Africa is recently showing a grown interest in cryptocurrency, a form of digital currency. But economists have not been quite enthralled by this situation, as they think that this is a “ disruptive innovation” which is slowly blooming in the continent.
Cryptocurrency is not bound to any particular geographical region as it is totally based on the internet. Its storage database is called blockchain which records all the transactions in a ledger in real-time. Cryptocurrency can be compared to Visa or Mastercard but are different from them on the grounds that it is not regulated by the government nor does it require any middlemen. The transaction can happen from anywhere in the world and rely fully on the internet. Bitcoin, XRP, Dash, Litecoin, Lisk and Monero are the bigshots amongst the global cryptocurrency brands, but the leader of the pack in Africa is Bitcoin. It was created by a group of people or maybe a single person, familiar to u by the name Satoshi Nakomoto and is aiming to become the new mode of financial transaction in the digitalised age.
High inflation rates leading to the popularity of cryptocurrency in Africa.
Rarely mentioned as a large market for cryptocurrency, Africa is steadily taking over a major portion of the global cryptocurrency market. Countries with high inflation rates are more attracted towards cryptocurrency as it lets them avoid disastrous bank policies. With inflation rates in double digits and in extreme cases in triple digits, African nations have become the hubs of Bitcoin economies. Concurring with data, gobitcoin.io, a website dedicated to Bitcoin-related news in Africa has cited that Botswana, Kenya, Nigeria, Zimbabwe, South Africa and Ghana are the leading Bitcoin countries in Africa. According to the BBC, Uganda is a newcomer in this arena. Citizens of African nations with the hyper-inflated economy are turning towards transactions made using Bitcoin rather than their local currencies which are extremely devalued. The number of smartphone users is significantly increasing which indicates that more people in Africa will have the necessary tools required to operate and plug into the ecosystem of cryptocurrency.
More than a reluctance to control the Bitcoin transactions, African governments are under-equipped to control or regulate it. African citizens fearing the collapse of their domestic banking system in politically unstable countries are turning towards cryptocurrencies like Bitcoin as they eliminate the hectic procedures that bottleneck the traditional banking system.
How bitcoins are meeting the face of real-world transactions?
Abolaji Odunjo, a resident of Lagos, operating a business of selling mobile phones made a primary change to his business, i.e., he started paying in Bitcoins to his suppliers. Odunjo gets his supplies of mobile phones from China and the UAE, and his suppliers started accepting payments in Bitcoin to speed up the process. This mode of payment has helped him to boost his profits as he no longer has to shell out fees to the money transfer firms. The biggest and original cryptocurrency, Bitcoin, has gained practical use in Africa which it has failed to gain elsewhere. It is small businessmen like Odunjo and migrant workers who send remittances back home using cryptocurrency who are at the heart of bitcoin boom in Africa.
The economy of Nigeria is dependent on crude oil prices and ha been hook by the fall in crude oil prices due to the COVID 19 pandemic. Nigeria’s central bank ha already devalued the Nigerian currency Naira twice this year. This has greatly affected importers ho have to pay more to buy a very scarce number of dollars. The devaluation of domestic currency has pushed Nigerians towards bitcoin transactions. BuyCoins’, Lagos Exchange, manager aid that their monthly cryptocurrency volume jumped threefold in June after Naira a devalued in March. The jump amounted to $1 million and such was the case with other exchange across Africa. Yellow Card, a similar exchange operating across five nations cited that their volumes jumped fivefold.
Luno Exchange, a South African cryptocurrency programme launched in 2013, is the first cryptocurrency programme based in Africa and presently has 1.5 million customers worldwide. The firm’s monthly trading volumes amounted to $536 million in August 2020. In 2019 alone there was 15 operation launched in Africa related to cryptocurrency. Cryptocurrency based remittance services are growing all over these nations, for example, Abra in Malawi and Morocco, GeoPay in South Africa, BitMari in Zimbabwe, etc. Countries which do not have established cryptocurrency business are trying not to be left out in the virtual currency terrain. Tunisian government issued a digital currency eDinar and Senegal has also launched eCFA. Very soon there will be government-issued cryptocurrencies in Africa.
Risks of Bitcoin transactions.
Transactions in cryptocurrency come with potential risks as the transactions are made mostly anonymously and there is a little chance of identifying any theft. The lack of regulation in Bitcoin transactions makes it a double-edged sword. The risk of the price drop of bitcoin leaves its investors with no escape route. Also, bitcoin can be misused by criminals to fund criminal activities around the world. In 2011, the US justice department gave a report stating that bitcoin a the most favourable form of currency for the drug peddlers.
For a migrant worker, it is an easier and quicker way to send money home. For example, for a migrant worker working in London, he /she ill have to pay 5% charge to transfer via a traditional money transfer firm but with bitcoins, the charge will be around 2.5%. however, this method of transfer carries the risk of scams and hacking. Also, Bitcoins can not potentially be used for daily transactions like grocery shopping or monthly payments like house rent. They have to be converted to traditional currency by the help of brokers which has added risks.