Cryptocurrency in Africa: The Continent’s Importance in Widespread Adoption
For cryptocurrencies and other blockchain applications, Africa is (still) considered to be a minor player in the markets. Nonetheless, it might be the next frontier for crypto given the continent’s rapid acceptance of similar digital mobile money technologies and the yearning of its youth (15–35 years) for alternative money transfer choices.
For example, in Kenya, 20 million unbanked adults have opened virtual savings accounts in the last five years¹. Mobile money has reduced the number of unbanked and has made one in five people entirely reliant on mobile banking in eight African countries².
Nigeria, South Africa, and Kenya are now among the most popular crypto trading and investment destinations³. The widespread use of virtual currency is transforming Africa’s financial institutions and its economies. Across the continent, new crypto-focused developer communities are sprouting up. According to GitHub, Africa has 40% more open-source repositories than any other continent⁴. This shows that Africa is embracing methods for establishing a more efficient and innovative business and governance structure⁵.
The widespread availability of cellphones, laptops, and internet connectivity has opened up several chances for new and improved services, as well as the people who produce them. Finance, retail payment systems, healthcare, education, energy, water, and government services, to name a few, are among the industries where new services are challenging the status quo⁶.
What Causes Cryptocurrency’s Rise in Africa?
Three significant factors are contributing to crypto’s growth;
1) Increased remittances from expats.
2) Currency devaluation.
3) Its similarities to ubiquitous mobile money solutions.
Many African economies rely largely on remittances or money sent from outside the country. The average cost of sending money to Africa is 8.9%, which is higher than the global cross-border average (6.8 percent)⁷.
Another source of annoyance was the high expense of foreign money transfers or even their prohibition. For example, until five years ago, Nigerians were excluded from PayPal due to the country’s reputation for fraud². As a result, millions of consumers were compelled to use other money transfer channels with exorbitant transfer costs, sometimes as high as 20%, while they were prohibited⁸. BitPesa, a Kenyan remittance crypto firm, tackled this problem using bitcoin as a transfer payment medium, avoiding bank fees and conversion costs.
Many people in Nigeria and worldwide have been experimenting with relatively affordable bitcoin transfers as a consequence of the high transfer costs⁹. As a result, cryptocurrencies have exploded in Africa due to these factors¹². Google Trends data quantify this shift. It has an enormous volume of Bitcoin searches in Africa for 2019, with Lagos, Nigeria¹², with its 15 million residents, being a significant hotspot.
Latin American countries, particularly El Salvador, are attempting to solve the inflation and deflation cycle issue by making cryptocurrencies (e.g., Bitcoin) legal tender¹⁰. Fred Thiel, CEO of Digital Holding, a Bitcoin miner based in the United States, believes that using cryptocurrencies to combat hyperinflation and deflation cycles, high remittance costs, and an increased number of unbanked people makes perfect sense¹¹.
Currency instability, which includes exceptionally high inflation rates, is a recurring problem in many African countries, jeopardizing both Africans’ savings and businesses’ capacity to borrow and prepare for the future⁹. For instance, Ghana and Nigeria witnessed double-digit inflation in 2015 when they printed $100 trillion notes worth barely $40, and South Sudan’s inflation rate reached 83.5% in 2018¹⁴.
The use of mobile money to replace traditional currencies is a (reasonable) precaution to prevent the dangers of hyperinflation, as Zimbabwe has proved⁸. Moreover, according to surveys, many Zimbabweans see cryptocurrency as a “liberation instrument.” As a result, the country is now one of the continent’s largest crypto marketplaces¹².
Finally, the widespread use of mobile money systems like Kenya’s M-Pesa suggests that Africans would adapt to crypto more quickly than individuals in the West, who are more accustomed to traditional banks⁸.
Conclusion
Kenya, South Africa, and Nigeria are today’s frontrunners in cryptocurrency adoption, as well as the industry’s most welcoming and progressive authorities⁸. Nigeria’s regulatory guidelines for crypto-based businesses and startups (despite its recent banking ban trading volume still remained high)¹³, South Africa’s policy papers on crypto regulation, and Kenya’s new digital tax suggest that at least some African governments are preparing for and accommodating a future in which cryptocurrencies are the norm⁸. Despite COVID-19 concerns, Bitcoin trading activity in Africa’s crypto hotspots has surpassed all previous records¹⁴.
