing the transactions. Instead of settling the transactions in two days, they can be settled instantly through tokens.
In the EGX, if a stock increases by a certain percentage, they put a halt on it to investigate if it is an insider trading. With tokens, it will be the same thing with limits but a faster transaction.
Do you think this may boost the performance of the stock exchange here in Egypt, for example?
Absolutely, you basically introduce liquidity into the Egyptian market where a lot of international investors want to invest. They will access the market through the proper channel which is doing know-your-client (KYC) [standard].
How long do you think it will take to apply such system?
Right now, the technology is ready. We just need regulations and a couple of good companies that are willing to try something like that which would probably take around five years.
Should this come from the government?
Yes, absolutely. Blockchain adoption is a top-down [process]. You need to start with the government and then go down to average users. Think about blockchain as the “trust technology.” A country like the US does not have a trust-in-the-government problem. Unlike emerging markets, where we need to address the trust problem through blockchain and transparency. We can fight fraud, corruption, and be more efficient [by adopting blockchain-based systems].
Which market in the region do you think is most ready to adopt blockchain?
I think the first would be Dubai for sure. If it succeeds, I think Saudi Arabia and Egypt will follow.
The Egyptian Central Bank is already conducting feasibility studies on issuing a digital currency.
There is also “Aber Coin,” which the UAE and Saudi Arabia are using cross-border transactions. But it is still a pilot, a proof of concept.
I think that each country will issue its “Fiat Token” to tokenize their fiat on the blockchain. They are having a cryptocurrency or a digital currency at the same value instead of cash. It is a version that will be bought on the blockchain, which is traceable and faster. It is the future.
Do you think cryptocurrencies are redefining money or just speculations right now?
It is 99% speculations. We do not have real utility. The only successful use case in cryptocurrencies is Bitcoin, which for the past 10 years has already proved itself as the “digital gold”.
However, the next successful use case in cryptocurrencies will be the “Fiat Currency” as it is a stable coin that does not go up or down. Think of it like gold or reserves. When people diversify their investments, they put some in gold, some in stock markets, and some in real estate. Now some would consider 1% in digital gold to have an exposure to that kind of new asset.
What are the challenges to make that transition?
The main challenge right now is sitting down with government entities and informing them about the benefits of blockchain and having a Fiat Token, a stable coin, or a cryptocurrency.
I think they will leapfrog to this technology in the Middle East and Africa.
How do you set the standard value for cryptocurrency without taking into consideration the inflation?
Central banks control inflation, so the only thing that needs to be done is taking the cash and giving out a different version. It has to be covered by cash, otherwise, it will be like printing money which will increase inflation.
With crypto fiat, if inflation is 2%, it will stay at 2% as long as you don’t print new money.
Cryptocurrencies markets are a different breed. Some would consider utility tokens. RiseUp came up with a “RiseUp Token”, for example, which you can use for all RiseUp related activities. Others may be in the form of shares in companies, or in bitcoin as a store of value”.
How do you put a price on Bitcoin?
It is like how you put a price on an art by Picasso; it is basically demand and supply.
Won’t it be hard to replace cash with digital money, as people tend to have something in their hands?
India has started doing so. In order to digitize the economy, some incentives have to be created. Give people an incentive for one year. For example, if you spend and use the “New Egyptian Pound Coin”, we will give you free electricity for one year.
Such initiatives should come from governments and we [blockchain firms] can support them with the right tools, but we also need their support in order to help them achieve their initiatives.