“The point of RealFi is to serve real people real finance, and thus be able to innovate and do interesting things.” - Charles Hoskinson

When it comes to the story of blockchain’s recent evolution, it is decentralized finance (DeFi) that has taken center stage. DeFi uses ‘smart contracts’ on a blockchain to give anyone access to banking using a public, decentralized, ledger. By removing the middlemen, the bankers and the brokers, DeFi has brought in a new generation of users and the sector has enjoyed meteoric growth, now estimated to be worth some $100 billion.

DeFi is an open financial network. People do not need to go through any one private enterprise, such as PayPal, Western Union, or a bank, to send, borrow, or lend money. Instead, this is done between individuals, in a peer-to-peer fashion, using blockchain as the underlying ledger to support and enable the transaction.

The basic concept of DeFi is sound. Loans are typically fully-, or over-collateralized. This is because little (or in some cases, nothing) is known about the borrower, and there is little recourse if the loan is not paid. Also, borrowing is normally re-invested in further crypto opportunities. Users interact in a peer-to-peer fashion with no central governing body, relying instead on smart contracts and the inherent transparency and immutability of blockchain-based systems. In this way, most of the usual regulatory constraints around lending and borrowing do not apply, while fees tend to be significantly lower.

Speaking about the adoption of RealFi, Charles Hoskinson said: ‘It is our belief that over the next 12 to 24 months the majority of DeFi providers will be systematically upgrading to RealFi, to actually encumber identity, and metadata, to create proper standards and make sure they're secure and functional and to ensure they resolve the issues of regulation and governance, and also they're in the market for new customers. ‘

Among nations with developed economic systems, DeFi has highlighted the potential for blockchain to disrupt financial ‘legacy’ systems and open up access to new users hunting for better yields and moving liquidity around. It has established an entirely new financial paradigm and the $100bn DeFi market is expected to grow significantly over the next few years as models continue to evolve.

However, as much as the age of DeFi is creating fresh markets and driving compelling new use cases, it has also further highlighted the economic divide between people who can easily access financial products, and those who cannot.

Bridging the DeFi divide

Pricing credit is about trying to assess and mitigate the risk of defaulting. Traditional consumer finance and credit reduces risk by understanding how borrowers behave – how much they spend, their income, and so on. DeFi's approach to risk mitigation is different.

A mature credit scoring system is key to delivering credit in developed economies. But it is even more critical in emerging markets. The reason why banks refuse credit or loans in emerging markets is often that they don’t have enough data about the person or organization intending to borrow. The systems are either less sophisticated or simply not there. It is impossible to create an accurate financial picture through a credit score.

However, it is possible to build up a credit score by querying proxies, linked to an identity. You could contact utility companies to check if the customer has always paid their bills, or check with a phone provider to see how often the prospective borrower topped up their mobile. An identity is out there, the problem is how to tie data to the identity. Once that is achieved, the data can be presented to a local bank, microfinance initiative – or a decentralized pool of capital provided by people across the world in the Cardano community.

We have now reached a point when we can enable this through innovations in crypto. All the necessary financial information can be stored and relayed in a verifiable manner through an Atala PRISM ID. The monetary building bricks of DeFi can be used to structure these loans and hedge the currency risk, while scalable payment rails provided by Cardano and various layer 2 solutions will make it possible to transfer capital across the world without friction.

The world has DeFi. Now it needs RealFi

This year we have announced two very significant blockchain agreements. Our partnership with the Ethiopian Ministry for Education is creating a national attainment recording system to verify grades, monitor school performance, and boost nationwide education. Meanwhile, our collaboration with World Mobile in Tanzania will connect the unconnected and enable access to essential online services through blockchain.

Powerful deals like these are the jumping-off point for Cardano's mission to build RealFi: real finance targeted at the people who really need new ways to access finance, creating that real value often missing from DeFi. RealFi is an ecosystem of products that remove the frictions between crypto liquidity and real world economic activities to offer attractive yields to crypto holders, and cheaper credit/ financial products for real people.

