The Crypto Continent
“There is always something new out of Africa” — Pliny the Elder (23–79AD)
The world’s youngest continent nimbly bypassed that awkward teenage hard-wired telecom-cable stage and made a beeline straight for grown-up 3G and low earth-orbiting satellites. Thanks to its lack of legacy infrastructure, Africa is now leapfrogging outdated financial systems by integrating cryptocurrency into everyday life.
“Waka-waka, eh eh. This time for Africa.” — Shakira (7 May 2010)
Despite only comprising 2% of global cryptocurrency market activity, Africa contains some of the most well-developed crypto markets of any region. Kenya, Nigeria, South Africa, and Tanzania all rank among the top 20 countries for global crypto adoption. In fact, Africa’s crypto market grew a staggering 1,200% between 2020 and 2021 according to Chainalysis.
A whopping 80% of this activity is retail transfers under $1,000, higher than any other region on Earth. These micro-payments have only increased since the beginning of the bear market, although precise trading volumes are difficult to determine, as such significant trading takes place on informal peer-to-peer (P2P) networks rather than exchanges.
The inflation rates in Nigeria, Ghana, and Sierra Leone are all approaching 20%, and in Zimbabwe it is almost 90%. Yikes. As a result, it is easy to see why Africans use stablecoins such as USDT to make cross-border remittances. Additionally, crypto is seen as a hedge against local currency volatility and capital restrictions.
SPENN, a mobile banking app, is digitizing Africa’s fiat currencies, essentially making private-label central bank digital currencies (CBDCs) and creating mini-economies. For the first time, users in remote rural areas are gaining access to banking services by finding a nearby human agent, similar to searching for an Uber, and handing over paper money to be credited to their digital wallets. From there, the world is their e-oyster.
“Mobile money has taken off in Africa more than anywhere else,” says Mitch DeYoung, the man behind the US biometric e-passport and now Chief Product Officer at SPENN. “There are nearly as many Facebook accounts as there are bank accounts. They may not be able to walk into a bank like a Standard Chartered, a Citibank or whatever, but they can certainly pay for goods and services using mobile money. So, they’re already accustomed to using digital money. It may not be blockchain-based, but it’s already digital money, e-money. They need alternative rails to move that money, which crypto satisfies perfectly.” We hear you, Mitch.
Cash Is King, but There’s a New Prince
With more than 90% of transactions in Africa still being completed in cash, it is no wonder that payment apps are drawn to the continent’s adoption powder keg. Africa’s population will almost certainly double by 2050, giving it more than a quarter of the world’s total. Today, there are almost two Africans for every European, and their median age of 19 is less than half that of Europe.
By 2050, Nigeria is projected to be the third most populous nation after India and China. Last year, the nation’s central bank restricted financial institutions from transacting with cryptocurrency businesses. Nigeria was not alone, joining 23 other African nations that have inadvertently driven users into informal peer-to-peer trading networks.
“Not many nations have outright banned it, and at least look the other way,” says Mitch. “But then there are no consumer protections if you get screwed. There are scams everywhere, and a Nigerian Prince on every street corner.”
Press 1 for Bitcoin, 2 for Ethereum
Blockchain companies such as Paxful and Yellow Card are thriving in markets where they are not banned, but unregulated by keeping low profiles and operating in a gray zone. A South African service called Machankura allows users to send Bitcoin to each other via SMS.
“If users want to buy Bitcoin, they press 1. If they want to buy ETH, they press 2,” explains Mitch. “You get a receipt, and you can redeem your Bitcoin that way. But again, it’s not super smooth. For SPENN, we have both a smartphone option and a feature phone option that would even work on an old analogue Nokia.”
This menu-driven workaround has circumvented poor internet access to become a full-fledged platform. Notably, while this basic system that allows users to buy, sell, and hold has flourished, more sophisticated exchanges such as Binance are retreating from some of Africa’s more broadband-challenged nations.
In October 2021, Nigeria launched the eNaira, Africa’s first CBDC. Companies such as Flutterwave and Chipper Cash allow businesses to accept eNaira as a form of payment. Travelers can use eNaira to purchase tickets on the Nigerian national carrier.
