The African Crypto Ecosystem
The African crypto ecosystem is one of the largest and fastest-growing in the world. In Africa, cryptocurrency kick-started a digital revolution that continues to grow and put people on the path towards financial freedom. To support businesses and founders looking to enter the market, we outlined the essential things you should know about the African crypto ecosystem.
- Drivers of Crypto Adoption — Spurred by currency devaluation, unemployment, and a tech-savvy population, Africa is seeing some of the fastest adoption of crypto globally.
- Crypto Trading & Activities — Peer-to-peer exchanges rule the market due to different regulations and controls.
- Mining in Africa — While Africa is not known as a mining hub — thanks to high electricity costs and unclear regulations, — a few mining facilities are located on the continent.
- Crypto & Blockchain Related Funding — The entire financial technology space saw a massive injection of money in recent years, but most funding still comes from foreign investors.
- Top Projects — Africa is home to some of the most innovative blockchain projects, including several that bring digital assets into real world utility.
- The African DeFi & NFT Space — Africa caught the attention of emerging DeFi platforms as the next major market.
- Crypto Communication Channels & Events — Invite-only WhatsApp and public Telegram rule African crypto communications.
- African Crypto Influencers— Home to several major influencers, activity is centred around Twitter, Youtube, and blogs.
- Blockchain in Academia — Not many universities offer blockchain-related courses, but there are a few. In addition to this, some nonprofits host training courses.
- What’s on the Horizon? — While regulations, or lack thereof, continue to slow growth, the market can’t be stopped. Further, several nations have launched CBDCs, with others exploring these options.
Drivers of Crypto Adoption
The spread of cryptocurrency in Africa can be traced back to several factors. First, the very youthful population on the continent makes it a prime hub for adopting new forms of technology. Almost 60% of Africa’s population is under 25, making Africa the world’s youngest continent. What may also interest business owners and prospective investors is that this trend is set to continue with significant improvements in the health sector, leading to low mortality rates and high fertility. Projections by the UN indicate that Africa will be responsible for 57% of population growth as the world reaches 10 billion people by 2050.
Beyond the demographics, cryptocurrencies present unique opportunities and better alternatives for various aspects of life. This includes cheaper remittances, hedging against hyperinflation, and ensuring financial inclusion. Remittances play a massive role in many Sub-Saharan African economies. Money that entered Africa from the diaspora in 2019 is estimated to be around $48 billion. As great as this sounds, a lot of the money is lost to fees or mediators who make these transactions possible. Sub-Saharan Africa also reports the highest average remittances fees — 8.2% in 2020.
Cryptocurrencies like Bitcoin and stablecoins, like USDT and USDC, make it easier to send money to Africa from anywhere in the world with minimal fees and near-instant confirmation times. Bitcoin is still the most popular crypto on the continent, but stablecoins saw significant growth. Receivers can then choose to keep the money in crypto as savings, spend it at places that accept Bitcoin (still not a major market), or sell it for local currencies.
Another vital aspect driving adoption, which many overlook, is the digital economy created around cryptocurrencies. The high level of unemployment seen globally is usually worse in developing markets like Africa. The cryptocurrency ecosystem provides another avenue for the continent’s youthful and vibrant human resource to earn a living from their skills and time. This offers Africans the opportunity to find work at major crypto firms as software engineers, community managers, and content creators.
These factors have made Africa the leader in regions interested in cryptocurrencies. In fact, since 2016, African countries constantly dominated Google Search Trends data for the keyword “Bitcoin.” In 2021, Nigeria is first, followed by South Africa and Ghana.
There are several countries with greater activity, that require a closer look.
Nigeria
In Western Africa, Bitcoin adoption continues to increase in Nigeria as the oil-dependent economy was struck hard by the Covid-19 pandemic, causing the Central Bank to devalue the naira on two occasions in 2020. This led to the growth of the crypto space in Nigeria, which includes substantial volumes on centralised exchanges and peer-to-peer platforms.
Individuals use it to hedge against inflation, while small businesses rely on it to circumvent the difficulty of finding dollars and high exchange rates when dealing with foreign suppliers. While bitcoin still holds the bulk of the market, as crypto is being used to trade, there is some move towards stablecoins in this market.