Cardano adds the final piece of the financial puzzle by unlocking real economic value at the end of the transaction chain: personal identity.

Identity is central to everything. Once someone has an economic identity, a world of opportunity and inclusivity opens up. Real opportunity comes with access to essential services that were hitherto out of reach. And real finance, such as loans to open a business or maintain an existing one. RealFi.

Identity can become an asset in so far as it can be a substitute for collateral. A lender's overriding concern is to ensure that loans (plus any interest accrued) are paid back. One way of enforcing this is by collateralizing the loan, but if the lender has enough and clear information about a borrower (if they know the borrower is a high-earner, or a long-standing customer), the lender might be more inclined to forgo the collateral.

Reversing financial exclusion

Microlending platforms such as Kiva offer a successful business model, perfectly suited to the African continent's emerging economy. In this environment, small loans can be life-changing for farmers, entrepreneurs, and people with the drive to create and succeed.

But access to finance is only part of a larger picture. Without access to insurance, education, and health services, people would still be exposed to huge risks. RealFi, through the power of blockchain and a digital identity platform like Atala PRISM, offers a comprehensive solution to this quandary. Digital identity enables access to not only financial products, but also to services that enable people to thrive on a level playing field with their counterparts in more developed parts of the world.

Charles Hoskinson said: ‘Cardano has always been about entering the developing world. We really want to focus on the 3 billion people who don't have reliable access to financial services. If we look at a lot of the markets that we play in, we're super excited to bring those markets in through identity and through wallets into the cryptocurrency space, and then giving them access to RealFi, so for the first time ever, they can participate in a global market fairly.’

RealFi will herald a new age of on-chain credit activity. Cardano owners currently hold coins worth $80bn, and many of them will soon be looking for more yield options besides staking. The tangibility of this real-world application of crypto, the provision of real finance to real people, is the switch that can light up Cardano's power and uniqueness. This is the real use case that many people fail to see in cryptocurrencies. RealFi marks a new era of on-chain credit activity. With validated identity, someone in Rome might have the confidence to make an uncollateralized loan to a business in Kenya, for example.

To start down this road, IO has partnered with Pezesha to facilitate loans to small and medium-sized businesses looking for short term loans for working capital. These loans have a default rate of just 2%, but struggle to be funded in the Kenyan market due to a lack of local liquidity. The goal is to build simple friction free tools that enable crypto holders to seamlessly lend into real world opportunities, receiving repayments in crypto directly into their wallets. We see a world where people can lend into real world opportunities as seamlessly as they do crypto.

RealFi: democratizing opportunity

RealFi represents the very antithesis of financial exclusion and heralds the arrival of a new era of financial and societal inclusivity in Africa and elsewhere. Through RealFi, Cardano becomes a beacon of identity provision to help people help themselves. RealFi's mission is the creation of real financial value for real people, and the key differentiator between Cardano and other blockchain platforms.

The Ethiopia, Tanzania, and Kenya projects are the first steps of a much longer journey towards global fairness and inclusiveness. The start of a drive to end the marginalization of the disadvantaged whilst offering attractive yields to cryptocurrency holders. Much like DeFi, RealFi will be an ecosystem of products and technologies that reduce the friction between Crypto liquidity and real world economic opportunities. Through RealFi, we want to make the world smaller, connecting everyone into a global community of capital and opportunity that's now open and welcoming to them.

Today we have announced an exciting new partnership with the Ethiopian Government to implement a national, blockchain-based student and teacher ID and attainment recording system to digitally verify grades, remotely monitor school performance, and boost education and employment nationwide.

We’ll deliver this using our identity solution – Atala PRISM, built on Cardano, which will enable authorities to create tamper-proof records of educational performance across 3,500 schools, 5 million students, and 750,000 teachers to pinpoint the locations and causes of educational under-achievement and allocate educational resources effectively.

This will provide all students with blockchain-verified digital qualifications to reduce fraudulent university and job applications, and increase social mobility by allowing employers to verify all applicants’ grades without third-party agencies.

