Will Africa Lead the Next Cryptocurrency Boom?
Cryptocurrency and Africa
Cryptocurrency is not a new concept in Africa. The continent has major issues with current payment methods due to high percentage of fraud. This has caused companies like Paypal to block people from receiving international transfers in Nigeria. Without the ease of financial transfers around the world, how are the economies of these countries going to grow? International trading of goods and services is essential in any economy. In many countries, a huge part of people’s incomes are the remittances they receive from diaspora who live abroad.
According to the World Bank, remittances to sub-saharan countries amounted to $48 billion in 2019. In Nigeria alone, people received $23.8 billion in remittances. As it is difficult to transfer to and from these countries, millions of people are forced to use other forms of payment systems that charge high fees. It costs people 8.9% to send money to their homes in sub-saharan Africa. The global average is 6.8%.
Why does Africa love cryptocurrency?
As mentioned earlier, cross-border transactions are essential but have become expensive and unsafe. Consumers require basic protection of their money. In many African countries, the fiat currencies are not stable. In 2019, the South African rand became the most volatile currency in the world. Additionally, political turmoil and unpredictability in many African countries is causing consumers to lose faith in central banking systems. Many countries face skyrocketing inflation and currency devaluation. Between 2016 and 2017, South Sudan’s inflation rate was about 102%.
What could crypto help with?
Cryptocurrency will enable African consumers to make safe transactions across borders within the continent as well as outside of the continent. By using crypto, consumers can avoid bank fees and currency conversion charges. They will feel a sense of security as they know that their money is safe as it will be protected from fraud. Additionally, currency volatility will be solved through crypto as the value of crypto currency will not depend on central banks/financial institutions. It will also encourage a more inclusive financial system to people who currently do not have access to bank accounts. It is said about 2 in 3 adults do not have access to a bank account. As mentioned, remittances are a huge issue for the African diaspora. Crypto can also protect businesses against devaluation of currencies.
For example, a remittance company known as “BitPesa” based in Nairobi, Kenya uses bitcoin as a medium for international money transfers.
Regulation within the continent
There are several countries that have banned crypto. These countries include Morocco, Zambia, Namibia, Libya and Algeria. Regulators in South Africa have expressed enthusiasm about the potential of crypto. To convert local currencies to and from crytpocurrencies, people require an informal broker. Lack of technical knowledge about cryptocurrency and the markets causes consumers to fall for crypto scams. Many countries view crypto as an economic risk. Lack of regulation and unclear legal status of countries proves to be a risk as there is no safety net for people for loss of funds.
Opportunity for crypto
Africa is the hub for m-commerce, having adopted its own mobile money known as ‘MPesa”. The m-commerce industry in Africa has been a major catalyst in reducing the number of people that do not have access to a bank account. Therefore, it is said that the continent is ripe for a wide adoption of crypto. Nigeria has one of the highest crypto adoption rates in the world. The Nigerian government is supportive of new technologies such as blockchain as they believe it will drive the next industrial revolution. In 2020, monthly cryptocurrency transactions of 10,000 or under rose up by 55%. These transactions were made by individuals and small businesses.
According to Hootsuite, 10.7% of South Africa’s population own crypto. Moreover, 7.8% of people own crypto in Nigeria and 7.3% in Ghana.
It is no surprise that African consumers are attracted to cryptocurrency as they are already familiar with digital wallets. Not only that, the continent’s population is a young one that is more technologically savvy and adaptable. Cryptocurrency has grown strong in the continent over the past few years and will continue to do so.
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May 21 2021