Cryptocurrency is a form of currency that only exists digitally and is not issued or controlled by any central authority, but by a group of equally privileged participants that follow an agreed set of rules. It relies on cryptography to prevent counterfeit transactions. There are various types of cryptocurrencies which include; Bitcoin, Ripple, Litecoin, Stellar and Ethereum among others. The most common cryptocurrency in the world is the Bitcoin.
The concept of electronic currency was introduced in the 1980s by David Chaum. However, there were some underlying issues such as double spending, which made it hard to rely on cryptocurrency at the time. Satoshi Nakamoto then invented the Bitcoin and launched it in 2009 , to completely remove any trusted central authority and replace trust with cryptographic proof. His invention was successful and this led to the development of other cryptocurrencies such as the Litecoin which had a higher transaction speed making it the most suitable for day-to-day transactions. The Bitcoin however, still represents around 88% of the market cap(Farell Ryan, 2015)(https://repository.upenn.edu/cgi/viewcontent.cgi?article=1133&context=wharton_research_scholars ). Cryptocurrency is normally acquired through mining, purchase or trade of goods and services using cryptocurrency as form of payment.
According to an Arcane research report on cryptocurrency in Africa( https://static1.squarespace.com/static/60377b34e7791c1277aaae97/t/6086cce97a453a3758076104/1619627528952/The-State-of-Crypto-Africa.pdf ), adoption of cryptocurrency in Africa has been quite slow since close to 60% of African governments are yet to announce their positions on cryptocurrency. The report also states that majority of African countries have a rural-majority population and significant swaths of the continent are not electrified, hence limiting the reach of bitcoin and other digital assets. There are also other concerns associated with cryptocurrency including regulation and stability. Cryptocurrency experiences sharp price changes, making it very volatile and risky for banks and other financial institutions to integrate cryptocurrency in their payment systems.
Some of the few cryptocurrency exchanges that exist in Africa include; Quidax which is a Nigerian-based cryptocurrency exchange that was founded in 2018, BitPesa a Kenyan-based cryptocurrency exchange that was founded in 2013, Payplux a Ghanaian based cryptocurrency exchange that was founded in 2012 and Luno a South-African based cryptocurrency exchange which was founded in 2013 and has 1.5 million users across 40 countries. It plans to reach 1 billion users by 2025.
So far, cryptocurrency, especially the bitcoin, has taken root in various countries such as Botswana, Nigeria, Kenya, Zimbabwe and South Africa among other countries. A country like Zimbabwe, for instance, increased its uptake of cryptocurrency in 2015, when the Zimbabwean dollar skyrocketed. The Zimbabweans invested in cryptocurrency at the time, to avoid the consequences of hyperinflation. This came after an awful experience in 2008 and 2009, where Zimbabwe experienced hyperinflation crisis and many citizens lost their personal savings, making them more desperate to find alternative ways of securing their savings and assets. Since 2015, uptake of cryptocurrency in Zimbabwe has been increasing significantly over the years.
In 2018, West Africa’s biggest economy, Nigeria, was ranked the world’s third-largest bitcoin holding as a percentage of Gross Domestic Product, after Russia and New Zealand according to Citi group. The cryptocurrency improved the ease of doing business in Nigeria, particularly across its borders. Banks and payment companies were considered very tedious and manipulative, and this led to many Nigerians using the Bitcoin. Nigeria’s inflation rate was also at 12% in 2018. However, in 2017, the Securities and Exchange Commission , the main regulator of the Nigerian capital market warned Nigerians from investing in cryptocurrency because there are no guidelines or regulations developed by any regulatory authority, therefore, investors are not protected in case things go south in the cryptocurrency market.
South Africa, which leads the cryptocurrency revolution in Africa, uses cryptocurrency as a taxable asset. It has emerged as one of the world’s most notable cryptocurrency adopters with around 13% of its internet users owning cryptocurrencies. Uptake of cryptocurrency in South Africa was encouraged for the government to reach its goal of transforming South Africa into “an inclusive and innovative digital and knowledge society”. This has led to creation of wealth for many South Africans. However, the cryptocurrency market has benefitted people who are more technologically advanced, and a large number of less fortunate South Africans are still living in the dark when it comes to cryptocurrency. Widespread education on cryptocurrencies can help a large number of people to gain wealth. Due to transparency issues and unreliability of cryptocurrency systems, South Africa included cryptocurrencies in the Consumer Protection Act 68 of 2008 to protect South Africans from dubious businesses and transactions in the cryptocurrency market
(Singh Hanamika,2019) ( https://researchspace.ukzn.ac.za/handle/10413/18446 )
Cryptocurrency has benefitted many African economies in various ways. First and foremost, it has led to the growth and expansion of some businesses. Transactions are done in different currencies and this encourages trade with American companies and Asian companies. It has also created employment through mining. Furthermore, people without jobs participate in cryptocurrency exchange to help them make money, hence reducing idleness that results to crime. Cryptocurrency is also a great advantage for unbanked adults in Africa. Many adults are not able to access banking services since they are costly. Cryptocurrency on the other hand, has low transaction fees, hence it is very affordable for people who are not able to access banking services. Many African countries, however, are waiting for the cryptocurrency market to evolve before adopting it as a form of payment.
According to the Centre for Democracy and Development in West Africa, cryptocurrency has a very huge market in Africa and there is potential for cryptocurrency to overtake some of the existing financial services. However, large scale adoption is still low but increased awareness and education can speed up the adoption of cryptocurrency in Africa, to enable individuals and groups to operate outside the control of the state.
Melyn Atieno. Strathmore University of Mathematical Sciences Writer at Cue Africa Email: firstname.lastname@example.org LinkedIn: Melyn Were