Tamper-proof data management

The blockchain-based national identity system is at the heart of Digital Ethiopia 2025 – the country’s Digital Transformation strategy. The government recently issued a national identity standard and the Atala PRISM blockchain ID will be the first system to issue IDs based on this standard. The strategy seeks to drive the country’s transformation through the digitalization of sectors such as agriculture, manufacturing, and tourism. As part of this, Ethiopia is also examining the wider adoption of our Atala products, which include the PRISM platform, for everything from blockchain-based ‘track-and-trace’ of smallholder agricultural supply chains to digital IDs for transport or healthcare. We are already in discussions around the use of blockchain-based digital identity for two other multi-million user applications.

Educational endeavor

The use of Cardano will allow for accurate tracking of individual grades, behavior, attendance, and educational attainment across all kindergartens, elementary schools, and general secondary schools. Teachers will also use the system to manage schedules or transfers, and report behavior or dropouts. The project could ultimately be extended to universities where degrees are also digitally verified on the Cardano blockchain, allowing employers to easily validate the authenticity of applicants' educational credentials.

The Ethiopian government is providing five million teachers and students with tablets and a dedicated internet network, giving all students instant access to their academic records. This will open up higher education and employment opportunities for the 80% of Ethiopia’s population living in rural regions. Student IDs will be paired with data from Learning Management Systems and harnessed by machine learning algorithms to drive personalized tuition, a dynamic curriculum, and data-driven policies and funding.

We have long recognized that developing countries could uniquely benefit from blockchain technology because of their lack of embedded, legacy digital systems and the fact that blockchains are lower cost than cumbersome infrastructure. Hence, we are already working with other governments on using blockchain to digitize public services, including a project with Georgia’s Ministry of Education pioneering the use of its Atala products to underpin a blockchain-based system for verifying graduate degrees. In 2019, we also ran a pioneering all-female software development training program focusing on blockchain solutions.

Our partnership announcement with the Ethiopian government is a groundbreaking first step in our mission to help drive decentralized digital transformation in Africa. Make sure to join us for our #CardanoAfrica show on the 29th of April to find out more about our wider work on the continent, including several other new partner announcements.

The hope of bringing the benefits of blockchain to Africa has been around even longer than IOHK itself. Founder Charles Hoskinson talked about the promise of the technology driving financial inclusion on the continent in a TEDx speech in 2014. The vision encouraged me to join the Cardano project. This month, IOHK signed an MoU with the Ethiopian government to train and hire junior software developers and use Cardano in its agriculture industry, a step towards this promise being realised. Now the real work begins, as we look to use Cardano to solve real problems in Ethiopia and beyond.

The IOHK team flew into Addis Ababa, the capital, on May 3 for Ethiopia’s first blockchain forum, which we jointly organised with the Ethiopian Ministry of Science and Technology. As Director of African Operations, my last two months in Ethiopia have been a whirlwind of interaction with government, universities and the local technology scene. It was a pleasure to have those that I’ve met join us on stage to discuss what blockchain can do for Ethiopia.

We did not arrive with solutions, but with a commitment to find them. IOHK’s Alan McSherry who leads the Cardano Enterprise team, came out to gather business requirements for permissioned applications of Cardano, as did 13 other members of the IOHK team. Seeing the ideas that emerged from the dialogue between IOHK and the ministry validated our launch in Ethiopia, and our belief in a productive and mutually beneficial relationship. This belief is enshrined in the MoU Charles signed with the Minister of Science and Technology, Dr Getahun.

MoU’s are non-binding but are taken seriously in Ethiopia, because they represent a required first step before entering into contractual obligations. In the MoU, we stated our intent to train and hire Haskell developers from a new office in Addis Ababa. The Ethiopian government stated its intent to help us to deploy Cardano in Ethiopian agriculture. This training course is the first of its kind in Africa. We expect to start in September 2018 with an inaugural class of 30 women developers. All of our trainees will leave with the ability to create blockchain applications to help drive tech-enabled growth in Ethiopia. Those who excel will be hired by IOHK and not only contribute to Cardano code, but help build the blockchain agriculture applications we are exploring in partnership with the government. With 80 million Ethiopians working in this industry, the opportunity for blockchain to make an impact is huge. Coffee is Ethiopia’s largest export, and there are many sophisticated companies along the supply chain who have a deep understanding of the product.

