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Inside Kenya's blockchain ecosystem: What the future holds

Saturday February 08 2020
By FAUSTINE NGILA

As blockchain technology takes off in Africa, Kenya’s preparedness comes to critical focus due to its robust technological ecosystem that has, in the past 15 years, attracted tens of global digital business companies.

There are numerous gaps in the field in Kenya but this revolutionary technology will eventually disrupt every sector, hence the need for the world to fully prepare.

The Blockchain and Artificial Intelligence Taskforce officially presented its report to the Information Cabinet Secretary Joe Mucheru in July 2019, with recommendations on how to go about this technology in the coming years.

DEFINITION

But what is blockchain?

It is a distributed and decentralised ledger technology (DLT) that chronologically and publicly records all transactions in a network.

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The digital ledger is held and updated by anyone who takes part in maintaining the network, so it is a peer-to-peer platform that eliminates intermediaries, thereby creating trust.

There is no transaction that can successfully join the chain without being validated by nodes and new transactions create a complexity that locks out hackers.

For any hacker to succeed, he or she must hack every 'block' but there are millions of them.

"Every user has a public (username) and private (password) key.  In this system, any person can encrypt a message using the receiver's public key but that encrypted message can only be decrypted with the receiver's private key," expounds Mr Benjamin Arunda, author of "Understanding the Blockchain".

The technology has the capacity to store any form of digital data by use of smart contracts. A smart contract is a computer code designed to allow an execution of an agreement once two or more parties involved enter their private keys. These codes are used to execute transactions when the provided criteria is met.

ELECTORAL JUSTICE

The World Economic Forum has stated that by 2025, 10 per cent of the global gross domestic product (GDP) will be stored on blockchain and blockchain-related technologies.

It can be applied in any process that lacks trust in sectors like education, health, law, journalism, film, construction, tourism, lands, mining, banking, insurance, transport and communication.

"This is the technology that will eventually help democracies achieve electoral justice. Election rigging shall become a practice of the past. To achieve free and fair elections, blockchain must be used to create a tamper proof system that eliminates voter fraud and provide an authentic record of votes cast," says Mr Arunda.

It is on this chain that the Central Bank of Kenya can decentralise funds allocated to county governments and monitor their use in real time.

Through cyptocurrencies, cross-border payments will be posssible, allowing Kenyans to send and receive money around the world at minimal costs. In future, cash out points could be found in rural areas.

The government also needs a Single Source of Truth (SSOT) regarding land ownership and transfer of property in Kenya. A distributed ledger like blockchain has public witnesses called nodes who help to validate each transaction. This will end land grabbing and fraud.

OTHER SECTORS

In the education sector, smart contracts will help curb cases of degree certificate forgery and infringement into academic content copyrights. It will also help to create an e-portfolio for all academic credentials.

It will allow for safe and easily accessible storage of files on a cloud and boost transparent fees payments and external funding.

Blockchain can create chains of authenticity in media to make it possible for readers to validate news and also ensure every journalist earns from his work – story text, image, graphic or video.

"Imagine reading an article and receiving a percentage of cryptocurrency into your wallet as a reward. There is a private blockchain customised for journalists currently in use across the globe called Civil, which is a decentralised communications protocol designed for independent newsrooms and journalists that are experienced in producing high quality investigative international and local feature stories. Any journalist can join the network."

"You have heard of surgeries being done on the wrong patient. This arises from confusion of patient data and clinical medicine, but research has shown that 56 per cent of healthcare providers are hopeful to start using blockchain by 2020."

This is the technology that will block middlemen in the trading of shares, bonds and securities. It will offer an efficient platform for the issuance, transfer and management of private company securities I a manner that reduces costs.

The reason why lawyers prefer physical files to digital ones is distrust. Smart contracts can be used to replace the physical legal contracts.

"There is a new opportunity for lawyers called Blockchain Law. Lawyers specialised in this tech will be in high demand in the next five to 10 years. Chains of custody and notary publics will be secure and no one will be able to alter evidence or timestamp (digital fingerprint)," says Mr Arunda.

