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For a long time, African countries have struggled with infrastructure problems, which have made financial services less accessible.
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Cryptocurrency could therefore be a good alternative to traditional banking in Africa, because this only requires a smartphone, writes Tim Fries.
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Experts have gathered research in order to explore Africa’s potential for crypto adoption and how this could impact the rest of the world.
Tokenization of financial flows is vastly cheaper than building nations. On the back of it, the process itself can spur the growth of real assets. This is where some countries in Africa are finding themselves.
Africa Surveyed as the Next Crypto Frontier
Africa is the second-most-populous continent in the world, with around 1.3 billion people. Due to historic issues with colonialism, civil wars, and harsh terrains, African countries have suffered from infrastructure problems for a long time. This has made financial services less accessible, leading to around 57% of the population remaining unbanked.
At the same time, underdeveloped infrastructure has made Africa a perfect vector for cryptocurrencies, which only require a smartphone to access blockchain networks. We had previously covered Africa’s most populous nation, Nigeria, as the vanguard of crypto adoption for the entire world.
Thanks to the latest research by Chainalysis Insights, we can take a zoomed-out picture of Africa’s crypto adoption and its likely global impact.
African Wealth vs. Crypto Adoption Rate
According to the World Bank, the median GDP per capita in Sub-Saharan Africa is $1,483. Compared to the European Union, which has a GDP per capita at $33,927, this makes African wealth output 22X lower. Correspondingly, the Chainanalysis report found that Africa’s cryptocurrency market share is the smallest.
In raw numbers, this translates to $105.6 billion worth of crypto assets between July 2020 and June 2021, accounting for 1,200% crypto value growth. Using this metric, Africa has topped peer-to-peer (P2P) payment platforms in terms of transaction volume across all regions.
As you can see, Bitcoin continues to lead the way as the dominant and most popular cryptocurrency. Once we factor in that central banks of most African countries are hostile to cryptocurrency exchanges, Africa is left in a situation where P2P platforms are the only viable solution – unless they use VPNs to access servers in other countries.
In the best-case scenario, a central bank may leave the cryptocurrency sector unregulated. For instance, the Central Bank of Kenya issued a notice in December 2015 to not engage in Bitcoin trading, warning that:
“There is no underlying or backing of assets and the value of virtual currencies is speculative in nature. This may result in high volatility in value of virtual currencies thus exposing users to potential losses.”
Interestingly, since that proclamation, Bitcoin has gained over 11,000% in value while Kenyan Shilling (KES) has lost 7% of its value. The Central Bank of Nigeria (CBN) made similar edicts, banning all banks in 2017 from using, holding, trading and transacting in cryptocurrencies. Predictably, its currency Naira (NGN) dropped by nearly 52% in the meantime.
As the most populous African nation with over 201 million citizens, Nigeria was hit hard by Covid-19 lockdowns. Compared to a year ago, food prices have increased by 20%, while the inflation rate seems to be winding down, currently settling at 17%.
Kenya, with its 53 million people, has experienced a similar spike in inflation; though less dramatic at only 6.57% compared to 4.2% a year prior. From these indicators we can conclude that uptick in P2P transaction volume will accelerate unabated, driven by:
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Devaluation of fiat currencies.
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Fewer obstacles to remittance payments across borders. Sub-Saharan Africa alone received $48 billion in 2019.
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Convenience, access and speed make using smartphone apps over banks more appealing.
On that last note, Africans are already accustomed to using phones for payments thanks to the widely popular M-Pesa that originated from Kenya. When we covered Celo as a blockchain alternative to M-Pesa, we noted that while 11% of Ugandans have a bank account, 43% use a mobile payment account. It is then a small step to go from a fiat-based P2P to a blockchain-based P2P.
