The adoption of cryptocurrency in Africa is growing at an incredible rate. Some economists say that cryptocurrency is a disruptive innovation capable of blossoming in the African continent. While old and outdated economic policies are still dominant in Africa, the continent is experiencing an economic revolution. This is partly due to the determination of the young population to break free from economic stagnation or backwardness.
According to data collected by Chainalysis, a U.S. blockchain research firm, monthly cryptocurrency transfers of under $10,000 to and from Africa rose to over 55%. This spike occurred within one year, reaching $316 million in June 2020. Also, monthly cryptocurrency transfers increased significantly compared to the previous year.
Most transfers were done in Africa’s biggest economy—Nigeria, South Africa, and Kenya. These numbers are likely going to continue rising in the coming months and years. Financial traders in most parts of the world are the main users of cryptocurrency. However, Africa is bucking this trend. The majority of Nigerians, South Africans, and Kenyans are using cryptocurrency mainly for commerce.
Is Africa ready for Cryptocurrency?
No doubt, cryptocurrency in Africa is part of the undergoing digital revolution. The expansion of broadband and fiber optic cable connectivity in Africa is offering millions faster Internet access. Additionally, it is transforming business potential in African economies. Africa has already adopted digital payment platforms that allow people to transfer digital money between cellphone devices. Mpesa, operated by Safaricom, is one of the most popular mobile money transfer services. With electronic money systems already in use, experts suggest that the time is ripe to adopt cryptocurrency in Africa.
Africa is very promising when it comes to the adoption of cryptocurrencies. African countries share certain key trends and similarities. These nations experience economic challenges that range from financial inadequacy and volatile currencies to high inflation rates and issues with banking infrastructure. These challenges create a fertile ground for cryptocurrencies to act as an antidote.
Reasons for Growth of Cryptocurrency in Africa
No doubt, the rise in the adoption of cryptocurrency in Africa cannot be pinned to one factor alone. Below are key reasons fueling the growth of cryptocurrency in Africa.
#1. Remittance increase
The African diaspora sends a lot of remittances to relatives and friends in Africa. Remittances are sources of income for many individuals and families. Also, many countries get foreign currency through money send from abroad. According to the World Bank report on remittances, people spend more to send money to African than to other regions. However, with cryptocurrency, it is cheaper, faster, and convenient to send money to Africa.
#2. Currency devaluation
Over the past decade, many African nations have experienced an economic tantrum characterized by a devaluation of national currencies and skyrocketing inflation rates. Nigeria, Kenya, Ghana, and Zimbabwe are among the countries that experienced this problem. It’s no surprise that these countries are among the biggest cryptocurrency economies. In Africa, the primary drivers of the bitcoin economy are Nigeria, South Africa, Kenya, Ghana, Zimbabwe, and Botswana.
In 2015, when Zimbabwe experienced hyperinflation, some Zimbabweans started using Bitcoin. Likewise, citizens in Kenya, Nigeria, and other African countries continue to adopt cryptocurrencies to escape the effects of currency devaluation. Many people using cryptocurrency in Africa find it safer to transact and convenient for preserving the value of their money.
#3. Similarity to mobile money services
Another reason for the increasing use of cryptocurrency in Africa is its similarity with mobile money. Many Africans are familiar with electronic money and digital money wallets. Mobile money transfer services are enabling many to access money even without a bank account. Thus, many Africans are attracted to cryptocurrency due to their acquaintance with e-money.
Benefits of Cryptocurrency in Africa
1. Straightforward transactions
Legal representatives, agents, and brokers in traditional business dealings add significant expense and complication to a straightforward transaction. These include commissions, brokerage fees, and paperwork. A key benefit of cryptocurrency transaction is that it is a one-to-one dealing. Also, it happens on a peer-to-peer network structure which eliminates middlemen. There is greater clarity because only two parties take part in a transaction.
2. More confidential
Under a banking system, bankers use your transaction history as a reference document. For example, they check your balance, income, and expense to decide on a mortgage or funding application. Thorough evaluations are done for more critical or complex transactions. However, people using cryptocurrency in Africa or other parts of the world enjoy more confidential transactions. Each dealing is between two parties. Parties agree and negotiate terms in each case. Additionally, a party transmits exactly what is needed for a particular transaction—and nothing more.
3. No arbitrary transaction fees
Cumulative transaction charges on your debit or credit card will eventually become a huge sum of money in the long run particularly if you perform many transactions in a month. A great advantage of cryptocurrency is that it eliminates the traditional card maintenance fee. Crypto miners get their compensation from the cryptocurrency network used. Nevertheless, if you engage a third party to maintain your crypto wallet, you will pay some external fees. Nonetheless, these charges are much less than fees charged in traditional money systems.
4. Greater access
In traditional financial system, there are actions you cannot take unless you visit your financial institution. However, you have access to your cryptocurrency wallet through the Internet. Thus, all you nee is a stable Internet and you can transact irrespective of where you are.
