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The rise of crypto adoption in Africa

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Facebook’s Libra and CBDCs are contributing factors to increase the popularity of cryptocurrency in Africa

The adoption of cryptocurrency is seen on the rise in Africa. In recent times, Africa has witnessed greater crypto ownership, trade volume and regulation. A report published by Arcane Research and Luno found that African nations such as Uganda, Nigeria, South Africa, Ghana and Kenya are frequently among the top 10 countries to Google Search about bitcoin. The report titled The State of Crypto in Africa recognises Africa as one of, if not the most promising continents for adoption of cryptocurrencies.
The report observed that African countries share key similarities and trends despite the continent being so diverse. Economic problems ranging from high inflation rates and volatile currencies to financial issues such as capital controls and lack of banking infrastructure create a fertile ground for alternate developments. Apart from Bitcoin, other cryptocurrencies such as Dash and Lisk are used in African countries including Botswana, Ghana, Kenya, Nigeria, South Africa and Zimbabwe. That said, there is a long way to go for cryptocurrencies in Africa.

Cryptos are becoming popular in Africa
Mobile money has been a revolution in Africa and investors across the globe are recognising its scope. On the back of formidable success of mobile money in Africa, a race to capture the African crypto market is driven by increased investment interest in cryptocurrencies. More recently, Twitter’s CEO Jack Dorsey announced his interest in the cryptocurrencies market in the African continent.
Nicolo Stoehr, host of the prestigious Crypto Finance Conference (CFC) which was held in January this year in St Moritz talked about Africa’s potential in cryptocurrencies. In the last few years, African countries such as the Seychelles, have been actively positioning themselves as global crypto hubs — quite like Zug in Switzerland and offshore island states like Malta, Gibraltar, Jersey and the Caymans. All of them are known for their progressive stands on this front and have offered positive regulatory frameworks for cryptocurrencies and blockchain in a tax-neutral setting.
In light of the growing popularity of cryptocurrencies, South Africa’s top financial regulators released a policy paper with 30 recommendations for the regulation of cryptocurrency and related service providers earlier this year. The purpose of the policy paper is to comply with the cryptocurrency standards set by the Financial Action Task Force (FATF).
According to a BBC report published last year, many Kenyan businesses have started accepting bitcoin as payments for their services and products, despite warnings issued by the Central Bank of Kenya in regard to the volatile nature of cryptocurrencies. Last year, the total number of bitcoin transactions in Kenya was estimated to be worth more than $1.5 million, according to the Blockchain Association of Kenya. The number is expected to significantly increase as cryptocurrencies gain popularity on the continent.
Even Nigeria is experiencing a surge in the adoption of cryptocurrencies. Interestingly, the country has a number of local platforms that support purchases and sales of cryptos with the national currency. One such notable platform is Nairaex which is the largest local cryptocurrency exchange supporting several payment methods to buy and sell BTC including bank transfers and bitcoin remittance platform Bitpesa. According to buybitcoinworldwide.com, a growing number of Nigerian companies already accept payments in cryptocurrency.

