The Rise Of Crypto-Trading In Africa; The Good And The Bad

Africa has been at the forefront of adopting new technology that has helped the continent grow economically. One advantage of technology is the digitisation of government systems, which has made the delivery of services effective and more accessible. The rapid spread of accessibility has driven most of the social & economic prosperity brought by digitisation to the internet on the African continent. Cryptocurrency adoption is also on the rise on the continent, showing the region’s readiness to use emerging technology to improve livelihoods. 

By now, more than a third of the population has internet access, which is only expected to rise. Africa has always been viewed as a continent that has lagged in digital evolution, but at the start of the 21st century, the continent enjoyed major improvements in digital technology adoption. The main driving force was mobile digital financial services. Mobile financial technology has catapulted Africa to the top of the world as a leader in mobile financing that has expanded services to more people, especially the unbanked and the poor, who could not access banking services. By 2018, about half of all mobile money accounts worldwide were in Africa. Emerging technologies are changing Africa’s economic and social situations for the better. 

Cryptocurrency The Next Chapter For Economic Growth In Africa

The next revolution propelling Africa forward is adopting blockchain and cryptocurrency to address the continent’s social and economic challenges. Africa is the second most populous continent, with a population of about 1.3 billion. Still, due to political instability and historical problems such as colonialism, the continent has lagged in economic & social development and access to financial services, which is vital for the said development. Mobile internet use in Africa is growing at a very high rate, with some countries like Kenya in sub-Saharan Africa having a user rate of 83%. Cryptocurrency is internet-based, and therefore the high number of users with access to the internet and smartphones makes Africa a prime destination for crypto investments and crypto trades. According to the world bank, 650 million people are using mobile phones in Africa. This is more than the users in Europe or the United States. Mobile technology has been a real game-changer in the continent. Africa is already familiar with mobile money platforms like Mpesa, and now the continent is broadening its reach and tapping into the promise of virtual currency. 

The use of cryptocurrency is on the rise in Africa. According to cryptocurrency analysis firm Chainalysis, within one year, from July 2020 to June 2021, the crypto market in Africa has grown by 1200%. The rise of digital currency has disrupted traditional financial services in the region. Cryptocurrencies are not limited by geography and are gaining popularity because they fill the gap in the financial infrastructure that limited the majority of the unbanked in Africa. The crypto market has grown by $105.6 billion in a year. Four African countries, Kenya, South Africa, Tanzania, and Nigeria are among the top 20 countries on the Global Crypto Adoption Index. 

Cumulatively, the four countries are regarded as the world’s most rapidly growing crypto markets. This shows that the continent’s financial ecosystem is changing and embracing cryptocurrency. The report by Chainalysis also notes that most of the cryptocurrency transactions in Africa are done by small and medium businesses. The social and economic effects of Covid-19 have necessitated a more inclusive, accessible, and cost-effective financial ecosystem. More people are looking for alternative financial solutions; cryptocurrency & digital currencies are proving to be the go-to option for the continent. Peer-to-peer (P2P) trading has been the driving force behind the growth of cryptocurrency adoption in Africa. Crypto payments through P2P platforms are more popular in Africa today compared to other regions.

Main Reasons For The High Adoption Rate OF Cryptocurrencies In Africa 

1. A rise in remittances:

Remittances from the diaspora are a huge source of income for many African countries. The high costs of sending money to their home countries have led many Africans to look for a less costly alternative. According to a world bank report, Africans living abroad incur a cost of 8.9% to send money home, which is higher than the global average of 6.8%. In 2019 alone, around $48 billion was sent to Sub-Sahara Africa through remittances. 

2. Accessibility

The high number of unbanked African individuals limits their access to financial services. The continent’s banking infrastructure is mostly limited to urban areas, leaving the rural community with limited access to traditional financial systems. The high rate of mobile use and familiarity with digital money transfer in Africa has equipped the population with an easily accessible financial option. The use of cryptocurrency only requires mobile internet access, making it easier for people and small businesses to access finances. 

3. Inflation & Currency Devaluation

The high inflation rate in many African countries has led to the devaluation of many nations’ currencies in the region. Young people in Africa are switching to cryptocurrency as a safer option to safeguard their earnings and transactions from the devalued currencies in their home countries. 

The Downside Of Cryptocurrency Use In Africa 

1. Regulations

Cryptocurrencies are not regulated in most African countries, and central banks of these countries have also urged the masses not to use them. This means there are no safety nets if you lose money while using crypto. But there is a light at the end of the tunnel as some African countries embrace cryptocurrency. For example, South Africa is currently undertaking steps to regulate the use of cryptocurrency. 

2. Volatility 

The issue of volatility cuts across all cryptocurrencies (Bitcoin, Ethereum, etc.). Cryptocurrency values keep changing, and investors risk losing their finances when their value falls. 

3. Financial Scams

Many Africans are interested in cryptocurrencies because they view them as productive investments with the possibility of high returns. The high adoption of cryptocurrency use and crypto-trading and the lack of proper regulations and guidelines have seen an increase in fake crypto-trading websites that siphon much money from unsuspecting citizens. 

Conclusion 

Cryptocurrency and crypto-trading can be a force of good to help Africa achieve high economic and social development if nations could come up with frameworks to regulate trade and also ensure interoperability with the existing financial systems. When sending or receiving money, cryptocurrency is simpler, more easily accessible, and more cost-effective than traditional financial systems. The many advantages of crypto over traditional systems are sure to see many more countries accepting and adopting cryptocurrency to ensure financial inclusion and consequently lead to sustainable economic growth.