Africa is going through an economic revolution never seen before. Interestingly, the process has nothing to do with outdated economic policies or commercial banks-enabled transactions but virtual currency adoption. While in the other parts of the world, cryptocurrencies are commonly used by financial traders but in terms of Africa, it is used in commerce mainly and Nigeria is leading the way in the adoption as it has the youngest population in the world which makes it a hotspot for digital finance. It comes at the second rank after the US in bitcoin trading, and this also predicts its future adaptability and potential investments by the people of this country. However, Africa also has its wanna-be bitcoin called Afro which is a Pan-African cryptocurrency project.
In the past decade, Africans have become one of the largest cryptocurrency users. This does not come as a surprise giving the poor economic condition of many African countries. The continent has been witnessing an economic revolution since the advent of cryptocurrencies.
In 2020, monthly cryptocurrency transactions to and from Africa below $10,000 had a year-on-year increase of 55%, with June as the best performing month (a total of $316 million). This figure is expected to go up in the coming years because of the ease of use that cryptocurrency offer.
There are several factors at play in fueling the crypto growth in Africa.
1. Growth in remittances:
A big part of income for many African countries is remittances from diaspora abroad. According to World Bank, remittance flows to sub-Saharan Africa for 2019 were close to USD 48 billion. Nigeria received almost half of the total remittances sent to this region, USD 23.8 billion.
The World Bank report also states that it is costlier to send money in sub-Saharan Africa than most other regions. On average, a sender occurs an 8.9% cost to send money to their home country. On the other hand, the global average for the same stands at 6.8%. Many Nigerians are choosing to use cryptocurrency to send money across borders over Naira. Instead of sending money via banks, they transfer money through bitcoin remittance company. Sending remittances through these platforms bear almost no cost or much cheaper than banks. It helps people to avoid bank fees and currency conversion charges.
2. Currency Devaluation:
Many African countries are yet to recover from the 2008 global economic recession. Worse still, many of them have experienced subsequent recessions after that due to poor economic policies, leading to inflation and devaluation of currencies. A World Bank report reveals that South Sudan had an inflation rate of about 102% between 2016 and 2017. Some other nations including Nigeria, Ghana, Mozambique, Kenya, and Zimbabwe have also faced currency devaluation and inflation in the recent past.
The continent witnessed an incredible rise in cryptocurrency adoption in 2020 as many economies took major hits because of the COVID-19 pandemic. For instance, the Nigerian Central Bank devalued the Naira by 24%, making citizens look for alternative stores of value and income sources.
With the decreasing money value in the continent, many individuals, especially tech-savvy youth have turned to cryptocurrencies because it is safer to use and protects them from using inflated currencies against the US Dollar and other thriving fiats.
3. Similarities to Mobile Money:
Another major reasons why Africa has high crypto adoption is said to be the lack of banking infrastructure.
Mobile money platforms such as MPesa have helped provide banking access to millions of Kenyans in the last few years. People not having access to traditional banking systems in rural areas in Kenya use digital platforms to transact. It is no surprise why cryptocurrency has become attractive to many Africans, who are already familiar with concept of digital money wallets, according to financial experts.
African countries like Zambia and Ghana and many others faced inflation and currency devaluation. To combat this dreadful economic condition, many Africans started to adopt crypto as it presented itself as a perfect tool to hedge against the value erosion of their fiat, leading to countries like Nigeria became one of the biggest crypto economies of 2021. These people see crypto as a safer alternative and an alternate to a devaluated national currency. With Bitcoin price again on the rise, this seems ever more pleasing.