By Morrison Rwakakamba
Having campaigned under the banner of making the United States the “Crypto capital” of the world, in his first week in office, President Donald Trump signed an Executive Order intended to support the growth of the United States crypto industry, signaling an intention to approach crypto and block chain regulation with the objective to keep the United States at the forefront of crypto industry. The executive order focused on promoting the growth of U.S dollar backed stable coins, creating a mega stockpile of Bitcoins, protecting and promoting crypto companies’ access to banking services and providing regulatory clarity and certainty for the crypto industry. And major results are coming in.
This week, Nvidia, a graphics processing units (GPU’s), Software and chip systems making company became the first in history to achieve a $4 trillion market valuation. Microsoft is at $3.7 trillion and Apple at $3.2 trillion. These are all technology companies domiciled in the United States with Nvidia positioning as a major crypto enabler. Nvidia’s high performance Graphics Processing Units (GPU’s) are popular among Bitcoin and cryptocurrency miners who use them to solve the complex mathematical problems required to validate cryptocurrency transactions and secure blockchain networks.
Uganda is valued at $50 billion with ambitions to get to $500 billion ($ half a trillion) by 2040 under the 10 fold growth strategy unveiled by President Yoweri Museveni. The President has outlined Agro-industrailization, tourism, mineral development and science and technology as key drivers to the $500 billion target. With technology underlined and an ideology that supports private enterprise, a Ugandan born Nvidia is plausible. But this will require regulatory clarity.
According to the Collaboration on International ICT Policy for East and Southern Africa (CIPESA), Uganda’s legislative frameworks such as the Capital Market Authority Act, Cap. 84, Foreign Exchange Act of 2004, Electronic Transactions Act, No. 8 of 2011, Electronic Signatures Act, No. 7 of 2011, Computer Misuse Act, No. 2 of 2011 and the National Payment Systems Act, 15 of 2020 recognize the presence of cryptocurrencies but provide no guidance on legal application of crypto currencies.
In fact, a ruling by Justice Ssekaana Musa in the case of Silver Kayondo versus Bank of Uganda, Miscellaneous Cause No. 109 of 2022 declared that cryptocurrencies, under the current National Payment System Act, are illegal or unlawful and are not accepted as a general payment instrument; and that the Bank of Uganda had the mandate to issue directives to the licensees under the National Payment System. He added that: “… The current regulatory framework was not designed with cryptocurrencies in mind…”. The foregoing indicates it’s time for the executive and legislature of Uganda to get to work if we are to catch the crypto train and ride beyond the $500 billion economy by 2040.
But, what are cryptocurrencies? Why are crypto assets vital for economic growth? What is Bitcoin mining?
A meta review of online sources define cryptocurrency as any form of currency that exists digitally or virtually and uses cryptography to secure transactions. As a digital payment system, cryptocurrency doesn’t rely on banks as middlemen to verify transactions but rather it’s a peer-to-peer system that can enable anyone anywhere to send and receive money/payments. Crypto currencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders. As a comparison, Mobile Money transactions have banks and telecoms in the middle earning a cut from consumers. Of course banks and telecoms also pay taxes on these cuts. Uganda’s government will have to figure out progressive tax measures for crypto transactions once the legal and policy frameworks are in place.
One of the most notable contributions of cryptocurrencies to economic growth and transformation is their ability to increase financial system access in markets of all countries. And many countries lose value of their exports through currency convertibility volatilities and exchange rate losses. A cryptocurrency economy would remove such losses. Data centres, electricity expansion projects would create lots of jobs but also build technological skills for tens of thousands of Uganda’s young people that would even provide opportunities for them globally. This sector would also place Uganda as a Africa’s leader in the technology and financial sectors.
Bitcoin mining is the process of creating Bitcoin by connecting specially designed computers to an energy source and the internet. These computers use electricity to solve complex mathematical problems. This process is called “Bitcoin mining” but it is actually a software process, not physical mining. Most Bitcoin mining companies join groups called consortiums, where they combine their computational power known as Hash Rate. This means that the more computational power a company contributes, the more Bitcoin it earns.
The internet bandwidth needed for these special computers is generally low, so Bitcoin mining can be done almost anywhere. These computers can be placed directly at the electricity source, like hydro-electric dam, eliminating the need for extensive transmission infrastructure. This set up is called “Behind the Meter” meaning it uses electricity that never enters the main power grid. This is especially beneficial for isolated power sources that have difficulty selling their electricity due to lack of transmission infrastructure or distance from customers.
Bitcoin requires massive amounts of energy. Like many African countries, Uganda retains a daunting task of increasing its electricity generation by as high as 10 times the current installed capacity of approximately 2,048 Mega Watts and build out transmission and distribution infrastructure over massive land areas to connect over 70% of the population to the national grid. To achieve the foregoing goal, Uganda must consider factors like pace of development, high costs of capital, purchasing electricity for resale at negative margins and ensuring there is demand for expanded capacity years before it is built.
According to Jacob Langenkamp, the CEO of Bridger LLC, Bitcoin mining provides a singular solution to the above electricity /energy bottlenecks. Bitcoin data centres can be placed directly at the source of generation or at a sub-station of the utility’s choosing which allows Bitcoin miners globally to monetize energy that no any other off taker can. While this feature alleviates temporary transmission bottlenecks, the medium and long term benefits should not be underestimated.
Bitcoin miners’ purchases of electricity can be built into electricity generation expansion plans so that lost revenue due to future transmission bottlenecks never exist. This is indeed pivotal given the scale of expansion that needs to occur for Uganda to meet its electricity needs that would power it to a $500 billion economy by 2040. Morrison Rwakakamba is a Coffee farmer based in Nyeibingo Village, Rukungiri & can be reached for feedback via: mrwakakamba@gmail.com