Bitcoin drives crypto adoption in Africa
Bitcoin is a digital or virtual currency created in 2009—and has evolved to become one of the most widely used cryptocurrencies over the years. The popularity of cryptocurrencies in Africa has much to do with the popularity of bitcoin. Also, since the inception of bitcoin, over 6000 different alt-coins have been created similar to it. What makes bitcoin interesting and risky is the fact that the digital currency is run by a decentralised network of computers owned by private individuals and not by a centralised system such as a bank. This means that no single institution controls the currency in contrast to other physical currencies such as the dollar or the pound.
While central banks around the globe regulate and oversee the process of currency creation, bitcoins are created in a process called mining. Mining is a process where privately held computers provide processing power to the network to verify transactions that occur directly between users. In this process, these computers build a publicly available list of transactions called blockchain. As a reward for verifying this blockchain, miners are issued with a small number of newly created bitcoins released incrementally based on the original code.
Bitcoin’s decentralised system is based on encryption and verification which means regulators or central banks have little control over it. That was one of the main reasons why many countries have banned the digital currency. According to reports, around 100, 000 businesses across the globe accepted bitcoin in 2015—and of the most notable companies include Microsoft. These factors have contributed heavily to the popularity of bitcoin in Africa. Over the last few years, a few African countries have seen exponential growth in cryptocurrencies.
To them, bitcoin is seen as an opportunity and not as a threat. The digital currency’s characteristics provides Africa with a platform to reduce corruption, promote development and good governance. It is reported that 15 cryptocurrency-related operations began in Africa in the past year. Luno Exchange which was established in 2013 in South Africa is now boasting 1.5 million customers in over 40 countries worldwide. Luno Exchange was the first of its kind to be based in Africa.
Others, particularly cryptocurrency-based remittance services, are sprouting across the African continent. Launched in 2013, Kenya’s BitPesa facilitates virtual remittances transfers to both African and international locations, to and from individuals’ mobile wallets, where cryptocurrency is stored. LocalBitcoins.com in Kenya reported trading volumes in excess of $1.8 million as of December 2017, underlining the lucrativeness of the business.
Industry experts believe that cryptocurrency will be around for years. With that, bitcoin users can send money to just about anywhere there is an internet connection for relatively small fees and with no third-party interference is an advantage that standard government-issued currencies cannot offer.
Another recommendation is that transactions are anonymous, and users’ information is private and safe. It appears that there is a little possibility of identity theft which is common with other forms of digital payment. As of December 2017, the global demand for cryptocurrency had increased to an extent that each bitcoin was sold for $20,000. Its value had been $1,000 in the previous year.
The start of crypto renaissance in Africa
Cryptocurrencies have been around for more than a decade now, but what’s really driving the crypto renaissance in Africa now? This has to do with various factors such as the willingness of Africans to adopt new technological changes when it comes to finance. The fintech sector has been growing in Africa and this is especially true in sub-Saharan countries such as Nigeria, Kenya or even South Africa.
The popularity of cryptocurrencies also has to do with Facebook’s Libra. This stems from the fact that Facebook is seeking to disrupt the global financial system by launching its own cryptocurrency. services in 2020 and users will be able to use it through digital wallet Calibra. The cryptocurrency app will allow Facebook users to send, receive or withdraw money by just tapping on their devices’ screen. The users will also be able to pay bills, share tabs in restaurants, buy a cup of coffee and ride the local public transit without the need to carry cash.
Libra, which is a type of stablecoin, is backed by traditional money and other securities. While Libra is a cryptocurrency like bitcoin, the latter is not backed by traditional money and is more volatile in nature. Facebook launched Libra in collaboration with 27 other companies and says the digital currency would be overseen by a Switzerland-based independent non profit organistation called the Libra Association.
Considering that a large number of Africans still use Facebook in Africa, the announcement of Libra has helped the concept of cryptocurrencies gain popularity in Africa. Facebook recorded 139 million users a month in Africa in 2018, of which, 98 percent were connected to the social media platform through their mobile phones.
Costly remittances and cross-border payments is also another factor plaguing many Africans. Cryptocurrencies, on the other hand, can enable lower-cost and faster remittance payments. It is estimated that over 25 million people are expats from sub-Saharan countries as of 2017. Remittances also account for a large share of gross domestic product (GDP) in sub-Saharan Africa countries.
Remittances below $200 to sub-Saharan countries cost an average of 9 percent compared to the global average of 6.8 percent, while payments between countries are expensive. These higher percentages are attributed to inefficient and uncompetitive banking markets — and are reliant on legacy financial communications systems such as SWIFT.