FILE SHARING

Blockchain-based file sharing will help eliminate the theft of patented property and create trust in 3D printing. 3D model files can be shared using the all secure technology which will verify 3D printing machines and vendors.

"You are aware of the fake gold scandal that happened in Kenya a few months ago. Blockchain smart contracts with predefined conditions can be developed and used by suppliers of minerals and mining companies to execute transfer and acquisition agreements," says Mr Frank Deya, the Chief Operations Officer of Aeternity Hub Africa.

The mining industry can rid itself of the corruption and theft that occurs in the process of registering mineral rights, and the problems that arise from the chain of custody, by embracing blockchain.

"Traders in gold, diamond, silver, emerald and other minerals have always flouted the mining laws and management of inventory reserves. There have also been scuffles during the construction and handing over of mining sites. The solution is blockchain," he says.

KENYA'S PREPAREDNESS

How prepared is Kenya for this ground-breaking innovation?

"When the internet was launched in the 1990s, people across the world were hesitant to believe its potential in changing lives. Some complained of the cost and scalability.

"But with time, the internet became exceedingly revolutionary and everybody embraced it. It is the same case with Blockchain. We will have some hurdles now but eventually every sector will adopt it. It will be inevitable for both the public and private sectors," says Prof Bitange Ndemo, chairperson of the Blockchain and Artificial Intelligence Taskforce and an associate professor at the University of Nairobi's School of Business.

At present, we have a number of tech organisations spreading the blockchain awareness in the country.

Blockchain Association of Kenya, Aeternity Hub Africa, BitHub Africa, Distributed Ledgers, Blockchain & Research Technologies (DLBRT) Blockchain for Business, Exponential Operating System (EOS) Nairobi community and Andela Kenya have all been in the frontline in educating Kenyans since 2016.

"We are gradually gaining more following in this field. Nowadays we have more people coming to our free training events. We have blockchain meet-ups every week to spread the gospel in Nairobi," says Blockchain Association of Kenya's chairperson Ms Roseline Gicira.

ADOPTION

The blockchain magic is being spread to tech savvy Kenyans in universities and colleges, and now these efforts are being extended to companies.

"We are driving the adoption of blockchain in Africa through corporate trainings, educational programs, workshops and boot camps. We train software developers on best practices for building decentralised applications.

"We are now working closely with companies to help them identify their areas of operation that can benefit from deployment of certain elements of Blockchain. We enable traceability of goods in a supply chain, integrate cryptocurrency payment gateways and also enable crowdfunding," says Mr Deya.

TRAINING COST

So how much does blockchain training cost?

"This varies and depends on where you taking it from.  However, loads of free online resources from reputable vendors for example IBM has great foundation courses that one does not have to pay for and can self-learn.

“Many other schools have dedicated classroom programs that deal with solving real life problems such as Funtrench and Kesho Labs," says Mr Michael Onyango, a thought leader at Future of Work and Emerging Technologies who is also a member of the Blockchain and AI Taskforce.

"Programming students at Strathmore University have had a chance to learn how to code blockchain networks thanks to our partnership with the institution. For short courses that go for a week, we charge Sh50,000 while long courses that last three months cost Sh500,000," says BitHub Africa's chief executive officer, Mr John Karanja.

Aeternity Hub Africa does not charge students and learners but companies part with between Sh200,000 to Sh400,000 depending on the complexity of the solution and number of employees to be trained.

BLOCKCHAIN ACADEMY

At Nairobi's renowned technology hub, Moringa School, students benefit from weekly blockchain trainings that help to prepare their brains for the Fourth Industrial Revolution, according to the institution's country director Ms Stacey Ondimu.

Another blockchain academy in Nairobi was launched on July 2019 to scale up the market of blockchain education.

"Kwakoo Academy offers other trainings in other emerging technologies such as AI and data science but the anchor courses will be blockchain and cryptocurrency," says Mr Arunda.

The academy charges Sh15,000 for entry level trainees, Sh30,000 for intermediate Blockchain knowledge, while those who aim to be experts in the field part with Sh50,000.

SECTORS

But where in Kenya is blockchain being commercially utilised?