In February 2021, the Central Bank banned financial institutions from hosting accounts used to facilitate crypto activity, even going so far as to put a hold on certain accounts.
While this was a blow to the rapidly growing market, it was far from enough to halt activity. Now trading is largely P2P, even facilitated through WhatsApp and Telegram groups. In response to the continued activity, the Central Bank indicated that it may look into different regulations, although statements have been mixed. As of yet, beyond prohibitions to keep banks and financial institutions from dealing in crypto, there are no regulations on cryptocurrencies themselves. The Securities and Exchange Commission took steps by publishing regulatory guidelines for digital currencies and crypto-based companies.
Kenya
Kenya actual boasts one of the highest percentages of crypto ownership in Africa as of 2021. It is a top country globally for P2P trading volume, as well as for total crypto activity. Like elsewhere, most activity is around bitcoin.
While Nigerians are limited by the actions of the CBN, Kenyans have a bit more freedom. The Central Bank of Kenya hasn’t come out particularly for or against cryptos yet, although the CBK did release a warning against digital assets. The bank generally regulates crypto-related companies based on the type of services they offer under a series of different laws. Additionally, the CMA, the organisation responsible for public offers of securities, indicated a plan to provide more concrete legislation on cryptocurrencies.
Zimbabwe
Bitcoin also grew in prominence in Zimbabwe due to hyperinflation. In 2017, it was trading at almost $14,000 in the country, 75% more than the global average of around $8,000. The high demand was fuelled by the extreme devaluation of the Zimbabwean dollar, which has a 100 trillion bill that is mostly worthless.
In 2018, the Reserve Bank of Zimbabwe (RBZ) prohibited financial institutions from using, trading, holding, or transacting virtual currencies, as well as providing banking services to facilitate these activities. These institutions also had to terminate existing relationships with crypto exchanges. Since these stringent measures, the government announced the intent to regulate, rather than ban, these assets. Now, the government is working to develop a FinTech framework that will include a regulatory sandbox for crypto companies. Further, the government is exploring the issuance of a gold-back digital currency.
South Africa
7.1% of South Africans are estimated to own crypto. South Africa is taking a different path from many other nations on the continent. Notably, cryptos are already recognised as taxable assets. Further regulation has been spurred by a spate of crimes, such as two large scams which accounted for $4 B in losses. These regulations will aim to make the space more transparent, and minimise the use for illegal activities.
Ghana
Ghana has a relatively smaller crypto market, with about 3% of the population estimated to hold digital assets. However, blockchain is also being used by the country to clarify land ownership, which currently heavily relies on word of mouth agreements.
Currently, there is no law to regulate crypto use, but the Bank of Ghana resent drafted a Payment Systems and Services Bill, which is expected to contribute to some legislation over the market.
While the African market is still highly fragmented — leading to calls for pan-African legislation, — as a whole it still represents one of the fastest growing markets for crypto adoption.
Crypto Trading & Activities
Cryptocurrency trading in Africa is booming. However, it is largely driven by retail traders, small payments, which grew 55% in 2020. The trading industry is split between several channels, including peer-to-peer marketplaces, centralised exchanges, and OTC trades organised over social messaging apps, like WhatsApp, Telegram, and Messenger.
Peer-to-peer trading platforms have become the go-to for many traders. The biggest reason for this is the unclear regulatory environment on the continent, making it difficult for centralised exchanges to connect directly with fiat on-ramps like banks and mobile money. The Central Bank of Nigeria’s directive asking financial institutions to shut down crypto-related accounts is the most notable of these. This left many exchanges stranded without a direct method to enable deposits and withdrawals. P2P offers a way out by removing the need for platforms to be directly responsible for fiat transfers. Instead, these marketplaces connect users to prospective buyers or sellers and create an environment for the transactions to take place.
While P2P and OTC solutions continue to stand out in this market, centralised exchanges are still useful since they allow users to speculate on a wider range of crypto assets.
