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[TOP STORY] Sarb approves banks working with crypto exchanges in South Africa

SIMON BROWN: I discuss with Marius Reitz. He is of course GM of Luno in Africa. Marius, I appreciate the weather today. If we go back to the beginning of 2020, if my memory serves me right, a group of South African banks somehow decided unilaterally that they would not deal in crypto exchanges. The South African Reserve Bank Prudential Authority just said, “no, it’s okay, banks can work with crypto exchanges in South Africa.” This is a summary of what happened in the last week in the local crypto world.

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MARIUS REITZ: Yes, Simon, that’s a very positive update. I think the approach of the Reserve Bank of South Africa (SARB) stands in stark contrast to that of other central banks across the continent and also globally, where the approach has been that central banks would generally be [prohibit] commercial banks, all financial institutions, from providing banking services to cryptocurrency businesses.

Attention can, however, be understood from the bank’s point of view. There is a general lack of knowledge [and] understanding, as well as an inability to effectively manage risk. I think crypto investing is still unregulated in most markets.

And then obviously also the incessant flow of articles in the media highlights the risks and scams. But the point the SA Reserve Bank was trying to make is about banks understanding the unintended consequences of de-risking or canceling cryptocurrency platforms.

At Luno, we’ve had first-hand experience in markets like Malaysia and Nigeria where as soon as the ban is in place, you don’t really see a change in customer behavior. You don’t see any change or decline in customers buying and selling, but what is happening is that the business is moving to some extent underground, where people are buying and selling in peer- to-peer – and then there is less visibility for the bank and for the regulator to follow what is happening in terms of use cases, certain activities, etc. So I think overall it’s a very pragmatic approach that the Reserve Bank has taken.

SIMON BROWN: I understand your reasoning. That’s a shout out to our reserve bank, and it’s part of the regulatory process that’s going on in crypto, locally and globally. It’s slow, because we’re still learning the ropes, but the rules are coming. I feel like everyone in the industry accepts that.

MARIUS REITZ: Absolutely. I think there is a clear theme globally. We usually see regulators start with the low hanging fruits, and that focuses on the cryptocurrency platform, so platforms that allow investors or consumers to use their local fiat currency to buy crypto, and I think that’s the obvious choice and it’s the easiest place to regulate and protect consumers.

And I think in South Africa the regulators have done a great job, the FSCA, the Financial Diligence Center and the SA Reserve Bank. They all worked in tandem.

I recently saw the Deputy Governor say that he was looking at 12 to 18 months.

So I think we are working in that direction. And I have to point out that there’s also been a lot of collaboration between the private and public sectors with regulators trying to understand the industry, but better trying to understand how they should regulate to deal with the risks – and I think that’s is a key point. You are not regulating just for the sake of regulating, but you are regulating almost at the level of activity where you are trying to regulate or prevent certain risks from materializing. I think that’s the way to approach it.

SIMON BROWN: I understand your point of view on this. I think you are right. Our reserve bank is smart in many ways.

If I can change tactics a bit, we talked a few weeks ago. We talked about Ethereum’s move from proof-of-work to proof-of-stake. A group of listeners contacted me with a few questions, two of which were really recovering. The first is, is this going to be a fork of Ethereum, or is it basically a protocol change?

MARIUS REITZ: It’s a change of protocol. So the Ethereum merger which is the major software update that we’re anticipating and as you rightly said will go from proof of work to proof of stake – not the steak that you eat, but proof of-stakes consensus mechanism. This should happen in September. It has been in the works for about seven years. This would essentially mean validators on the Ethereum network with more coins, or [holding] more Ethereum assets, will have a higher likelihood or probability of actually validating transactions and then being rewarded for it.

So it moves away from proof-of-work where you need mining hardware, a computer, and electricity to validate transactions, to proof-of-stake, where you actually need in-game skin. to act as a validator on the blockchain.

SIMON BROWN: Does it make life easier for someone on the street? You need coins, you can’t just run with an Ethereum I guess, but [does it make] easier, because at the moment, apart from Eskom’s costs in South Africa, [crypto] mining is intense.

MARIUS REITZ: I think for the average person, many cryptocurrencies operate on a proof-of-stake consensus mechanism……5:31 through cryptocurrency platforms. You can participate in what they call staking, and this is where you move your coins into a staking wallet. And then the platform will participate in the process on your behalf. Then you earn staking rewards, which you can almost see as interest on your balance on the platform, but that’s not quite it.

SIMON BROWN: Yes. But then I could also enter a smaller amount. The other big question was, is this going to impact Ethereum now? Not in terms of price – we won’t comment on that – but as I understand it, the day before and the day after, you will still have your Ethereum and it will be the same cryptocurrency.

MARIUS REITZ: Yes. To correct. I think the impact will probably be visible over time or apparent over time. And I think the processing speed on the Ethereum network should provide greater security, stability and also reduce power consumption, significantly, as well [have] a net positive impact on the environment.

SIMON BROWN: Yes. Less energy and better speed.

We will leave it there. Marius Reitz, Managing Director of Luno Africa, as always, I appreciate the time.