Bitcoin halving and what it means for South Africa
A few days ago, the fourth Bitcoin halving since Bitcoin was introduced occurred. A halving is an event that takes place every four years and results in the halving of the reward that Bitcoin miners receive for creating new bitcoins. This leads to fewer new bitcoins being created. There is a cap of 21 million bitcoins, and it is estimated that all of these will have been mined by the year 2140. After this, no more bitcoins can be created, which is a significant departure from present currency systems, such as the one in South Africa with their currency, the Rand.
The difference between the Rand and major currencies like the euro or the dollar is that issues of inflation and the economic manipulation and corruption are exacerbated. In fiat systems, the elite can increase the money supply, which benefits those who first access the new money since they can spend it before the market adjusts prices to the diluted currency. Bitcoin offers a solution to this because no one can increase the number of bitcoins beyond 21 million, which eliminates the possibility of such manipulation.
In South Africa, as in many other African countries, a large portion of the population is excluded from the formal financial system because they lack bank accounts. It's estimated that around 19 percent of people in South Africa do not have a bank account. More people have access to mobile phones with apps and internet than to bank accounts. Thanks to Bitcoin and easy access to wallet apps, these individuals can now access financial services. It’s decentralized and permissionless.
The greater the problems a country has with its fiat currency system, the faster it tends to seek alternative solutions. Holding the South African currency, the Rand, can be likened to holding a handful of sand where the grains slowly slip through your fingers. The South African Rand has significantly depreciated from its earlier values; just a couple of decades ago, the Rand was at parity with the US dollar, and it is now trading at about 1:20 to the US dollar.
El Salvador is an example of a country that has adopted Bitcoin as legal tender. One contributing factor was that the country did not have its own currency but used the US dollar, a currency they do not control. This facilitated the transition to Bitcoin since there was no need to deal with internal power struggles over control of the money supply.
Given the poor management of the South African currency, it is not unlikely that we will soon see an expanded use of Bitcoin as a parallel means of payment alongside the increasingly diluted Rand.
It is interesting to see how Bitcoin is beginning to be accepted in more and more contexts. I have already started to see some stores accepting Bitcoin here in South Africa, including the store at the Voortrekker Monument.
I am concluding this newsletter with a book recommendation that I believe is well worth your time—it is Saifedean Ammous's book, "The Bitcoin Standard: The Decentralized Alternative to Central Banking."
Best regards,
Jonas Nilsson