- Binance — a leader globally, Binance is also the biggest exchange in Africa. On top of the centralised exchange, Binance is a relative newcomer to the P2P market. Already, they claim to have processed a total volume of $320 million as of February 2021.
- Paxful — a global P2P trading platform, Paxful is now actively targeting the African market, as one of the fastest growing crypto markets in the world. Paxful accepts over 300 payment methods, giving it a leg up over other exchanges.
- BuyCoins Africa — formerly Bitkoin Africa, this is a Nigerian-based, exchange with both P2P and centralised services. The naira is the only supported fiat. In recent times, the platform grew in prominence due to security and low fees.
- Bundle — a social payments app, which hosts both a fiat and crypto wallets to make transactions more seamless for users. The app imports users’ contacts to create a social network. While less anonymity focussed than many crypto exchanges, this company supports ease-of-use.
- YellowCard — launched in 2016, this US-based exchange beat many competitors to the African market in 2019. It is a product of the BinanceLabs accelerator, and now operates in nine countries on the continent. This exchange is unique as it has created local partnerships with small businesses to sell bitcoin, on top of operating an online exchange.
- Quidax — an African-focussed and Nigerian-based exchange, Quidax is a relatively new entrant, founded in 2019. It offers fiat purchasing and selling services, including P2P, and recently rebranded itself as the Home of BEP-20 Tokens as part of a plan to disrupt the DeFi ecosystem.
- LocalBitcoins — a hugely popular P2P service, LocalBitcoins saw massive adoption in Africa, especially in countries with more stringent controls on financial institutions. It saw an 80% increase in the user base in Kenya in 2020, and strong growth in many other nations as well.
There are few other platforms, such as Luno and Remitano, that are also notable in the region, although, Luno is now struggling with the restrictions of the CBN.
All the same, Sub-Saharan Africa is a close second to North America for regions contributing to Bitcoin P2P volumes on Paxful and LocalBitcoins. Again, Nigeria leads the pack, followed by Kenya, Ghana, and South Africa as the sources of Africa’s volume on these P2P platforms.
Bitcoin is king on the globe, and also in Africa. Ethereum and stablecoins, like USDT, BUSD, and USDC, are also fairly popular. This is seen in the various cryptocurrencies offered on African platforms or exchanges with many users from the continent.
Mining in Africa
Unclear regulations, high electricity costs, and the hassle of setting up a mining rig, from the cost associated with buying to shipping, slowed the pace of growth in this sector.
There is very little data on mining activity on the continent, which led to speculation that a lot of such activities are shrouded in secrecy. However, there are some examples of organised mining efforts in South Africa, Kenya, and Ghana.
Ghana Dot Com, an IT solutions firm, set up the first known mining facility in Africa in 2016. Kenya’s BitHub Africa, a blockchain firm, also has a mining operation. South Africa also received some mainstream coverage for growing crypto mining efforts in the country.
Crypto & Blockchain Related Funding
The entire financial technology space in Africa saw a huge injection of money in recent years. Cryptocurrency and blockchain-based solutions were not left out of the fundraising galore.
The majority of investments in crypto firms are from sources outside the continent. Some companies that did not start as crypto-related projects have shifted focus to it after raising more funding. Chipper Cash, the most valuable startup in Africa, after receiving $100 million in investment, added a Bitcoin trading feature to its payments app in selected markets.
Aside from traditional methods of raising funds, some African crypto startups have opted for Initial Coin Offerings (ICO) or Initial Exchange Offerings (IEO). For example, in April 2021, Nigerian-based NFT startup, AFEN Group, raised $1 million through a token sale amidst negative market sentiments and falling crypto prices. Other projects, like Mazzuma, DreamBlock, and Kora Network, have also raised money through ICOs.
Top Projects
Companies like BuyCoins Africa and YellowCard had multiple fundraising rounds from different sources. BuyCoins initially started as part of the Y-Combinator programme, and raised an undisclosed amount from Microtraction.
On the other hand, YellowCard was part of the Binance Labs Incubator Programme in 2019. Four African startups, Xend and YellowCard, received some initial funding from the programme. In addition, YellowCard received $1.5 million in seed funding from prominent investors like Polychain, Andreessen Horowitz, and Celo in 2020.