Lack of crypto infrastructure is a challenge
Even though Africans are opening up the ideas of cryptocurrencies, the continent lacks adequate infrastructure on this front. If the adoption of cryptocurrencies were to be fast tracked in Africa, what it needs is the government to declare its stance regarding cryptocurrencies. As things stand, over 60 percent of the African regulators are yet to clarify their position on cryptocurrencies, given many non-African nations have placed a ban on bitcoin and other cryptocurrencies. According to a report titled The State of Crypto in Africa, 20 of the 10,267 bitcoin nodes worldwide are located in Africa. For Ethereum nodes, the number is even smaller, with only 12 of them existing on the continent. Of the existing nodes, a vast majority of them are based in South Africa and are not equally distributed. Bitcoin’s Lightning Network is also immature. Africa accounts for just 0.24 percent of BTC Lightning nodes, contributing just 0.07 percent of total network capacity, with almost all contributions stemming from South Africa. Also, a report by CoinShares shows that there is zero meaningful bitcoin mining activity across Africa.
Internet penetration in Africa: When it comes to internet penetration, Africa has an average of 39 percent, compared to a global average of 59 percent. For cryptocurrencies to boom in African countries a greater section of its population needs access to good internet. As of last December, only Kenya and Libya had good internet penetration at 87.2 percent and 74.2 percent. Other developing economies in Africa such as Egypt have an internet penetration rate of only 48 percent, according to Internetworldstats.com. It is noted that Madagascar has topped average broadband speed rankings among African countries in 2019.
However, the internet landscape in Africa, especially in emerging economies is swiftly changing. Telecom companies such as MTN are leading the internet revolution in countries such as Kenya, South Africa and Nigeria. Also the fast paced adoption of mobile money in Africa is pushing telecom companies on the continent to improve internet penetration. Africa does seem to be moving in the right direction, as digitalisation is also picking up pace on the continent, especially in emerging economies. With greater internet penetration, cryptocurrencies could possibly have a bright future in the African continent on the back of regulator’s approval and positive public sentiment,

Competition from mobile money services: Even though mobile money is influencing internet penetration on the continent, it has emerged as a hindrance in the path of crypto adoption. It is no doubt that mobile money has been a revolution in Africa.
In recent times, mobile money has brought in a revolutionary change on the continent and countries like Kenya have embraced that change. Data released by the Central Bank of Kenya revealed that mobile money transactions in the country stood at $38.5 billion in 2018, a 10 percent increase compared to 2017. The face of Kenya’s financial sector has also changed with the establishment of M-Pesa in 2007. By the end of 2017, 83 percent of Kenya’s population had access to financial services, according to its apex bank. Cryptocurrency adoption may struggle in the face of such dominance due to business moats and network effects that have developed around these services.
Given the fast-paced adoption of mobile money in Africa, it may be difficult for alternative mobile solutions such as cryptocurrencies to boom in such an environment. However, when compared to mobile money, cryptocurrency solutions can compete on cost. While mobile money services rely on a centralised business model to operate, extracting fees from customers of up to 11 percent, cryptocurrencies can often function with negligible costs to users.

The use of mobile money has significantly surged in Africa in the last few months as the continent has joined forces to curb the spread of Covid-19. In fact, the widespread use of mobile money has stopped the use of cash in Africa — a conduit for the spread of the disease as pointed out by the World Health Organisation (WHO). According to experts, mobile money has also played a huge role in curbing the spread of the Covid-19 in Africa. Also, it has facilitated the continuous functioning of the African retail sector by allowing its citizens to shop digitally. Mobile money provides an easy way of completing a financial transaction and has also led to a rise in online shopping in Africa amid the lockdown.
It also has the potential to accelerate financial inclusion in African countries. By definition, what mobile money can do is tap into underbanked or unbanked African populations which the banking sector failed to bring under their financial umbrella. The growth of mobile money in Africa is expected to help the continent tackle unemployment issues as well. It appears that more players will foray into the mobile money market and will lead to the creation of various jobs within the sector.
Low smartphone penetration: Most cryptocurrency wallets only work on smartphones unlike mobile money services which operate on more basic devices. In recent years, as digitalisation picked up pace in sub-Saharan Africa, mobile phone penetration has increased dramatically. According to GSMA, an association of mobile network operators worldwide, there are 747 million SIM connections in sub-Saharan Africa in 2019, representing 75 percent of the population. However, it can be difficult to predict how many people own a smartphone among the populous. In 2013, 58 percent of Kenyans who did not own a mobile phone said that they shared one, causing difficulty to predict exactly how many Africans own a smartphone.
In 2017, a survey was carried out pointing to the fact that around 51 percent of South Africans owned a smartphone. However, the penetration is relatively low in emerging economies such as Nigeria and Kenya. Around 32 percent of Nigerian population owned a smartphone according to the survey, compared to 48 percent who owned a basic mobile handset. In Kenya, the figures stood at 30 percent and 80 percent respectively. Overall, smartphone and internet penetrations need to increase for greater crypto adoption on the continent.

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