5. Easy to trade
Unlike stock exchange, people find it easier to trade cryptocurrency in Africa. The high volatility of cryptocurrencies allows people to buy and sell and make huge profits. Also, people can complete cross-border transactions and transfers without worrying about currency exchange fluctuations.
6. Individual ownership
A major driver of the high adoption of cryptocurrency in Africa is the fact that only two parties are involved in a transaction. The two are the sole owners of encryption keys used to access cryptocurrency network addresses and identities. In traditional banking systems, you surrender the stewardship of your funds to a third party.
7. Strong security
Once a sender authorizes a transfer of cryptocurrency, it can’t be reversed. This protects parties against fraud. In addition, cryptocurrency offers strong encryption techniques that further safeguard parties against fraud.
Top 10 Cryptocurrencies with Growth Potential in Africa
1. Bitcoin (BTC)
Bitcoin is the oldest cryptocurrency and that explains why it’s in the lead. Its volume and price are much higher than other digital currencies. It represents 40 percent of the cryptocurrency market cap, even with so many other cryptocurrencies in the market.
Bitcoin is an ideal investment option because of its high acceptability. Many businesses accept payments through Bitcoin. One thing to keep in mind is that Bitcoin’s value fluctuates a lot. But this shouldn’t be a major concern if you plan to make a long-term investment.
2. Ethereum (ETH)
Ethereum isn’t just a cryptocurrency but also a network that developers can use to create their cryptocurrencies. Ethereum’s value is lower than that of Bitcoin but far ahead of other digital currencies. Its unique technology gives it a competitive edge over competitors. Although this type of cryptocurrency uses blockchain technology, it employs just one “lane” for performing transactions. So, it might take longer to process a transaction if the network is overloaded.
3. Binance Coin
This cryptocurrency is one of those that reached its peak after 2017. Other currencies reached their peak that year and then decreased in value. But Binance Coin continued to increase in value afterward. If you are considering using cryptocurrency in Africa, Binance Coin poses fewer risks because it is more stable.
4. Tether (USDT)
Tether is another stable cryptocurrency because it is linked to the US dollar. Each Tether unit translates to one dollar in the Federal Reserve Bank. However, some investors have questioned the actual reserve stock. Others doubt that each unit of Tether has a dollar in the reserve bank.
Although Cardano has a smaller footprint, investors find it appealing for several reasons. An investor requires less energy to finish a transaction compared to Bitcoin or other digital currencies. Cardano network offers cheaper and faster transactions. Some investors claim that Cardano is more secure and adaptable. However, the Cardano network may not fulfill large cryptocurrencies. It has fewer adopters meaning fewer developers. This might discourage people looking for a currency with a high adoption rate.
6. Polkadot (DOT)
Ethereum leaders created Polkadot as one of their own cryptocurrencies. This cryptocurrency offers several “lanes.” Polkadot was created to not only reward honest investors but also to eliminate people whose main goal is to trade and make money fast. But one key challenge with this cryptocurrency is that it lacks a track record of comparison.
7. Ripple (XRP)
Ripple is appealing to investors because it offers international transactions. Transactions can take nearly 10 business days with an international money transfer. But with Ripple, it is a matter of seconds. Also, it has contracts with large banks from across the world, thus making it more accessible.
Litecoin got into the market at the same time as Bitcoin. But it took off differently. But, if you choose to invest in Litecoin, you will enjoy faster transactions than Bitcoin. In 2017, Litecoin stood out for completing a Lightning Network transaction in seconds. Experts argue that the value of Litecoin is subject to fluctuation, just like Bitcoin.
The price of Chainlink makes it unique. Over time, it has appealed to investors since it can increase in value over time. Furthermore, it is available through Coinbase, one of the biggest cryptocurrency apps. Thus, its accessible nature instills confidence in investors. But Chainlink has a low market cap and volume than most competitors. Nevertheless, it is still a promising cryptocurrency in Africa.
10. Stellar (XLM)
Stellar was created to serve a niche need in the cryptocurrency world. It mainly serves as a bridge between blockchain networks and banks. Stellar can convert and trade any digital currency across channels. This makes transactions faster and cheaper than using the traditional bank method. Nonetheless, Stellar’s stock value might be affected if another company develops a better platform.
The adoption of cryptocurrency in Africa faces several challenges. The continent lacks the typical infrastructure like mining operations, nodes, ATMs, and supporting merchants. Additionally, some regions in Africa have inadequate Internet connectivity. Hostility from national governments and competition from mobile money services are other hurdles to overcome. Nonetheless, the continent has great potential for cryptocurrencies.
To overcome certain economic and international money transfer challenges, some African cryptocurrencies have been developed. The most common are Kobocoin, Golix Coin, Akoin, and AmbaCoin. Currently, the adoption of African cryptocurrencies is very low. However, their potential cannot be dismissed, and it’s just a matter of time before they become popular.