Can Cosmos Blockchain Change the State of Cross Border Transactions in Africa?
The African financial landscape makes it a bit infuriating to carry out cross border transactions. The traditional banking system is designed to favour the particular country it resides in and developed nations than it is designed to service other neighbouring African nations. Thus, sometimes it can be difficult to send funds from Mozambique to Nigeria or from Ghana to its sister country Nigeria. All these factors are what makes cryptocurrency and the blockchain technology an attraction for the African nation. There is a need for a diversion from the norm of delayed cross border transactions. How can the Cosmos blockchain transform the financial landscape of Africa and provide quicker and cheaper cross border transactions?
The blockchain technology was introduced with Bitcoin and then came Ethereum to show the versatile nature of the blockchain. However, the blockchain was still faced with the challenges of scalability and Interoperability. The traditional payment systems and online systems such as Visa and PayPal were plagued with slow transaction times and the blockchain had to surpass these transaction times. For instance, bitcoin performs 7 transactions per second and Ethereum 15 transactions. On the other hand, Visa and PayPal carry out 1,700 and 193 TPS respectively. This means that the blockchain has to work on its scalability. Several solutions to the scalability problem had been created like; Segwit, Lightning Network/ Raiden. However, these solutions had their shortcomings.
On the other hand, there was the challenge of interoperability. We have multiple blockchain networks however, these networks can not communicate with one another. This is similar to the current situation in the African financial landscape. Different countries can not carry out transactions directly with one another within Africa. In the case of the blockchain, these different networks act as silos and seldomly share any information with each other. Although there are some solutions to this problem like the atomic cross-chain swap, however, it isn’t truly interoperability. Also, there is a need for communication between banks and cryptocurrencies. While cryptocurrency exchanges may provide a portal between fiat and cryptos, they are not truly decentralized and are therefore open to hacks.
The Comos Solution to Blockchain Scalability and Interoperability
Since we are seeking a way to get blockchains to communicate with each other, Cosmos was born. Launched on March 13, 2019, Cosmos Network is a proof-of-stake based blockchains whose aim is to create an “Internet of blockchains.” Cosmos aims to provide a more scalable alternative to popular blockchains who are currently struggling with high TPS. To do this, Cosmos aims to utilise multiple blockchains called Zones. The zones will be attached to a central blockchain called the Hub. In other words, Cosmos aims to become the World Wide Web of blockchains. The zones will be powered by Tendermint Core’s BFT Consensus Algorithm. The algorithm is designed for scaling public PoS blockchains giving them high-performance ability. They will also come with a secure PBFT-like consensus engine, which will ensure control over malicious actors.
The African Transaction Dilemma
Prior to the introduction of cryptocurrency, gateways such as PayPal, Visa, Western Union and MoneyGram were used to send money into Africa and out. However, these gateways were known to have high transaction fees, sometimes as high as 10%. Also, some countries were excluded from participating in the services of these gateways. When cryptocurrency was introduced, it was embraced with open arms albeit amidst some resistance. Some of the challenges facing African
Outdated Operational Systems: Traditional banking systems in Africa are outdated. Most of the transactions carried out are processed with SWIFT MT103 messaging format. Although it is highly reliable, it is also limited. This messaging infrastructure causes banks a lot of operational inefficiencies. There is also the issue of opening an account and the multiple and unnecessary paperwork involved.
Slow payment processing: There is also the issue of transaction processing speed which is usually delayed because of AML policies. Since there is a lag in standardization and digitization of information sharing, payments have to go through multiple complex data checks. Transactions may be delayed because of AML checks and checks for fraud or incomplete payment information.
Personal data privacy regulations: categorizing transactions according to the various regulations of the countries to which payment is being sent to or made from may cause a delay in transactions. Banks have to ensure that they are not infringing on any regulation. So a lot of time is spent organizing what information could be transferred to what jurisdiction.
The currency of Payment: This is also a challenge as the preferences for receiving payment matters. Most African countries transact in USD and would later convert the USD to their prepared currency. This could make transactions cumbersome as you’d spend more time converting currencies to and fro.
Where does Cosmos come in?
With Cosmos, African financial institutions can process faster payments at cheaper rates. Also, there is the benefit of having your transaction through multiple blockchain networks in the currency of your choice without having to go through the cumbersome mortar and brick paperwork system. The Cosmos blockchain enables multiple blockchains to communicate with one another. This would help increase transaction speed as well as encourage the intra-country trade in Africa. Instead of utilising the cumbersome and outdated banking system, the integration of Cosmos will also aid the safe and secure communication between fiat and crypto.
Conclusion
Cosmos is currently teaming with Nym Technologies to bring anonymous credentials to the blockchain. This will enable compliance with KYC and AML requirements without the need for the user to provide any unnecessary information. This way, transactions will be faster and less time and money consuming. Africa is urgently in a solution for its payment systems as this will facilitate intra-country transactions and boost the economy of the continent. It will also reduce the dependency of Africa on the currencies of other developed nations such as the USD and Francs. Hopefully, the blockchain technology gains the recognition it deserves in Africa and is utilized for more than just its cryptocurrency use case.
