The highs and lows of running a blockchain startup in South Africa

Custos Media Technologies runs a unique blockchain-based anti-piracy product, which leverages the immutability of public blockchains and game theory to curb incidents of piracy.

Custos cofounder Fred Lutz told MyBroadband that the company’s technology functions by encouraging pirates to anonymously rat out their compatriots – with a Bitcoin reward up for grabs.

While at the forefront of blockchain technology, Custos was founded in Stellenbosch, South Africa – once again showing that the country can be the home of world-first developments.

Great adoption

“The great thing about building on global platforms like Bitcoin and AWS means we were global from day one,” Lutz told MyBroadband.

“Our first customer was the foremost film distributor in South Africa, Indigenous Film Distribution. They are very forward-looking and jumped on the opportunity to increase the security of their customers’ content.”

Custos has applied its piracy protection to over 350,000 movies across the film industry, and it has seen a dramatic reduction in piracy since it entered the market.

“In South Africa, for example, about 60% of films were pirated before we entered the market – it is notoriously bad for piracy,” Lutz said.

“We have not had a single leak from any of the movies we protected since.”

“And it’s not as if the pirates left – there have been two cases where our internal web crawler picked up pirated copies of movies that we protected well before they were in the market.”

Custos contacted the customers and in both cases a single unprotected DVD copy was sent out to a reviewer that insisted on it. “Needless to say, they refused to send any DVDs following that.”

The company has also been contracted by one of South Africa’s biggest universities to protect the content that goes through their learning management platform.

Based in South Africa

Lutz said that the physical distance of South Africa from the rest of the world can be a challenge for companies with international clients, but they have managed to overcome this obstacle.

“We now have customers in Hollywood, Atlanta, New York, Canada, the UK, Germany, India, Japan, Australia, Norway, and even Trinidad and Tobago. We also protect just about all major movies in South Africa,” Lutz said.

“I’d say the biggest issue is the flights,” he said, adding that time zone differences also impact working hours.

Lutz said another big issue has been raising venture capital in South Africa, noting that while the local industry is developing at an exciting pace, there are still few early-stage deep tech investors locally.

Luckily, Custos was able to source funding from TIA, Stellenbosch University, local angel investors, and US-based firms.

This was coupled with exchange controls in South Africa, Lutz added.

“You’d think that the government would be happy about money flowing into the country, but the expected time for funds to be cleared into South Africa through the Reserve Bank is eight weeks. Show me a startup for which an eight-week knock to cash flow is easy to weather.”

Blockchain in SA

Lutz said that South Africa is a powerhouse for blockchain innovation, which he ascribes to early adopters, a general distrust for the government, and good tech talent.

“This access to great engineers and talent, in general, has been a very big plus for building a blockchain startup in South Africa,” Lutz said.

The lower cost of living locally has also helped the team develop their technology for a fraction of what it would have cost to do in the United States, Lutz added.

Now read: The one thing IT professionals like more than money

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The highs and lows of running a blockchain startup in South Africa