Cryptocurrency is a digital currency that is governed by cryptography to prevent counterfeiting. Cryptocurrencies run on blockchain technology. During the Covid-19 pandemic and lockdown, crypto gained traction in Africa since it was more accessible than traditional banks. One of the reasons contributing to the rising crypto adoption in Africa is its accessibility. Cryptos have allowed their users to carry out financial institutions and intermediaries’ activities with their mobile devices. Besides, cryptocurrencies are better than conventional methods since they are cheaper, faster, and easier to use. This is because their peer-to-peer technology does not need intermediaries.
The expected outcome of crypto adoption in Africa
During the Covid 19 pandemic and lockdown, crypto gained traction in Africa because of its accessibility. With the current trend of crypto in developed countries, Africa is heading there, and it can bolster its economic activity. Most firms like Tesla, Microsoft, PayPal, and others in developed countries allow crypto payment for their merchandise. It is worth noting that cryptocurrencies are secure since their crypto wallets have unique private keys that don’t allow unauthorised funds accessibility or transactions. Besides, all crypto transactions are on a publicly distributed blockchain ledger, allowing people to see all transaction data.
Risks involved in cryptocurrencies
Despite the benefits of cryptocurrencies, there are drawbacks, too, as pointed out below. Cryptocurrency can mess you up when you lose your private key. Once you lose the privet key, you cannot recover your funds, a threat that is not in banks. Another reason is their volatility and complexity. Cryptocurrencies are very volatile, and others crash completely.
A good example is Terra Luna, now Terra classic, which is yet to recover. However, there is Terra 2.0, but it is also trading sideways. There is also a threat to African central banks if crypto is used more widely than the initial fiat currency. Some of these national monetary agencies’ policies may not apply to decentralised crypto. They may not steer the economy’s growth leading to financial instability. Remember, some African countries like Nigeria restrict transactions between crypto assets, service providers, and banks.
The future of cryptocurrencies in Africa
Despite the ongoing crypto market meltdown, governments of the Central African Republic and El Salvador have already accepted Bitcoin (BTC) as a legal tender. However, the use of Bitcoin in these governments’ broader economies is much criticised. Meanwhile, some countries like Nigeria have recognised the need for a state representation of cryptocurrencies as central bank digital currencies (CBDC). However, CBDC adoption is not that promising in developing countries, and they are trying to investigate if it’s the right approach.