African Crypto Passions. Part 1

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 is still the poorest region of the planet, but its economy is booming. What’s more, this growth comes “from the ground up”, that is, the ruling classes don’t get to claim any credit for it, quite the opposite: the population of most African countries strives to economically distance themselves as much as possible from the state with all its institutions. In this way, the “Black Continent” is very reminiscent of Latin America and the former Soviet Republics.

In addition, Africa has the highest percentage of unbanked people, which, somewhat counterintuitively, now contributes to their progress, as they immediately start using the services of fintech companies, cryptocurrencies, and DeFi. This development is truly exciting to watch: In a way, the continent today is a cryptocurrency frontier, a region where the population gets used to the cryptocurrency ecosystem in its modern form, very different from the one we got acquainted with many years ago when crypto wasn’t yet mainstream.

Across the whole of Africa, the number of crypto transactions increased 13 times over the past year. The volume of received on-chain value in Africa from July 2020 to June 2021 amounted to $ 105.6 billion, which is 1200% more than in the same period last year.

Crypto helps the people of the continent to bypass the limits on the withdrawal of capital, insure savings against depreciation of national currencies and save money on cross-border transfers. The popularity of P2P platforms and money transfers have also contributed to this explosion.

Kenya, Nigeria, South Africa, and Tanzania have entered the top 20 of the global crypto adoption index. In terms of total growth rates, the continent ranked third on the planet. And when it comes to the share of transactions attributable to individual transfers, the region got the first position with almost 7% against the global average of 5.5%.

In the recent news: Zimbabwean authorities are holding consultations with interested parties regarding the use of bitcoin in the country and its possible legalization as a means of payment. The announcement was made by Charles Wekwete, a permanent secretary and head of the e-government technology unit, at the Summit of the Computer Society of Zimbabwe (CSZ). He confirmed the government’s ongoing negotiations with the business sector.

Wekwete mentioned such disadvantages of the decentralized ecosystem as uncontrolled cross-border transfers, money laundering, and the financing of illegal activities. The country’s authorities are going to develop regulations to protect consumers, but before making major changes to the legislation, they decided to seek help and advice from all interested parties.

Zimbabwean authorities clearly want to follow the path of El Salvador, where the BTC adoption as a legal means of payment has proved to be a hugely positive measure. However, the two countries have very different starting points. El Salvador has long used the US dollar as its national currency, so the concepts of “financial instability” and “weakness of the financial system” were inapplicable. In contrast, they are all too well-known in Zimbabwe, where inflation at one time grew so fast that they actually had a one hundred trillion Zimbabwean dollar bill in circulation.

It is the case of the country’s leadership simply looking for a “magic pill” to treat its broken financial system. Currently, the Zimbabwean dollar is rarely used inside the country – nobody really needs it. At the end of 2008, the government introduced a multi-currency system that included the money of South Africa, Botswana and the United States. In 2014, the list of currencies in circulation was expanded to nine.

There are also completely different, much more positive examples. Kenya has introduced blockchain-based Sarafu (Swahili for “currency”). It is used by 41,000 people in 60 settlements, who in 2020 made over 335,000 transactions worth $ 2.5 million, all carried out via mobile phones. “The platform allows a group of farmers to come together and create their own currency and sustainable economic system from scratch”, – claims the developer Will Ruddick.

Reflection of all transactions in the blockchain allows real-time data collection and assessment of social initiatives. The Danish Red Cross (DRC), one of the project’s funders, uses this feature to study the impact of their programs.

Of course, different African countries hold different attitudes towards cryptocurrencies, largely corresponding to their populations’ education levels. For example, 55% of Nigerians said they would not consider investing in cryptocurrencies because they do not understand enough about them. In South Africa, the number was 56%, in Kenya – 64%.

That being said, the vast majority (78%) of cryptocurrency investors in those three African countries regularly make savings, compared to about two-thirds of the general population (65%). 69% of crypto investors surveyed in Kenya, Nigeria, and South Africa said their most important task is to secure the future for their families.

A global online survey conducted by cryptocurrency company Luno showed that crypto investors in Nigeria, Kenya, and South Africa are more financially savvy and mostly invest with realistic long-term goals in mind. According to the survey, only 3% of cryptocurrency investors in those African countries make investment decisions without a plan.

Another takeaway from the survey: 48% of crypto investors in Kenya, Nigeria, and South Africa are willing to put their earnings in cryptocurrency to pay for the education of their children, 39% – to save for a home deposit, and 43% – to create a fund, which they can pass on to their children and grandchildren.

Commenting on the results, Marius Reitz, General Manager for Africa at Luno, said: “In recent weeks, much attention has been paid to the scale of the crypto revolution in Africa. And while its potential is immensely exciting, we must ensure customer engagement, make this transition secure and responsible. Research inspires confidence in this happening. Since we have always focused on promoting safe exchange practices with a focus on self-regulation, it is gratifying to see clients share our thoughtful investment approach.”.

To be continued…