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While cryptocurrency continues to gain traction with users worldwide, several governments are still contemplating whether it should even be legalized. However, countries in Africa seem to be warming up to the idea of digital currency, with the Central African Republic adopting Bitcoin as an official currency in late June 2022.
With this, it became the second country in the world and the first in Africa to do so. The only other country that uses Bitcoin as legal tender in El Salvador. Following the Central African Republic, Uganda is also now mulling the idea of a “central bank digital currency,” pointing to a steadily growing interest in cryptocurrency on the continent.
Speaking about Uganda’s interest in cryptocurrency, Andrew Kawere, Bank of Uganda’s director for national payments, told Reuters that the Bank of Uganda was conducting preliminary research to determine if a central bank digital currency should be explored and what policy goals it would address.
While Uganda is still toying with the idea, Nigeria’s central bank barred local banks from working with cryptocurrencies last year. “Further to earlier regulatory directives on the subject, the Bank hereby wishes to remind regulated institutions that dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges are prohibited,” a Central Bank of Nigeria directive in February 2021 said.
Instead, it went on to launch its own digital currency. In October 2021, Nigeria became the first country in Africa to introduce a digital currency named eNaira.
Speaking about the same, Nigerian President Muhammadu Buhari said in a televised speech that over the next ten years, the adoption of the central bank’s digital currency and its underlying blockchain technology might boost Nigeria’s gross domestic product by $29 billion.
Data, too, points to an increased interest in cryptocurrency in African countries. Some economists say it is a disruptive innovation that will blossom on the continent.
Cryptocurrency is not bound by geography because it is internet-based; its transactions are stored in a database called a blockchain, which is a group of connected computers that record transactions in a ledger in real-time.
The difference between a cryptocurrency and, say, Visa or Mastercard, is that a cryptocurrency is not currently regulated by the government and doesn’t need a middleman. Transactions rely on the internet, which means they can happen anywhere in the world.
The prominent cryptocurrency global brands include Bitcoin, Litecoin, XRP, Dash, Lisk, and Monero, but Bitcoin leads the pack in Africa. Created in 2009 by a person or people with the alias Satoshi Nakamoto, investors hope Bitcoin will become the new mode of financial transaction in the digital age.
“Africa is rarely mentioned among the largest markets for cryptocurrency, but it may be set to steal a march over other markets,” Rakesh Sharma, a business and technology journalist, said.
Sharma says that citizens of countries battling high inflation are likely to opt for cryptocurrency because “with their paradigm of decentralization, cryptocurrencies offer an alternative to disastrous central bank policies.”
When Zimbabwe’s inflation skyrocketed in 2008, forcing authorities to print $100 trillion notes (each worth just $40), some Zimbabweans turned to Bitcoin.
Without regulations, cryptocurrency is a double-edged sword; there may be gains from time to time, but any precipitous crash in price could leave investors with no escape route. Manasseh Egedegbe, an investment manager, based in Nigeria, says that Bitcoin’s frenzied prize surge seems like the dot-com bubble at the turn of the millennium.
There is also the fact that criminals can use cryptocurrency to funnel funds. According to the U.S. Justice Department, in 2011, Bitcoin was a currency of choice for drug peddlers, who seized almost $48 million worth of illegal contraband that year and discovered that the criminals involved had made transactions totaling 150,000 Bitcoins (approximately $130 million.
Countries such as Bangladesh, Ecuador, and Kyrgyzstan believe the risks outweigh the gains and have banned Bitcoin and initial coin offerings, or ICOs, which start-ups use to evade the demand for capital by banks and other financial institutions.
Africa’s crypto market has grown by $105.6 billion in the last year
Africa is the second-most populous continent in the world, with around 1.3 billion people. Due to historical issues with colonialism, civil wars, and harsh terrain, African countries have suffered from infrastructure problems for a long time. This has made financial services less accessible, leading to around 57 percent of the population remaining unbanked.
At the same time, underdeveloped infrastructure has made Africa a perfect vector for cryptocurrencies, which only require a smartphone to access blockchain networks. Thanks to the latest research by Chainalysis Insights, we can take a zoomed-out picture of Africa’s crypto adoption and its likely global impact.
According to the World Bank, the median GDP per capita in Sub-Saharan Africa is $1,483. Compared to the EU, which has a GDP per capita of $33,927, this makes African wealth output 22X lower.
Similarly, the Chain analysis report found that Africa’s cryptocurrency market share is the smallest. In raw numbers, this translates to $105.6 billion worth of crypto assets between July 2020 and June 2021, accounting for 1,200 percent crypto value growth.