The public’s trust in central banks and financial services has been eroded throughout Africa due to hyperinflation and high transfer fees. Furthermore, Africa’s primarily young, tech-savvy population is receptive to a new monetary system that alters economic value and ownership structure.
*Editors note
Sankore 2.0 is an Africa-focused community integrating the NEAR blockchain with projects and solutions conceived and built by local developers in Kenya. As noted in the content of this blog, Sankore 2.0 seeks to promote the development of Web3 products in Nairobi — for Kenya and for Africa as a whole
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Reference list
[1]: Ndung’u, Njuguna. ‘Harnessing Africa’s Digital Potential’. Brookings (blog), 11 January 2018. https://www.brookings.edu/research/harnessing-africas-digital-potential/.
[2]: Blenkinsop, Connor. ‘Crypto in Africa: Opportunities and Challenges, Explained’. Cointelegraph, 2 December 2019. https://cointelegraph.com/explained/crypto-in-africa-opportunities-and-challenges-explained.
[3]: Karombo, Tawanda. ‘In Crypto, South Africa Is Forging a Different Path than the Rest of Africa’. Quartz, 2021. https://qz.com/africa/2021680/south-africa-approach-to-bitcoin-regulation-is-unique-in-africa/.
[4]: Kazeem, Yomi. ‘Africa Is the World’s Fastest-Growing Continent for Software Developers’. Quartz Africa, 2019. https://qz.com/africa/1743569/africa-is-the-fastest-growing-continent-for-developers-globally/.
[5]: 4NTS. ‘The Open Web and Africa A Brief Overview’. NEAR Protocol, 2021, 5. https://nearguilds.com/wp-content/uploads/2021/01/Africa-and-the-Open-Web-FINAL.pdf.
[6]: Chan, Rosanna. ‘Foresight Africa Viewpoint — Rethinking African Growth and Service Delivery: Technology as a Catalyst’. Brookings (blog), 12 January 2018. https://www.brookings.edu/blog/africa-in-focus/2018/01/12/foresight-africa-viewpoint-rethinking-african-growth-and-service-delivery-technology-as-a-catalyst/.
[7]: Ong, Rebecca. ‘World Bank Predicts Sharpest Decline of Remittances in Recent History’. Text/HTML. World Bank, 2020. https://www.worldbank.org/en/news/press-release/2020/04/22/world-bank-predicts-sharpest-decline-of-remittances-in-recent-history.
[8]: Mules, Ineke. ‘Africa’s Quiet Cryptocurrency Revolution | DW | 08.10.2020’. DW.COM, 2020. https://www.dw.com/en/africas-quiet-cryptocurrency-revolution/a-55199637.
[9]: FinSMEs. ‘Why Is Crypto Adoption Growing in Africa?’ FinSMEs (blog), 13 April 2021. https://www.finsmes.com/2021/04/why-is-crypto-adoption-growing-in-africa.html.
[10]: BBC. ‘Bitcoin: El Salvador Makes Cryptocurrency Legal Tender’. BBC News, 9 June 2021, sec. Latin America & Caribbean. https://www.bbc.com/news/world-latin-america-57398274.
[11]: Walsh, David. ‘Why Is Bitcoin Booming in Latin America?’ euronews, 12 June 2021. https://www.euronews.com/next/2021/06/12/bitcoin-is-el-salvador-the-first-domino-to-fall-as-latin-america-embraces-cryptocurrencies.
[12]: Levine, Adam B. ‘In Zimbabwe, Crypto Is a “Liberation Tool”: Bitcoin in Africa, Part 1 of a New Documentary Podcast Series’. CoinDesk, 19 March 2020. https://www.coindesk.com/bitcoin-in-zimbabwe-part-1-of-a-new-documentary-podcast-series.
[13] Baydakova, Anna. ‘Why Crypto Is Booming in Nigeria Despite the Banking Ban’. CoinDesk, 6 July 2021. https://www.coindesk.com/crypto-booming-in-nigeria-despite-banking-ban.
[14]: Hashemi, George. ‘Cryptocurrency in Africa: The Future of a Continent’s Economy’. The Borgen Project, 17 July 2020. https://borgenproject.org/cryptocurrency-in-africa/.
