We now know that about R100bn in crypto flows in and out of SA every year, but there’s a consistent net outflow each year in violation of exchange controls, says Carel de Jager, CEO of SilverSixpence. From Moneyweb.
You can also listen to this podcast on iono.fm here.
Every crypto transaction on every blockchain around the world is being watched in real time.
Many early crypto adopters were drawn by the promise of anonymity, and for a while, this was indeed the case. But as regulations entered the picture and Know Your Customer (KYC) protocols were introduced across the world, it’s now possible to identify most blockchain addresses.
Carel de Jager, CEO of crypto asset service provider SilverSixpence and co-developer of crypto intelligence engine LedgerCore, explains in this podcast that what started out as a tool to assist auditors in verifying the reserves under the control of crypto exchanges (“Proof of Reserves”) has since morphed into a highly sophisticated engine that assists law enforcement in tracking criminals and deriving deep insights into the nature of crypto flows worldwide.
One of these insights is the size of the SA crypto market: it ballooned to R500 billion in 2021 during the Covid lockdowns, with R100 billion of that flowing into and out of the country. Roughly R5 billion of this is a net outflow each year – most of it in violation of exchange controls.
“This goes largely unmonitored by regulators,” says De Jager.
What also goes unmonitored is the likely effect of this on the ZAR exchange rate.
“I think what surprised me most out of this data is the love for stablecoins. We reached a peak of around R500 billion in [crypto] trading activity, but something that has risen heavily out of the ashes is South Africa’s level of stablecoins. We’re seeing [that] USDT and USDC trading volumes have caught up with bitcoin and [are] now equal to bitcoin.”
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This love of stablecoins is due to their utility for spending on tokenised assets, Web3 applications and cross-border remittances.
Crypto privacy is dead
The fact that LedgerCore can see every transaction on the blockchain means crypto privacy is dead.
“If you transact with cryptocurrency and you transact on-chain [on the blockchain], you’ve got to know that you’re not private,” says De Jager.
“I think every crypto user in South Africa has to realise this. It’s a big, big, big misnomer out there that people believe that they are actually private and anonymised when they transact with crypto. It is the exact opposite.
“It is like you’re writing your transaction on a big billboard on a highway and everyone in the world can see that you’ve transacted. So not necessarily when you buy and sell bitcoin, but remember the exchange knows that. They have your KYC documents, your ID documents, all of that. But if you do an on-chain transaction, everyone in the world knows it.
“So there is no privacy, first of all, in crypto. It doesn’t exist. And the fact is that the records never ever get destroyed.”
Anti-privacy or pro-transparency?
De Jager explains that there has been a trade-off between privacy and transparency with regard to crypto transactions – and transparency won.
For crypto to become a recognised asset class and attract trillions from Wall Street, the Nasdaq and big find managers, the pre-existing chaos of crypto and blockchain had to be hauled into the modern era. That means crunching massive amounts of data to discern trends and make sense of where and how funds flow.
“Crypto is notoriously unsafe and it’s a bit of a wild west, [and] as much as I love that, it’s also incredibly sad. My inbox is full of people that have lost crypto through theft. Some of my friends, some of my family have lost everything. So I also feel like it is our duty to use this extensive data set to the best of our ability to catch those guys and to make the crypto industry safer for all.”
Listen/read: Crypto heists, blockchain sleuths, and turning surplus power into bitcoin
With better data, exchanges and regulators will be better able to monitor and detect market manipulation and criminal transactions.
De Jager highlights several instances where LedgerCore was used to help track criminals and recover stolen funds. The product is now being marketed globally to firms on Wall Street and elsewhere around the world in what looks set to become a South African tech success in the near future.