Using this metric, Africa has topped peer-to-peer (P2P) payment platforms in terms of transaction volume across all regions. Additionally, the World Bank report also stated that some of the highest grassroots adoptions in the world are seen in Africa, with Kenya, Nigeria, South Africa, and Tanzania making it into the top 20 of the Global Crypto Adoption Indexes.
However, low Internet penetration in several African countries could prove to be a roadblock to large-scale cryptocurrency adoption in parts of the continent.
Bitcoin continues to lead the way as the dominant and most popular cryptocurrency. Once we factor in that the central banks of most African countries are hostile to cryptocurrency exchanges, Africa is left in a situation where P2P platforms are the only viable solution – unless they use VPNs to access servers in other countries.
In the best-case scenario, a central bank may leave the cryptocurrency sector unregulated. For instance, the Central Bank of Kenya issued a notice in December 2015 to not engage in Bitcoin trading, warning that: “There is no underlying or backing of assets, and the value of virtual currencies is speculative in nature.” “This may result in high volatility in the value of virtual currencies, thus exposing users to potential losses.”
Interestingly, since that proclamation, Bitcoin has gained over 11,000 percent in value while Kenyan Shilling (KES) has lost seven percent of its value. The Central Bank of Nigeria (CBN) issued similar edicts, banning all banks in 2017 from using, holding, trading, and transacting in cryptocurrencies. Predictably, its currency, the Naira (NGN), dropped by nearly 52 percent in the meantime.
As the most populous African nation with over 201 million citizens, Nigeria was hit hard by the COVID-19 lockdowns. Compared to a year ago, food prices have increased by 20 percent, while the inflation rate seems to be winding down, currently settling at 17 percent.
With its 53 million people, Kenya has experienced a similar spike in inflation, though less dramatic at only 6.57 percent compared to 4.2 percent a year prior. From these indicators, we can conclude that an uptick in P2P transaction volume will accelerate unabated, driven by:
- Devaluation of fiat currencies;
- There are fewer obstacles to remittance payments across borders. Sub-Saharan Africa alone received $48 billion in 2019;
- Convenience, access, and speed make using smartphone apps over banks more appealing.
On that last note, Africans are already accustomed to using phones for payments, thanks to the widely popular M-Pesa that originated in Kenya and Ecocash in Zimbabwe. When the World Economic Forum covered Celo as a blockchain alternative to M-Pesa, they noted that while 11 percent of Ugandans have a bank account, 43-percent use a mobile payment account — making it apparent that it is a small step to go from a fiat-based P2P to a blockchain-based P2P.
Nigeria-based Flutterwave and Andela are two of Africa’s native FinTech companies that show promise. Flutterwave was valued at over $1 billion in March, making it onto TIME Magazine’s 100 Most Influential Companies as a digital payments platform.
Andela, on the other hand, tackles the shortage of tech workers in Africa by linking software developers remotely with US-based FinTech firms. Facebook’s social media dominance in Africa at 71 percent could overshadow all projects in this area.
Formerly known as Libra, Diem is Facebook’s answer to digital money in the form of a U.S. dollar-pegged stablecoin. Whether Diem comes onto the African P2P scene or not, its concept poses another problem. If the U.S. dollar continues to devalue, it may upturn its status as a stable global reserve stablecoin, effectively destabilizing stablecoin tokens.
An alternative to this is Decentralized Finance (DeFi). We have already seen such a trend emerge in the form of organized blockchain gaming. In developing nations such as the Philippines, Defi is not only a way to exchange crypto for fiat. It represented a source of income when lockdown-induced unemployment set in. Given Africa’s low cost of living, a fraction of such proceeds could go a long way. At the same time, Africa could push DeFi’s envelope to new boundaries.
According to the UN, cryptocurrency projects in Africa include South Africa–based Luno Exchange, established in 2013 and claims 1.5 million customers in over 40 countries worldwide.
Cryptocurrency-based remittance services are widespread on the continent, including Abra in Malawi and Morocco, GeoPay in South Africa, BitMari in Zimbabwe, and Kobocoin throughout Africa. Renowned celebrity Akon is leading the construction of Akon City, a futuristic city in Senegal incorporating emerging technologies, including cryptocurrency and blockchains. He also founded the cryptocurrency Akoin.
Africa is one of the few places in the world that can start from scratch and implement every new technological development and invention coming to fruition today without the need to break down existing infrastructure. Major countries and regions, from the U.S. to Europe to China, can’t deploy the latest technologies without having to demolish and reconstruct everything that’s already been built. That’s why Africa can lead the crypto and blockchain charge.
Tsitsi Mutendi is a co-founder of African Family Firms, an organization that aims to facilitate the continuity of African family businesses across generations. She is also the lead consultant at Nhaka Legacy Planning and the host of the Enterprising Families Podcast.