Already, this technology is being used in the agribusiness sector across 20 counties by Twiga Foods who are working together with technology provider IBM.

They source fruits and vegetables from 17,000 farmers across 20 counties and deliver them directly to 2,500 vendors a day in Nairobi and its environments.

"Many multinational firms that operate in Kenya are using this technology. Maersk is working with EY and Microsoft to ease shipping and insurance. Barclays Bank, in its bid to curb identity theft is now deploying blockchain because it has the ability to eliminate the hurdles of time in identification and verification," says Mr Onyango 

The country remains optimistic that through continued government support, every sector will embrace the technology.

"We are happy that the Ministry of Information, Communication and Technology is giving this tech space sufficient support. Once this technology matures, the debate about whether the country is ready will end. It is ubiquitous and its use will be everywhere to weed out corruption and other social vices," says Prof Ndemo.

The expert notes that this technology must be leveraged with other emerging technologies to create a robust ecosystem that not only creates trust but also eases accessibility, increases speed of data transmission while ensuring that the data is accurate and secure.

"Blockchain will eventually be synchronised with Artificial Intelligence (AI), data science, 3D printing, 5G network and Internet of Things (IoT) to create a seamless web of cloud sourced services in a secure and transparent tech ecosystem."

Mr Arunda says that the Capital Markets Authority (CMA) is gradually increasing the adoption of blockchain by creating a regulatory sandbox.

"Sandbox is a test environment that allows start-ups to try their projects in real market ecosystems without being subjected to exclusive regulatory hindrances,"  he explains adding that there has been significant support from the Central Bank of Kenya regarding the technology.

WHAT KENYANS SAY

A Blockchain discourse held at Metta, Riverside, Nairobi last August centred around the possible application of Blockchain and AI in governance, land and housing, finance, healthcare, food security, manufacturing and culture, highlighted more utility for the technology.

“In the manufacturing sector, a hyper ledger is needed to manage stock using synchronised inventory data mechanisms from the point of processing to shelves up to the point of sale,” said Mr Cyril Michino adding that supermarkets’ use of physical stock taking is not accurate.

Lack of traceability, data insecurity and immobility are the hindrances ailing the shipping industry as importers struggle to succeed in product recalls leading to losses. This also creates a loophole for tax evasion.

Mr Pablo Muigai, a developer, decried the poor state of shipping in Kenya explaining how he witnessed a meat exporter lose a Sh1 million in meat exports simply because documentation done at the Kenyan airport had spelling errors from poor handwriting.

“I know a businessperson who lost six containers of avocados just because his importer said they were rejects. There was no verifiable and trusted second opinion, something that Blockchain, AI and IoT can solve,” said Johnson Gitonga, a Blockchain enthusiast and writer.

Blockshipping was recommended to offer a Blockchain Container Register which records who owns and operates the container in a safe and traceable manner.

In addition to the classical registration, the register is also able to convert the physical containers into tokens. Tokenization of physical containers on the blockchain provides indisputable proof-of-ownership.

This makes it possible to record changes and transfer in possession of a container in a safe, transparent and traceable manner.

But this will come through research, experimentation and awareness in local dialects. “With streamlined regulation and public acceptance, gradual adoption will eventually graduate to full adoption,” said Mr Michino.

The team also called for the inclusion of the technologies in the school curriculum as that is where the future is heading.

It was noted that grey areas still exist in the finance sector regarding regulation of digital loan apps, the cost of bank loans and cross border payments.

“To solve this, the Huduma Act needs to be revised to ensure all Huduma Namba data is captured on a government blockchain to ease identity. Thereafter, mobile fintech solutions can be developed on blockchain by digitizing assets using The Movable Property Security Rights Act of 2017  ,” said Amos Kinuthia from DLBRT.

Governance, being the most critical pillar of development needs decentralisation. Currently, each county handles its issues solely and centrally.

“Decentralized technologies should be used to merge government ministries and agencies to avoid the dupilicy of services we see,” said Laban Kariuki, a blockchain lover.

In the land and housing sector, there have been squabbles when tenants demand for their rent deposit from their landlords with squabbles ensuing.