Other top projects emerging in the ecosystem include:
- The Sun Exchange — the Sun Exchange crowdfunds for solar installation, enabling individuals or organisations who invest to earn income once the project is complete based on a 20-year lease. Payments are made through BTC for international investors.
- Bitsika — a multi-currency wallet and social payments app, Bitsika aims to reduce the need to move between different apps and simplify the process of using crypto. The app is somewhat similar to Cash App and Venmo in that each user is given a cash-tag or username, to make finding people and sending money simpler.
- Akon City — while not solely a crypto project, this is a massive ($6 B) proposed plan to build a new city run entirely on renewable energy. The first city will be built on 2,000 acres in Senegal, while a second is set to take place in Ghana. This futuristic city is planned to run on the new crypto, Akoin. There are doubts about the utility of this proposed coin, however, as regulation in Senegal, as in much of the rest of the continent, remains very uncertain.
The African DeFi & NFT Space
Decentralised Finance and nonfungible tokens are the new raves in the crypto space. Africa is in line with these trends as several platforms see a boom in users from the continent, alongside Africans’ developing DeFi and NFT platforms.
DeFi related platforms, such MetaMask, associated their growth with an increase in users from the global south. The crypto wallet saw a lot of mobile adoption in Nigeria, contributing to its 5x growth from October 2020 to April 2021.
That being said, DeFi use in Africa is primarily focussed on alternative Layer 1 blockchains, like Binance Smart Chain. Ethereum is losing out on market share due to the high gas fees — an entry barrier to many users. Some African teams are meeting this demand, such as Xend Finance.
There are projections from some industry leaders on Africa’s role in DeFi moving forward. CEO of IOHK, the developers behind the Cardano Blockchain, Charles Hoskinson believes Africa is the future of decentralised finance.
“Given that the human capital, physical capital, and economics are all moving in the right direction, it is my belief that Africa will be the most promising economic environment in the next ten years,” Hoskinson concluded.
Despite only peaking in popularity recently, NFTs are still what everyone is talking about in the summer of 2021. Africa is known for its rich culture and arts, which many believe fits the NFT market perfectly.
Kenyan-based, award-winning photographer and filmmaker Rich Allela was one of the first African art makers to launch an NFT collection. Some other artists like Osinachi are also doing well in the NFT scene.
A couple of marketplaces have popped up on the continent, with two brilliant examples being WeAreMaster and AFEN. The latter raised $1 million in a token sale in 2021 and has partnered with several African artists to release digital arts on its NFT marketplace.
Crypto Communication Channels & Events
African crypto users formed several groups on various platforms to communicate. Some of these are informal groups of friends or general enthusiasts discussing happenings in the crypto space. On the other hand, some groups are established by blockchain societies or associations that intend to push crypto adoption. Brands like exchanges are also not left out, with many of them running huge groups used for customer support and product updates.
WhatsApp beats Telegram as a preferred option for many, even though an argument could be made for Telegram in some specific African markets.
Most WhatsApp groups are closed or invite-only due to the maximum member limit and privacy. However, Telegram is home to channels and groups with thousands of members. These public groups and channels include DABA, Blockchain Nigeria User Group, Blockchain & Crypto Ghana, BitcoinAfrica.io Community, and Bitcoin & Cryptocurrency South Africa.
Other platforms like Discord have yet to take off.
What’s more, there are several crypto and blockchain events that happen in Africa. These conferences bring together developers, enthusiasts, investors, and thought leaders to discuss critical regional issues and general cryptocurrency trends. Before the pandemic, most events happened offline. However, the move to online events increased accessibility and brought more people to crypto than initially expected.
Flagship offline events include Blockchain Africa Conference in Johannesburg, South Africa; Ghana Blockchain Conference in Accra, Ghana; BlockTech Women Conference in Lagos, Nigeria and Accra, Ghana; and Lagos Blockchain & Crypto Conference in Nigeria. Big crypto brands like Luno, Binance, Paxful, OKEx, and Houbi also organised several meetups across the continent.
