Africa is going through an economic reformation that is independent of the banking industry or government. Mobile money has been accepted across the continent already and virtual currency provides more opportunities for young, tech-savvy Africans. Consequently, Africa is witnessing an increase in the volume of cryptocurrency dealings.
From less than $10,000, the monthly transfer of cryptocurrencies to and from Africa increased by 55% last year, reaching its climax in June at $316 million. These figures are sourced from the US Blockchain research firm Chainalysis and are projected to rise. Cryptocurrency is used mainly for commerce in Africa especially in Nigeria, Kenya, and South Africa.
Cryptocurrency is simply virtual money that individuals can make transactions with in the same way they do with real money. Complex cryptography is used to create the currency and record transactions.
It’s much more than money on the internet. Cryptocurrency takes the value of money and makes it more transparent and centralised through technology so that everyone has a say in the prospects of finance. Cryptocurrencies leave out middlemen like banks to make transactions cheaper and are independent of any central body or government.
Africa is the new territory for development and global economic growth and crypto is being widely accepted like mobile money services such as M-Pesa.
In 2008, Bitcoin, the first and most popular cryptocurrency, was created by an unidentified person(s) under the pseudonym Satoshi Nakamoto. Over 6000 other cryptocurrencies have been created since that time, like widely held options such as Litecoin and Ethereum.
A perfect environment for virtual currencies to thrive
The unemployment situation in many African countries leaves the population of young people in search of new money-making ventures.
Consequently, digital money has gotten the attention of young people due to a lack of jobs. Cryptocurrency provides people with the opportunity to start their own businesses and gain patronage from outside their home country.
Cryptocurrency works just like mobile money so Africans should be able to understand and benefit from it better than people in the West who were never exposed to systems other than their banking systems.
Avoiding currency volatility
Cryptocurrency is seen as an alternative to the unreliable government-controlled currencies. It is set to develop economies eventually because the competition with government currencies will make the economies more resilient.
The cryptocurrency boom has been boosted in a way by inconsistent local currencies and hyperinflation like when the Zimbabwean dollar rose sharply in 2015.
A boon for remittances
Africa’s growing diaspora is also taking advantage of cryptocurrency as a cheap way to send remittances abroad. The cost of bank transfers across borders is extremely high but with cryptocurrency, it can be free.
For instance, the Kenyan remittance company BitPesa performs international money transfers using Bitcoin. This eliminates both bank fees and the cost of changing money to different currencies.
Africa’s delving into Bitcoin does come with some dangers. By nature, cryptocurrency prices are volatile. Since virtual currencies are unchecked and have no legal status in many African countries, there is a high risk of loss of funds, especially for short-term investors.
Anyone thinking about trading cryptocurrency should be discerning and seek information first. People with no information fall into schemes that disguise as crypto.
People with little exposure to new technologies tend to fall victim to the rising number of crypto scams or misguided investments. Educated people will understand cryptocurrency and blockchain technology more easily than older or unexposed people. The seemingly complex crypto is actually simple if you spend time studying it well.
What lies ahead?
Nigeria, Africa’s biggest economy, is at the forefront of countries working on new regulations in preparation for a crypto-based future. This is happening through the recent legalisation of cryptocurrency and new regulatory guidelines for virtual currencies and crypto-based firms or startups.
The major financial regulators in South Africa published a policy paper in April advocating for the regulation of cryptocurrency. Kenya is also testing the waters with a digital tax from January 2021.
Though it is too soon to measure the future rate of acceptance of cryptocurrency in Africa, it is worth the attention of young Africans because that is where finance is headed. Cryptocurrency has previously been dismissed as a flash in the pan, however, more than ten years later, it has continued to grow.