The crypto economy as of late has been developing most rapidly in Africa, Latin America and the post-Soviet states. We decided to take a closer look at the process.
Africa as a region still has the smallest cryptocurrency economy on the planet. But that is precisely why it’s growing so fast, starting from a low base. From July 2020 to June 2021, African users bought $ 105.6 billion’s worth of cryptocurrencies. Not only has the crypto market in Africa increased in value by more than 1200% over the past year – the region also demonstrates one of the highest mass adoption rates in the world.
However, there is also Islam-dominated North Africa, where the cryptocurrency circulation is very weak, largely due to a rather hostile attitude towards cryptocurrencies on the part of the Islamic religious leaders.
In contrast, in Central (Equatorial) and South Africa, interest in crypto is much more pronounced, very similar to the situation in Latin America.
Kenya, Nigeria, South Africa, and Tanzania are in the Top 20 of Chainalysis’ Global Cryptocurrency Adoption Index. In addition to being the third-fastest growing cryptocurrency economy, Africa also has a larger share of total retail transactions than any other region – just over 7% against the global average of 5.5%.
Within the continent, large and small retail payments account for a higher percentage of transaction volume than the global average. That is primarily why so many African countries rank high in the adoption index: smaller transfers mean increased crypto adoption rates among regular users.
P2P platforms are especially popular in Africa compared to other regions, with many African cryptocurrency users relying on them not only as a means of switching to crypto but also for money transfers and even commercial transactions. Cross-regional transfers also account for a larger share of the cryptocurrency market in Africa than in any other region – 96% of the total transaction volume compared to 78% global average.
From this, we can assume that in Africa, crypto is used more as convenient money (that is, as a means of payment) and less as an investment instrument.
Why are P2P platforms so prevalent? One reason is that some countries, such as Nigeria and Kenya, have made it difficult for customers to send money to cryptocurrency companies from their bank accounts, either by passing laws or simply “advising” banks not to permit such transfers. However, it is not a problem for P2P platforms – they are not custodian and allow customers to trade cash for cryptocurrency and exchange tokens.
With those platforms, users can already send cryptocurrency to centralized exchanges. You only need to look at the crypto economy of Nigeria, where the country’s central bank at one point prohibited banks from conducting cryptocurrency-related transactions.
Before that, the most popular service in the country had been Binance, but then many users switched to P2P platforms such as Paxful and Remitano. However, most informal P2P crypto trading in Nigeria today doesn’t even occur on conventional platforms. Instead, it happens through group chats in WhatsApp and Telegram messaging apps since such transactions are extremely difficult for the authorities and regulatory bodies to keep track of.
Artur Schaback, co-founder and COO of Paxful, a major P2P exchange, confirmed these trends, saying the platform has grown 57% in Nigeria and 300% in Kenya over the past year. He also highlighted the importance of P2P services improving their accessibility to draw in new customers in these markets. “Crypto products are becoming more user-friendly, thus attracting more people to the crypto economy and helping them see that cryptocurrency is faster, cheaper, and more convenient.”, – noted Schaback.
Let’s probe further. How do Africans use cryptocurrencies after acquisition? According to Сhainalysis research, primarily for money transfers. Sub-Saharan Africa received at least $ 48 billion in remittances in 2019, a Brookings Institution study shows, with about half of that amount going to Nigeria. While most of this money moves to Africa from Europe and North America, there is also a large volume of transfers between African countries. However, some governments within the continent have introduced strict controls on how much currency can be exported abroad. There are Nigerian banks that limit customers to as little as $ 500 at a time in cross-border transfers. And cryptocurrency is an obvious means of circumventing those restrictions. Blockchain analysis confirms that the volume of cryptocurrency remittances in Africa is growing rapidly, primarily through payments of less than $ 1000.
Many African users also rely on cryptocurrency transactions for international commerce. Typically, crypto is used to pay for imported goods sold in local markets, mainly in commercial relations with China. The easiest path for the average Nigerian small trader is buying bitcoin locally on a P2P exchange and then sending it to a business partner.
Finally, many users are turning to cryptocurrency to preserve their savings in challenging economic conditions, such as the devaluation of the national currency, common among the countries on the continent.
Notably, different socio-economic groups in Central and South Africa use cryptocurrencies differently. For example, the middle class (by African standards) representatives prefer to protect their savings by investing them in stablecoins. Wealthier people looking to make money choose Bitcoin and other more speculative cryptocurrencies. As the middle class in Africa continues to expand, we are bound to see a wide variety of use cases for cryptocurrencies by groups with different income levels. Finally, African governments are looking at China and developing their own central bank digital currencies (CBDCs). Nigeria has already announced the launch of eNaira. Though it is so far unlikely that CBDCs will weaken people’s interest in cryptocurrencies – it would require profound changes in all public and state institutions, which doesn’t appear to be coming anytime soon.