We are in active discussions with many such companies to develop, refine, and implement the technology. Proving the origin of coffee is one such application. I’m also excited about using smart contracts to incentivise smallholder coffee farmers to adopt more productive farming practices (I’ll be writing more about some of our projects like this in the coming weeks). Some 80% of Ethiopia’s population is under the age of 30, and GDP growth is 10% a year. With the right support from government, Ethiopia could transform into an incredibly powerful, technology-enabled economy. Ethiopia’s national animal is the lion, and if that lion has been sleeping, it is now waking up.

Community day

The day after the conference IOHK spent time with many of Ethiopia’s most promising entrepreneurs and the tech community. IOHK worked with Ethiopian accelerators ICE Addis and Bluemoon to have local startups pitch their existing startups, and how they were planning on leveraging blockchain technology. The judge was, of course, Charles.

Charles meeting entrepreneurs in Addis

This was a highlight of the trip for me. After a pitch Charles would mischievously state that he had a few questions, before delivering a grilling that would have a Harvard MBA looking for the nearest exit. The startups held up fantastically.

S­­ince I began talking to local entrepreneurs in Addis two months ago I’ve received many messages from local companies interested in learning more about the technology. The first Cardano Addis meetup was the beginning of a process of fostering understanding and adoption of the technology. The pitches showed me that these startups have not only begun looking at blockchain, but have puzzled out how it can add value to their businesses. Our colleagues in Cardano’s commercial entity Emurgo shared my view, and are in discussions about investing in a cohort of blockchain-enabled Ethiopian technology startups.

Rwanda

The next leg of the trip for the IOHK team took us to Kigali, Rwanda, where Charles was talking at the Transform Africa Summit.

Charles speaking at the Transform Africa Summit in Kigali

The summit aimed to bring together global and regional leaders from government, business and international organizations to collaborate on new ways of shaping, accelerating and sustaining Africa’s digital revolution. Blockchain was a key focus for the conference organisers, and we were honoured to have been invited and recognised for the efforts we are beginning to make in the region. Rwanda is truly a miraculous example of what can be accomplished when a country is united in its purpose and its government has embraced the principles of accountability, efficiency and openness.

The opportunity for IOHK to help enable this transformation is incredibly exciting. There are many countries where the promise of a technology that can bring transparency to government processes would be met with trepidation. It is huge credit to Rwanda that they seek to not only participate, but promote the technology’s adoption through the Transform Africa Summit.

And so on to strategy. Whilst we expect to have operations across many African countries in the future, focusing our initial efforts on Ethiopia and Rwanda will be a powerful start. Ethiopia has a government that is eager to engage in digital transformation and though early in that process, has the ability to deploy the technology across the country. The applications we are discussing could benefit tens of millions of people. Rwanda on the other hand has a population a tenth the size of Ethiopia. However they are leading Africa in their commitment to support innovative technologies. Ideas can be tried and tested. If they fail, lessons will be learnt and the next attempt will be better. This principle is the central driver of innovation, and Rwanda has embraced it.

Charles and John with Dr Getahun, Minister of Science and Technology

After a whirlwind few weeks I’d like to thank everyone who has allowed us to reach this point. I thank ICE Addis, Bluemoon capital, as well as Impact hub in Kigali for hosting events with us and connecting me with the local entrepreneurship. I thank the IOHK and Emurgo teams who flew out to be on the ground and help us establish our work. But most importantly, I’d like to thank Yodahe Zemichael from the Science Technology and Information Centre and Dr Getahun Mekuria, Minister of Science and Technology. You have been more agile, proactive, and enthusiastic partners than we could have hoped for. We look forward to working with you.