The dawn of online events led to an astronomical increase in cryptocurrency events in Africa. One of the most successful series of events is the Binance Masterclass. These online events are country-specific and sometimes continent-wide webinars by Binance focusing on essential parts of cryptocurrency education. According to data from the leading global exchange, the series organised over 400+ free events, with 30,000 confirmed attendees and a reach of 700,00 people. Other top online events include the DeFi Conference by Bitcoin Events.
African Crypto Influencers
There are several thought leaders on the continent, ranging from educators to developers and marketers. There are not as many African influencers as American or European influencers. Here is a list of some of the top influencers or top groups brands can look into:
- Twitter is the most popular for the entire crypto ecosystem, and African influencers are not missing out on the fun. The platform is home to big names like Chris Ani (NG), Micheal Kimani (KE), Elisha — GhCryptoGuy (GH), Grey Jabesi (SA), Tola Joseph (NG), Crypto Coach (NG), notEezzy (NG), Tony Emeka (NG), and Sonya Kuhnel (SA).
- Youtube channels mostly provide tutorials for new users who are looking to enter crypto. Some of the top crypto YouTubers in Africa are HardCore Crypto (SA), Jude Umeano (NG), GhCryptoGuy (GH), and BitcoinKE (KE).
- There are also several blogs on the continent addressing various crypt-related issues. Some have taken the news reportage route, while others focus on educating users. The top sites include BitcoinAfrica, BitcoinKE, NigerianCryptoCommunutity, BlockNewsAfrica, and BitcoinZAR.
Blockchain in Academia
Not many African universities offer blockchain or crypto related courses. However, there are a number of nonprofits that provide blockchain training. The Africa Blockchain Institute is one, offering a variety of courses, ranging from developer courses to those aimed at lawyers. African Blockchain University is another, running partnerships with academic institutions to research and host events.
As far as universities with courses, there are the following:
- Carnegie Melon University Africa — This institute, based in Rwanda, offered one of the first university level courses on blockchain available in Africa. The mini course covers Bitcoin and the basic technology, with a specific focus on mining. In addition to the practical material, the more philosophical and ethical side of crypto is also explored.
- University of Pretoria — The South African university offers two courses, one that is more basic, outlining how cryptocurrencies operate, with a focus on bitcoin, and the other which goes a bit more in depth, and includes discussion of altcoins.
- Stellenbosch University — This university offers a short, online course, designed for beginners. It covers the technical workings of blockchain, the purpose, how bitcoin fits into systems of money, legal implications, and controversial topics.
Further, while blockchain courses are few and far between, several universities have graduate programs for research on blockchain, such as the South African University of the Free State.
What’s on the Horizon?
Currently, cryptocurrency adoption is slowed by regulatory uncertainty on the continent. Countries like Mauritius have seen some positive moves towards the creation of a legal framework, while users in Ghana, Nigeria, Kenya, and many others are unsure of when to expect similar policies from their governments.
The standard practice of most regulators on the continent seems to be issuing warnings. In South Africa, the Financial Services Conduct Authority (FSCA) issued a warning about trading and using cryptocurrencies since it is unregulated. The Bank of Ghana and Central Bank of Kenya have also done the same. The Central Bank of Nigeria took this trend even further by asking all banks to shut down accounts related to cryptocurrency trading.
What’s interesting about the future is the fact that despite the negative sentiments towards cryptocurrencies, some of these countries have initiated plans to issue Central Bank Digital Currencies.
Tunisia hit the ground running by becoming the first country to launch a national currency on the blockchain. The eDinar can be used for payments in the country. Also, Senegal has a version of its local currency equivalent to the CFA franc on the blockchain.
Ghana recently partnered with the German securities firm, Giescke+Devrient, to start a pilot in September 2021, while Nigeria is also set to begin its trials in October 2021. In addition, Rwanda, South Africa, and Morocco are reportedly studying the feasibility of Central Bank Digital Currencies one way or another.
Users continue to defy the odds despite the backlash by states against crypto, as seen in the adoption of more decentralised options like peer-to-peer trading.
This sets up the stage for similar concepts like decentralised finance, decentralised autonomous organisations, and NFTs to gain huge traction on the continent.