“Landlords are unable to verify tenant details, and sometimes they don’t know who didn't pay rent, but blockchain can be used in solving this through smart contracts on mobile apps,” said John Mbugua.

A smart contract is a computer code designed to allow an execution of an agreement once two or more parties involved enter their private keys. These codes are used to execute financial transactions when the provided criteria is met.

The construction industry has seen illegal planning approvals with zero innovation happening. The cost of development finance is prohibitive for developers besides the pain of title deed verification.

“Lobbying is needed needed to ensure all land data is placed on a blockchain to ease the digitization process. This will curb land fraud and construction of poor quality houses that later claim the lives of tenants,” he added.

Healthcare has seen a communication breakdown between hospitals disappoint patients who expect quality diagnosis and treatment, arising from poor data management.

Rogue doctors have been known to sexually assault unsuspecting patients, misdiagnosing diseases and doing shambolic surgeries.

“But if a blockchain was in place, all patient data would be captured and shared in real time among hospitals. Patients would also be confident to deal with qualified physicians, with a good balance between data privacy and data transparency being struck,” Jackline Gachiri remarked.

To enhance food security, the entire supply chain of farm inputs such as seeds, fertilizer and pesticides should be run on a blockchain to weed out fake input sellers who supply chemicals that destroy farm soils.

“Political goodwill is needed to ensure this happens. There has been too much politics in the supply of inputs and the purchasing of farm harvests. Blockchain can help us shere,” said Michael Ondiala.

Kesho Labs chief marketing officer Roselyne Wanjiru highlighted that the tokenization of the creative economy, including arts, audio-visual media and sports will enable professionals access more efficient intellectual property protection, earn sustainably from their work, and gain more structured investments to boost the creative industry.

“We believe the report is balanced, comprehensive, use case specific and relevant to the current digital transformation. We are glad that the taskforce came up with several meaningful conclusions,” a statement from EOS Nairobi community read.

“We support the task force’s proposal that the government should operationalize the Computer Misuse and Cybercrime Act of 2018 with a national computer and cybercrime coordination committee that ensures regulation and compliance.”

CHALLENGES

However, the penetration of knowledge and skills of the technology is still way below targets, with only a few companies coding their own private blockchain networks.

"The biggest challenge in most blockchain networks has been scalability. Most networks have a limited number of transactions that can be run per second," says Mr Felix Macharia, the co-founder and head of community operations at EOS Nairobi, but adds that the company has come to solve this fundamental hurdle.

"EOS is an application development just like Android only that it is decentralised. It is not run by any individual or central company but by an open source community spread across the world," he expounds.

With only one company in Kenya providing scalability solutions, the challenge is enormous for companies that need private Blockchain networks.

The Ministry of Education also needs to upgrade the content it offers to university and college students, for the country to create a generation of brains that will spur economic growth in the next few decades.

"We have witnessed a slow progress in skills development particularly because our education system has not been fast to include emerging technologies in university syllabuses.

"In developed economies such as the United States, United Kingdom and Canada, Blockchain is presently being taught in colleges. Here in Kenya, we seem to be taking too long to realise how much critical these skills are," says Prof Ndemo.

Mr Karanja has a similar observation.

"What we lack as trainers is institutional support especially from public universities and colleges. We have poor policies regarding the uptake of new technologies in the academia," he says.

How can we solve these teething problems?

He adds that for the Fourth Industrial Revolution to be actualised in Kenya, holistic support is needed in a public-private partnership models because emerging technologies are now becoming inevitable to adopt.

"There is an urgent need for societal and politico-economic change of policy to accommodate this technology and help speed up its uptake. More awareness across the country is needed," says Roselyne Wanjiru, Kesho Lab's strategic liaison officer.

KEY RECOMMENDATIONS

The report on blockchain and AI gave the government recommendations that seek to help Kenya tackle main problems like corruption, land fraud, food insecurity, fraudulent procurement and election disputes. 

“The great challenge is now passing the information to the political class and explaining to them how this is going to work. If people can be able to trust technology like M-Pesa then we should also trust blockchain to deliver free, fair and transparent elections,” said Mr Mucheru.

