Generic bananas

Until a couple of years ago, few people had even heard of Bitcoin, and even now not many could explain how it, or any other cryptocurrency, really works beyond a few murmurings about the dark web, blockchain and maybe a spot of ‘mining’.

The lengthy definition provided by the Oxford English Dictionary is of ‘a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.’ To put it more simply, this is money that exists online and is not backed by a government. In fact, a key premise of a cryptocurrency is to operate beyond the control of the state.

In the past few years, the digital currency world has been developing at speed, with new ‘coins’ cropping up all the time. Not only is it now normal to hear millennials, referencing the latest zany cryptocurrency – with dog meme-turned-virtual currency dogecoin among the stranger ones – it has also become more commonplace to invest in them. The likes of Floyd Mayweather and Jamie Foxx are reported to have put their money where their wifi router is.

What does any of this have to do with fresh produce? Well now there’s a cryptocurrency that allows you to invest in organic bananas – the first and only one to date in the fruit and veg arena. ‘Bananacoin’, set up by Russian entrepreneurs Oleg Dobrovolsky and Alexander Bychkov, has its value pegged to the export price of 1kg of Lady Finger bananas grown at an organic plantation in Vientiane Province in Laos.

Last week the Bananacoin team closed their ‘initial coin offering’ (ICO), a somewhat controversial crowdfunding method used to pre-allocate ‘tokens’ in exchange for legal tender or other cryptocurrencies such as Bitcoin. These vouchers then become useable currency if or when the funding goal is met and the project is launched.

Essentially they are a way for start-ups and online projects to raise money without selling stocks or relying on venture capitalists. So far, Bananacoin has sold just under half of the tokens in the 14 million target stated on its website, but Bychkov says that in this case the tokens have already been converted into useable currency, with Bananacoin happy to work with the total that’s already been raised.

The venture behind the currency is to grow and export organic bananas from the plantation in Laos to neighbouring China, where rising demand outstrips supply in the fruit. The expansion of the Chinese middle class and hunger for better quality fruit is what’s driving this, explains Bychkov, and this makes him confident the currency’s value will continue to increase. The deficit in banana export to China is estimated at 30,000 hectares, according to Bananacoin.

But what started as a relatively small project – to finance the expansion of the team’s plantation to cover 1,000ha – could become something much bigger. “Bananacoin is only the beginning,” says Bychkov. “What we really want is to turn it into a global project that supports organic, eco-friendly growers all over the world.” Rather than setting up lots of separate fruit-based cryptocurrencies – like ‘Pineapplecoin’ or ‘Mangocoin’ or ‘Watermeloncoin’ – Bychkov’s vision is to create an all-encompassing ‘Fruitcoin’, whose value is pegged to fruit prices on various organic plantations across the world.

Just last week Bychkov flew to Cambodia to visit an organic mango farm with a view to financing this plantation too and bringing it within the project’s umbrella. “We like the owner’s concept, his economic figures and we want to help him,” says the Russian entrepreneur. Almost every day, Bychkov says he is contacted by another fresh produce company – “in India, Mexico, Colombia, Chile” – wanting to create a franchise of their coin. But he repeats that he wants to create one unified project as opposed to developing different coins for different fruits.

Leaving fresh produce firms to one side, Bananacoin has also attracted the close attention of government, with both the national government in Laos and the United Nations showing interest in the project. As it stands, Bananacoin is the only virtual currency to come out of Laos, and the government has been in discussions with the Russians about how to build a cryptocurrency community in the country, with a view to launching a national one in the mould of Venezuela’s forthcoming ‘Petro’.

As well as paying its local growers a wage, rent for their land and providing them with fresh water and electricity, Bychkov says the business has been supporting children at a nearby school. “Right now we support 80 kids by giving them books, fresh water, fans and uniforms, but in future we also want to set up a proper charity programme,” he says.

Behind the laudable goals of the project, there could be reasons to be sceptical however. Firstly, there’s the risk that Bananacoin will become devalued if supply grows excessively and prices take a knock. Rising consumption has spurred on banana exporters to increase volumes to China, with particularly strong trade growth from the Philippines and Ecuador in recent years. Bananas are China’s largest fruit import and although demand continues to rise, there’s always the possibility that prices could crash if the market becomes flooded. Bychkov insists he has “no concerns on that”, however, since the tokens will soon be backed not only by bananas but by other other fruits too. Bananacoin holders will have an option to exchange their coins for ‘Fruitcoins’, he says.

Closer to home, there’s also a danger that the devastating fungal pathogen Panama disease could eventually arrive at the plantation, having been confirmed in other parts of Laos last year. And finally, there appear to be some risks for investors given the unregulated nature of cryptocurrencies and their initial coin offerings. Just last week the Securities and Exchange Commission (SEC) in the US sent subpoenas to dozens of people that have launched ICOs, showing a desire to rein in the new fundraising technique.

There are concerns that the sale of these ‘coins’ lacks transparency, and proper regulation, since investments are often collected in other virtual currencies without going through a bank or being checked for the legality of the transaction. In a statement, the SEC warned that there is “substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation”.

The fear is that investments will simply be lost, amounting to donations rather than real investments with the prospect of returns. But Bychkov says Bananacoin differs from other ICOs since “every token holder can get a real product” – the currency is backed by a physical product and can be cashed in at the current export price or exchanged for real bananas from the plantation.

As the cryptocurrency phenomenon gathers pace, and the value of Bitcoin climbs after a dramtic plunge at the start of the year – one Bitcoin was worth £7,862 at the time of writing – it will be interesting to see whether virtual currencies are just a flash in the pan or a viable long-term investment. Last month, Goldman Sachs predicted that cryptocurrencies were unlikely to survive in the long run since they don’t have “intrinsic value”. But with Bananacoin, (and potentially ‘Fruitcoin’) pegged to a physical commodity, its founders and investors will be hoping this one will stand the test of time.