Cryptocurrencies are back – but South Africans are clueless about how they work

Cryptocurrencies have seen a revival in 2019, driven primarily by a spike in the price of Bitcoin and increased adoption by multinational companies.

The latest interest has been sparked by Facebook which on Tuesday (18 June) announced a new global cryptocurrency called Libra.

Bloomberg reported that the social-media giant hopes Libra will one day trade on a global scale much like the US dollar.

The new currency will launch as soon as next year and will be what’s known as a stablecoin — a digital currency that’s supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so libra can be used for everyday transactions in a way that more volatile crypotcurrencies, like bitcoin, haven’t been, Bloomberg said.

Visa, Mastercard, Paypal and Naspers have all agreed to support the cryptocurrency which will be governed by the ‘Libra Association’, a group of companies that will have an equal say in how the currency is managed.

Almost 30 firms have joined and Facebook hopes another 70 or more will enter the fold in the future.

And locally, the Reserve Bank recently noted that it is also working on a ‘stablecoin’ cryptocurrency with a stable value and purchasing power equal to that of the rand.

“Enabling the issuing and circulation of a rand-backed stablecoin may open an interesting avenue of innovation in the South African payments industry,” said Seshree Govender, a senior associate at Webber Wentzel.

“The introduction of a rand-backed stablecoin may be able to achieve financial inclusion in the payments industry through its nature as a decentralised value and payment system.”

Confusion reigns supreme

But despite this increase in popularity, a lack of understanding and trust is holding South Africans back from using cryptocurrencies, according to a new survey by cybersecurity and anti-virus provider, Kaspersky.

Kaspersky found that while a third (34%) of South Africans have some knowledge of cryptocurrencies and there is a demand among many to use the technology, just 19% fully comprehend how they work.

“Many consumers still lack a proper understanding of how cryptocurrencies work and this is continuing to halt mainstream adoption,” Kaspersky said.

It said that while there is a desire among many consumers to use cryptocurrency, “a knowledge gap is getting in the way of taking the plunge”. “In addition, many people who thought they knew what they are dealing with, later decided against using cryptocurrency.”

Nearly a fifth (14%) stopped because it became too technically complicated, the survey showed.

Kaspersky said this lack of understanding could be leading to mistrust in cryptocurrencies’ ability to keep consumers’ money safe. For instance, 35% of local respondents stated that they believe cryptocurrencies are quite volatile and they need to be stable before they are prepared to use them.

There is also a common perception among consumers that cryptocurrency will not be around forever, the survey suggested, as 17% of local respondents believe cryptocurrencies are a fad not worth bothering about.

Nearly a quarter of local respondents said that while they are not using cryptocurrency at the moment, they would like to in the future. Yet there is still doubt among consumers – often led by a fear that there is a real risk to their finances, Kaspersky said.

“Fraudsters can use cryptocurrencies to their advantage, with around 5% of those surveyed locally saying they have experienced hacking attacks on exchanges. Criminals also create fake e-wallets to attract people to unwisely invest their money, and 16% of local consumers have been victims of cryptocurrency fraud,” it said.

Common currency

A Statista survey published in June found that South Africa is one of countries with the highest cryptocurrency adoption rates, with 16% of local respondents saying that they had bought or used cryptocurrencies in the past – behind only Turkey, Brazil and Colombia (18%).

Read: A rand-backed cryptocurrency – here’s how it could work