“That’s a great use case for eNaira,” says Mitch. “But at the wallet level, we’re not seeing a lot of uptake … Because the average Nigerian already has mobile digital money, they don’t see the benefit of moving over from the regular digital Naira through their mobile money operator and moving to this government-sponsored eNaira.”
So, how can governments get people to use CBDCs? In Nigeria, they distribute eNaira to people working for government agencies in the form of farming, manufacturing, and fuel subsidies, as well as military pensions. That is exactly what SPENN is about to do in a collaboration with the Nigerian government. “They love it because this is a perfect use case. These are monthly recurring payments that will be flooding the economy,” adds Mitch.
Four years ago, SPENN’s leaders sat down with the Central Bank of Rwanda and proposed digitizing the nation’s currency and putting it on the blockchain. “It’s crazy that they actually let us do it, and they would never have allowed us to do this on our own. The reason they trusted us is because we proposed partnering with a local bank. It acts as the Fed: a mini central bank for our ecosystem that can always see the minting, the burning and the managing of the currency.”
From stock fairs to a crypto “stokvels”
Filling the void of traditional banking are informal savings clubs, known in South Africa as stokvels. They are invitation-only clubs of twelve or more people serving as rotating credit unions or saving schemes in which members contribute fixed sums to a central fund on a weekly, fortnightly, or monthly basis. The name “stokvel” originated from the term “stock fairs,” as the rotating cattle auctions of English settlers in the Eastern Cape during the early 19th century were known. They have become extremely common throughout the continent, with members using them to save for anything ranging from funerals and groceries to holidays and cast-iron pots. Younger savers are increasingly clubbing together to invest in crypto.
“You have a rotating group of women, typically heads of the household, and they vote who’s going to be holding the box of money. They have two keys … One leader comes up with their key, and another arrives with their key. They both unlock the box at the same time and do the bookkeeping. If you want to deposit, you can. If you want to take a loan, you can. Then they close the box …” explains Mitch.
SACCOs are an innovation created by South Africa’s black population, who were locked out of the financial system under apartheid. Loans are given out with a standard rate of 10% per month, and the market is now worth more than $3 billion annually according to the National SACCO Association of South Africa. Currently, major banks and spending apps are bringing SACCOs and the informal economy into the mainstream banking system.
These users are often in their thirties and forties and have never had the option to have someone else hold their money outside of a savings club. They often begin their digital journeys in a period of disbelief, cashing in and cashing out just to prove that the process works, just as the complete stranger from the app assures them it will.
Beyond the initial distrust, the process of reaching and onboarding new users has its own unique challenges. Traditional internet ads, social media, and even radio and TV, are less effective in Africa. “You need to be in front of their faces, you need to be showing them how to work the app, helping them with the process and fighting for every signup,” says Mitch.
Innovate and Uptake
Outside of Africa, digital currencies and payment apps have been open-heartedly embraced and have even transformed payment cultures. In China, Alipay and WeChat are on the frontline, developing payment services that will work, rather than compete with, China’s e-yuan. Alipay is now the most popular digital wallet in Asia with over one billion active users. QR code payments are China’s dominant form of payment, with over 80% of customers regularly using them to purchase products. With such significant digital payment progress in China, the United States seems to be lagging.
“For a long time, I was getting pissed off at the Fed,” admits Mitch. “Like, guys, c’mon, you have to get your own digital dollar. And then I realized, that’s not what America does. We foster innovation, and then we let the best horse win, and then we go with that horse. Capitalism could win here in Africa, allowing private companies to issue digital dollars, and letting capitalism run amok. It’s the path of least resistance and could very well keep the US dollar as the world’s de facto currency.”
The African market is young, developing quickly, and more open to new concepts and ideas than the relatively reserved Western market. Most African governments are studying the eNaira and considering how it could work within their own central banks. Looking forward, it may not be long before the African continent champions the adoption of cryptocurrencies within governments and daily life. Ultimately, that’s pretty “waka-waka, eh-eh,” isn’t it?
