Cryptocurrency has mostly been a speculation-driven asset struggling to find a major use case outside of exchange trading, but it has found product-market fit on the African continent. Think about it, developed western countries do not have currency & payment problems as much as Africa does.
In Sub-Saharan Africa alone, less than 40% of the population has access to banking services, loans, savings, etc. The long list of documents required by the Banks for KYC measures to open an account is a headache and a limiting factor to the population.
Mobile money solutions like Mpesa have been successful in raising financial inclusion very high, especially in East Africa. The ease of conducting financial transactions without the need for lengthy documentations and KYC is a substance cryptocurrency offers. With just an internet connection, one can transact with peers worldwide with the cost of sending an SMS.
The current trend of Defi rising, if well evolved in design and application context, could be a total killer adoption point of cryptocurrency in Africa. Applying for a loan in minutes with zero KYC on your mobile phone will make an impression on Africans.
Remittance inflow forms a worthy portion of the GDP of sub-Saharan countries, with a staggering $46 billion recorded to be received by the region in 2019. That figure does not reveal the true data as there are tons of informal channels African diaspora use in sending money home.
Africa has the highest remittance costs globally, averaging around 9% for a $200 transaction, compared to the global average of around 7%. Global money transfer operators are feasting off people in this market.
Cryptocurrency has been the perfect solution for cross border transfers as it offers cheaper costs and faster remittance payments. Nigerian platform, Send Cash, solving remittance problems with Bitcoin recorded over $3,091,507.20 in transactions in just under four months of launch.
Trading volumes and employment opportunities
During the Covid-19 pandemic lockdown period, African countries broke several records on P2P trading volumes, with Nigeria hitting volumes as high as $10 million per week according to data from analytics firm Useful Tulips.
Every time $BTC P2P is mentioned, Africa represents. This week, Bitcoin broke its P2P Bitcoin volume all-time high again this year. 4 out of top 6 are from Africa.
🇳🇬 Nigeria -$10.3M
🇮🇳 India -$3.8M
🇰🇪 Kenya -$2.5M
🇿🇦 South Africa -$2.2M
🇬🇭 Ghana -$1.9M
— Elisha (GHCryptoGuy) 🐂₿ (@ghcryptoguy) July 31, 2020
This data, coupled with the high Google search volume of Bitcoin from Africa, shows the significant interest of Bitcoin among the population. Africa has the youngest population in the world, with an average age of 18 years. The young, driven continent is more susceptible to accepting digital innovations, increasing the chances of widespread cryptocurrency adoption.
A weak economy and rampant unemployment rate have seen the young population plunge into trading cryptocurrency as a full means of livelihood. It is reported that millions of dollars in cryptocurrency are exchanged through messaging apps like Whatsapp and telegram.
Blockchain projects and companies seeking to expand their service and reach into the African market have employed hundreds of thousands of people, creating income-earning opportunities.
Media houses and marketing agencies are some of the businesses young African entrepreneurs have created around the crypto industry, creating a consequential value chain of revenue and employment opportunities. Cryptocurrency is a blessing in disguise to the continent in this context.
Political-induced inflation & currency devaluation
Political tension is a norm on the plains of Africa, which has continuously resulted in high inflation rates and currency devaluation. Politics influence African countries’ monetary systems, stunting economic and currency growth, which leads the citizens to seek other safe means of storing their money, as seen in Zimbabwe.
The currencies of most African countries have experienced a lot of devaluation in a brief period. Nigeria’s naira has lost over 70% of its value since 2015, Zimbabwe’s annual inflation rate soared to 300% in August 2019. Zimbabwe, South Africa, South Sudan, Nigeria, Burundi, Egypt, Kenya, and Ghana have all experienced double-digit inflation rates in recent years.
Data from a report by global cryptocurrency exchange platform Luno shows that most users of cryptocurrency on its platform are from Nigeria, South Africa, Ghana, and Kenya. It is no coincidence that these countries happen to have battled inflation in recent years.
Bitcoin has proven to be a better currency haven due to its anti-deflationary feature and supply reduction mechanism. Although the issue of Bitcoin’s price volatility has posed a limitation to the cause, stablecoins (cryptocurrencies pegged to the value of a dollar) seem to be a great option.
Several projects like Celo are building stablecoins that can be bought in the form of digital dollars and stored on digital wallets mapped to one’s phone number to convert back to preferred local currency at will.
Restriction from global payment service providers
It’s 2020, and several African countries still do not have access to global payment service providers. For instance, in some countries like Nigeria, PayPal works lopsidedly, where sending out money is allowed, but receiving money is restricted. This leads to an economic situation called ‘capital flight’ – more money leaving the shores of a country than it receives.
Cryptocurrency allows Africans to participate in the global market, receiving payments for goods and services sold to foreign partners at the speed of a social messaging text. The cost is so cheap; it’s almost negligible.
Cryptocurrency payment processors can easily be integrated into a website, app, business, and ready to receive payment from places as far as the Himalayan mountains of Nepal.
Will Africa lead the way?
Senegal launched a digital currency, eCFA, in 2016, following suit of Tunisia, who launched the world’s first national digital currency. Coincidentally, both countries are African.
Senegal’s eCFA was regarded as an experiment using blockchain technology to show that Africa is a fertile ground for testing and deploying new Fintech solutions.
Cryptocurrency is an innovation that can help Africa leapfrog a lot of hurdles. The large unbanked population, youth-driven culture, and recurring economic crisis are some of the driving forces behind the success of crypto in Africa.
There is no doubt Africa will dictate the future of crypto. However proper education outreach will be needed to both potential users and regulators to facilitate the building of favorable frameworks that will not stifle the growth of cryptocurrencies and businesses built around it