Sub-Saharan Africa has a high adoption rate for cryptocurrency use since individuals often use digital currencies for their everyday financial transactions. Sub-Saharan Africa may not have many institutional traders, but it is renowned to have the smallest retail trade worldwide. There, the devaluation of fiat currencies, a high unemployment rate, and unstable economies are some of the factors influencing cryptocurrency adoption.
Africa is a unique case when it comes to the fintech industry. With an estimated 57% of its population not having access to banking services and an even lower 22% having access to an internet connection, one wonders whether cryptocurrency can successfully be adopted by the continent as a whole. On the flip side, it has also been noted that Africa has the largest potential for growth and progress when it comes to the issue of internet access which in turn gives hope to the vision.
Despite regulatory problems, crypto P2P seems to be thriving in Africa. Peer-to-peer (P2P) trading refers to decentralized exchange markets that allow users to buy and sell cryptocurrency directly with one another. This trading method differs from centralized exchanges because it is less vulnerable, and no middle agent controls your funds during a trade.
The majority of cryptocurrency-related actions in Sub-Saharan Africa are conducted by retail customers, according to a report by blockchain analytics company Chainalysis. In comparison to other countries, the region has a lesser institutional presence which might be a cause of this. Interestingly, economic issues like the urge to preserve money are essentially what drive retail volume on the continent. This is due to years of devaluation against the US dollar suffered by the currencies of several of these nations.
Chainalysis states that their interviews “suggest that this reflects the trend of many young people in Sub-Saharan Africa turning to cryptocurrency as a way to preserve and build wealth in spite of low economic opportunity, as opposed to other countries where we see many using cryptocurrency as a way to multiply their existing wealth”.
The existence of stringent regulatory rules can be used as an explanation for the almost complete lack of institutional interest in cryptocurrency in Sub-Saharan Africa. For instance, the central bank of Nigeria has forbidden commercial lenders from supporting cryptocurrency enterprises. Another adoption metric on the retail side was influenced by the central bank of Nigeria’s prohibition. The volumes of peer-to-peer crypto increased as a result of this. These P2P transactions are not just available on platforms like Paxful and Binance that offer escrow and intermediary services, claims the paper. Direct P2P cryptocurrency transactions between buyers and sellers are also taking place in the area outside of cryptocurrency exchanges.
Cryptocurrency also seems to be driving remittance in Africa.Remittance refers to the process where migrant workers send home part of their earnings in the form of either cash or goods to support their families. Due to the large number of migrants living abroad to earn a living and sending money back home, remittance is common in Sub-Saharan Africa. According to figures provideed by The World Bank, inflow into Sub-Saharan Africa in 2021 surged 14.1% to nearly $50 billion, after a decline of 8.1% the previous year. However, users are hindered by the large fees that popular platforms impose. People are now turning to cryptocurrency as a speedier and less expensive solution because of the current circumstances.
Cryptocurrency is being incorporated into fintech payment platforms as a tool to facilitate cross-boarder transactions. Fintech payment projects have multiplied all throughout the continent. According to a survey conducted by Bitcode Method, fintech firms in Africa raised $3 billion in 2021. This equaled to 60% of the total funding that African IT companies raised in 2017.
Due to the advent of crypto payment corridors connecting partners in Africa and Asia, cryptocurrency has also proven beneficial for companies that import commodities. Transactions are frequently facilitated by these payment corridors using stablecoins like Tether.
With the crypto adoption rate increasing globally, and the African continent showing lots of potential despite major setbacks, it will be interesting to see where cryptocurrency leads the African continent in the upcoming years.
Author: Hannah Parker