He hailed the report’s recommendation to have a digital register, saying that if someone has charged their land title deed with one bank and wants to get a better interest rate from another bank, he or she doesn't have to go through the same process again since one bank can pass the information to the next one, making it easy to get loans, mortgages and other financial services.

The report also indicated that other countries that are using Blockchain and AI to fight corruption include Ghana, Georgia and Ukraine which are looking to reform land registry by building immutable title deed systems.

To control government’s huge public debt, the report recommends creation of a digital asset framework to enable citizens to raise funds through Initial Coin Offers (ICOs) as a strategy to help local investors put their resources in cryptocurrencies underpinned by the utility of local resources.

“Kenya needs to pilot this promising concept and issue an infrastructure coin or one that deals with the problem of unemployment,” the report says.

As part of the financial inclusion drive — using India as an example — the taskforce recommends the creation of a National Payment Gateway using a public-private partnership model. This payment gateway becomes the central point for all digital payments. This will ensure, the report says, a reduction in the cost of transactions and the beginning of the journey from a cash-based economy to a full digital economy.

However, for this to happen the government has been advised to conduct awareness campaigns and education to foster citizen’s financial literacy and capability. It will also need to leverage citizen ID for ‘Know Your Customer’ for opening bank accounts and providing credit, establish robust financial consumer protection frameworks and implement a Financial Technology (Fintech) Legal and Regulatory Sandbox.

“To reduce transaction costs, Kenya should leverage Blockchain and AI to identify fraud indicators and conduct a public awareness campaign. It should also introduce legislation to compel financial institutions to report fraud incidents and encourage CBK to leverage Blockchain and AI to verify institutional reporting,” says the report.

To improve public service delivery, the team recommends adopting Blockchain to provide “a single source of truth” for all government documents and services. This will be powered by a digital identity service (Huduma Namba) and a digital fiat (surrogate) currency.

The report also covers the all important question of food security and safety, stating that Kenya needs to apply AI and analytics to detect fraud, trace unsafe products and deliver training to farmers to improve quality.

The country also needs to consider distributing farming subsidies, including those for fertiliser, through “a Blockchain controlled Agri-token” that reduces fraud and ensures farmers receive the needed assistance by leveraging citizens' identity.

The government, the report says, also needs to introduce a citizen service that tracks the origin of food products and reports those which are unsafe.

The taskforce also recommends aggressive use of technology to improve integrity of medical records, in consent management for greater patient privacy, and in setting up reward systems for patients who avail their data for medical research.

The government, it adds, should tap Blockchain to enable customers trace the supply chain of medication, help tackle counterfeit medication and augment the skills of medical professionals.

To eliminate counterfeits in the wider manufacturing sector, the technologies should be used to create an electronic, interoperable system to identify and trace outputs and inputs as they are distributed in Kenya.

Another key recommendation by the taskforce is the use of technology to enhance political democracy and avoid disputes that can degenrate into post- election violence.

“Last year, Sierra Leone became the first country in the world to use blockchain in tallying presidential elections alongside the normal process to demonstrate that indeed Blockchain can be used in tallying votes,” it says.

The ball is now on the government’s court to seek political backing for implementation in critical government initiatives such as Huduma Namba and Ifmis.

NOT PANACEA

Is it the solution to all economic malpractices?

Despite blockchain's promise of creating a global trust in every sector, it is not a panacea to all the problems we have in our socio-political and economic life, but it will help a great deal to create worldwide sanity, integrity and ethics.

"Technology can be used to create trust, but even with the advancement of Artificial Intelligence, it cannot create empathy," Prof Ndemo says.

However, blockchain's disruption will help halt the greed, abuse and madness witnessed in Kenya's public and private offices, where ego and impunity leads men and women to loot funds such that Kenyans become afraid the situation will never change, and believe it can only escalate.

"More than two billion people are considered unbanked in the world and have no access to financial services. Blockchain technology has the potential to shrink the poverty gap by increasing financial inclusivity, reducing financial misappropriation and enabling decentralized access to value-creating assets," says Mr Onyango.

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