Five years ago, I was with a friend when she received a distressing call from her home in East Africa. Without permission, someone had been collecting the rent on a small commercial premises she owned in the capital. My friend had inherited the property five months previously from her father, but had only recently discovered that the property had tenants. The rent collector in question turned out to be a neighbour of the property and the previous owner. Upon learning that her father had passed away, he’d elected to take advantage of the confusion and collect the rent for himself. In the court case that followed, my friend provided a fund transfer receipt she had found in her father’s office. Expecting that to be the end of it, she was shocked when the neighbour still claimed the plot to be his, on the basis of his name being registered with the utilities company. The problem for the court was that when there is no reliable record of ownership what should it do? When friends in London ask me if the UK government will ever adopt blockchain technology, I have to stop and think. Blockchain can reduce cost and increase efficiency in almost any industry that involves record keeping. However in countries with entrenched processes and institutions that reliably (if expensively) maintain records, efficiency may not always provide sufficient motivation for governments to switch. The UK Land Registry is such an example. Founded in 1862, this institution has 4,486 employees and over 150 years of expertise and cultural history, which allows me to access a record of ownership history for any property at a cost of £7. This reliable legal title acts as a catalyst for economic growth. Landowners can use property as collateral to borrow money, perhaps to expand their businesses. If they choose to sell their property, the purchaser can pay with the confidence that they are truly purchasing the legal title.

For many African countries however, this is not the case. Efforts to improve records have generally had limited impact. That is not to say there have not been successes. In a three-year programme, Rwanda led an effort to register titles of land ownership. It was effective, and by the time the scheme was complete, 81% of plots had been issued titles, driving investment and economic growth. Embracing the high mobile penetration rate, the ledger was linked to a telephone service, allowing the ownership of plots of land to be instantly queried in ongoing disputes. Yet without the institutional cultural history of accurate ledger keeping, there continued to be problems with keeping records up to date when land was sold or inherited. Enter blockchain.

A digital blockchain property register that identified land using GPS coordinates would allow property ownership to be verified and transferred at low cost. Rwanda has woken up to this, and as part of its digital transformation plan is looking to port its ledger onto the blockchain. There are similar noises in both Kenya and Ghana, as government officials begin to see that the technology might let them leapfrog the 150 years of development the UK Land registry has benefited from.

If the opportunities that are now arising for blockchain trials in sub-Saharan Africa are to be maximised, then they should be built on robust and open-source technology. Our aim with Cardano was to build a blockchain based on peer-reviewed academic research by some of the world’s foremost researchers and engineers. We chose to write it in Haskell, a formal programming language that allows mathematical guarantees of the correctness of code. These design decisions were made not because they were easy, but because they would give strong foundations to whatever applications were built on Cardano. We have started down this road, and now is the time to begin planning trial projects across countries in the African subcontinent. We aim to make Cardano the blockchain used to build land registries and much more.

This is a grand ambition and will not be accomplished in a day. Success will be achieved only if public authorities invest in creating the required legal and regulatory environments for these trials. Even after proving value, there will be implementation challenges in scaling a tech solution to run for millions or hundreds of millions of people. Governments, NGOs, and the private sector will need to work together to fulfill the promise of this technology.

IOHK must earn the right to sit at this table by building credibility through sustained investment of resources and attention. Our first inroads to Africa will therefore be with education. The core of Cardano is the Haskell engineering team, who turn our research into actual lines of code. We have run engineering schools in partnership with universities in Barbados and Greece, taking young graduates and intensively training them in Haskell. At the end of the course, some will be employed by IOHK as junior software developers, continuing their training and earning a competitive salary. Training is free, without obligation, and delivered by leading academics in the field. We have hired 70% of the students that have embarked on the scheme, with most of the remainder continuing on into further education. Education should not strip a country of their best and brightest, and the jobs that are offered are local, allowing hires to contribute to a global project from their own country. This year we will offer our first course in Africa, probably in Ethiopia, and expect the first cohort of Ethiopian developers to be contributing to Cardano code by the end of the year.

If you are based or work in Africa and would like to help, please submit your details through this form. We are looking to partner with governments, the private sector, and NGOs who are interested in using Cardano. We are also looking for community volunteers to help organise events and meetups.

Artwork,

Mike Beeple