Cryptocurrencies such as Bitcoin are becoming increasingly popular in Africa – also because mobile payment on the continent has long been part of everyday life. For the young, technology-affine population, virtual money has many advantages.
While the rest of the world first but foremost faces the largest economic crisis since 1929, Africa is rather in the middle of an economic revolution: last year the number of transfers in cryptocurrencies from and to Africa rose significantly – with sums of under 10,000 US dollars (8500 euros) by 55 percent. According to the US analysis firm Chainanalysis, the peak was reached in June with 315 million US dollars.
The figures should continue to rise. While cryptocurrencies are mainly used for financial speculation in other parts of the world, a different trend is evident in Africa. Here, virtual money is mainly used in trade. Individuals and small businesses in Nigeria, South Africa and Kenya are responsible for the majority of these activities.
What is a cryptocurrency?
Simply put, cryptocurrencies are virtual money that can be used just like real money: For example, to transfer money to other people or to buy goods and services. The “crypto” in cryptocurrency comes from the complex cryptography (encrypted codes) used to create and record transactions.
Cryptocurrencies aim to bypass intermediary intermediaries such as credit card companies or banks. This makes it cheaper to transfer money from one virtual wallet to another. Cryptocurrencies are also not controlled by a central authority, which in theory protects them from any governmental interference.
Over 6000 cryptocurrencies worldwide
“With cryptocurrencies most think simply only of money in the Internet, say Elisha Owusu Akyaw, a marketer of cryptocurrencies resident in Ghana and founder of BlockNewsAfrica. “Basically, cryptocurrencies use technology to make money more transparent and less centralized so that everyone can help shape the future of finance,” Akyaw said in the DW interview.
Bitcoin – the first and by far the most popular cryptocurrency – was created in 2008 by an unknown person or group under the pseudonym Satoshi Nakamoto. There are now more than 6000 other cryptocurrencies, including popular options such as Ethereum and Litecoin.
Starting Advantage for Africa
For Ghanaian tech entrepreneur Emmanuel Tokunbo Darko, it is hardly surprising that cryptocurrencies are so well accepted in Africa. After all, virtual money would function according to a similar principle to mobile payment services, which have long enjoyed great popularity on the continent. “This makes it easier for Africans to understand cryptocurrencies than people in the West, who have better access to banking systems,” Darko said in the DW interview.
Africa is well positioned to benefit from the cryptocurrency boom. The continent has a growing pool of educated professionals and potential entrepreneurs. In addition it comes that the high unemployment in many African countries leads to the fact that young humans leave traditional economic ranges left and look for new ways, in order to earn money.
Crypto money marketer Elisha Owusu Akyaw believes that young people are also interested in virtual money because there is hardly any work for school and university graduates. “Thanks to cryptocurrencies, these people are able to start their own businesses and they enable them to work for big brands outside their own country and thus earn their living,” says Akyaw.
Avoiding currency instability
Unreliable local currencies and hyperinflation would also contribute to the cryptocurrency boom, says Chris Becker, who works for the South African banking group Investec as a block-chain expert. When the Zimbabwean dollar hit rock bottom in 2015, some Zimbabweans turned to Bitcoin. “There is now this alternative to the traditional, government-administered currencies, which in the past have always had problems and negative side effects.
In the best case the emergence of crypto currencies could even help some African national economies, Becker believes. “These competing currencies exist alongside the domestic currencies, which I believe will give these economies a greater degree of resilience.”
Crypto for the Diaspora
Also members of the African Diaspora in all worlds have discovered cryptocurrencies for themselves. They use the virtual money to support their families on the continent. A logical step for Emmanuel Darko. “The cost of remittances to Africa is astronomical, sometimes up to 20 percent of the amount transferred. But there are cryptocurrencies that allow people to send money to Africa practically for free,” says Darko.
One company that offers such money transfers is BitPesa. The company, founded in 2013 and based in Nairobi, Kenya, uses Bitcoin as a medium for international transfers. This avoids bank and exchange fees between different currencies.
A risky venture?
Cryptocurrencies also have their risks, however – for example, due to the high volatility of prices. Moreover, virtual currencies are still unregulated in most African countries and their legal status is often unclear.
This means that there is no safety net in the event that funds are lost. Especially short-term oriented investors can be hit hard by sudden price drops.
Darko warns therefore to caution: Everyone, who wants to act with cryptocurrencies, should inform first. “Due to missing knowledge some people fall for frauds purely, which do not have to do anything with crypto. One should inform thus , so Darko. At first sight the principle behind the currencies is very complex. “But if you take the time to understand it, it is actually very simple.
Marketers like Akyaw warn that people with little experience are most likely to fall for scams or invest in the wrong markets. “Cryptocurrencies and block chain technology are easier to understand for young, educated people,” says Akyaw. However, older people in particular find it more difficult to understand the technology in its function.
What does the future hold?
Meanwhile, some African countries are trying to adapt their laws to a future where cryptocurrencies may become the norm. Africa’s largest economy, Nigeria, is leading the way, having recently legalized cryptocurrencies and issued guidelines for digital currencies and crypto-based businesses.
Other countries are also becoming active. South Africa’s financial authorities, including the Central Bank, published a policy paper in April with recommendations on how cryptocurrencies could be regulated in the future. Kenya, on the other hand, wants to experiment with a digital tax from January 2021 and could possibly open the door to stronger regulation of cryptocurrencies.
It is still unclear to what extent cryptocurrencies will actually become established in Africa. For marketer Akyaw, however, one thing is clear: Young Africans should definitely get involved. “It makes sense because the financial system will develop in this direction,” says Akyaw. Many large companies did not take the potential of cryptocurrencies seriously at first and predicted that they would soon come to an end. “That was ten years ago – today, cryptocurrencies are still around and they are growing faster than ever.”