Cryptocurrencies and blockchain in Africa: a new driving force for the region's economy

Studying reports describing the state of the cryptocurrency market in different regions and countries of the world we can make an unambiguous conclusion that the African continent is one of the leaders in the prevalence and use of digital money. According to one of the latest reports published by the United Nations in June 2022, a significant part of the population of Kenya (8.5%), South Africa (7.1%) and Nigeria (6.3%) uses cryptocurrencies to make payments and the Central African Republic has even accepted Bitcoin as legal tender. However, experts warn that the widespread spread of unregulated digital currencies may pose a danger to the financial system of the entire continent, where a significant part of the countries are countries with transition or developing economies.

Speaking about the possibilities of regulating new digital financial technologies and their future in Africa, it is necessary first of all to understand why cryptocurrencies have become so popular in many countries of the continent. We will tell you about this in our article.

One of the main factors that influenced the increase in the number of owners of cryptocurrencies in most African countries is that a significant part of the population of Africa are people with low incomes and in some countries up to a large part of the population lives below the poverty line and most banking services are simply unavailable to them. Another factor is economic and political instability, exacerbated by debt crises, weak national currencies and high inflation.

Cryptocurrencies help residents of the region to solve problems of financial instability and involve them in the sphere of financial relations that are not burdened with high interest and transaction costs typical of the traditional banking system. Having a smartphone and Internet access, they get the opportunity to engage in activities similar to those carried out through financial institutions and intermediaries, including making payments, sending money transfers and investing. According to analytical reports, about 40% of the population is engaged in investing in cryptocurrencies in Africa. The leaders in this indicator are Kenya, where about 43% of the population is engaged in buying and selling cryptocurrencies using exchanges and applications.

The situation with the adoption of cryptocurrencies and the use of blockchain varies in African countries. We will consider only some of the initiatives taken by Central Banks and governments of various African States in this direction.

Ghana
The Bank of Ghana has announced that trading and using cryptocurrencies in the country is not yet legal, as it is not recognized as a legal form of currency. This is due to the fact that all means of exchange in the country must be supported by the Bank of Ghana, which has not yet approved the use of cryptocurrencies. The governor of the Bank of Ghana stated that currently there are no necessary regulations in the country to support the use of cryptocurrencies. However, the Bank of Ghana has developed a bill on payment systems and services (Ghanaian Bill), which, in its opinion, will allow the regulation of cryptocurrencies in the future.

Tunisia
Tunisia has launched its national currency, eDinar, and together with the government of Saudi Arabia, the country's authorities have organized a special economic zone - the Tunisian Economic City (TEC), which is currently the largest project in Africa, where initiatives for the use of blockchain technologies and cryptocurrencies are being implemented.

Sierra Leone
In October 2017, the President of Sierra Leone announced his intentions to create a "smart" management system in the country based on blockchain technology. The first step in this program was the creation of a nationwide identification service that provided all Sierra Leonean citizens with digital credentials, thereby increasing their access to services offered by the Government of Sierra Leone. Sierra Leone also became the first country to use blockchain technology in national elections.

What gives the African continent a large number of people involved in cryptocurrency transactions and investing?

Firstly, it contributes to the increase of economic activity in African countries. People who do not have access to banks and banking services are able to pay for goods and services using digital money without significant transaction costs.

Secondly, it increases the security and speed of transactions, as well as promotes transparency, which is very important from the point of view of trust between users.

But there are also problems specific to African countries.

1. The use of cryptocurrencies is a rather complicated process for those regions where a significant part of the adult population not only does not have technological knowledge, but also does not know how to read and write at all. This applies to a huge territory south of the Sahara, where 34.7% of residents are simply illiterate and have no opportunity to use banking services, not to mention to get a digital wallet and use it.

2. The widespread use of cryptocurrencies as a means of payment in African countries creates a real threat to weak national currencies and reduces the possibilities of effective control over the movement of capital in states. Given that most of them are characterized by capital outflow, any weakening of the national currency can lead to their rapid depreciation and the collapse of the entire economy.

The current situation on the African cryptocurrency market and the reports of experts engaged in analyzing the activity of the population in this area clearly indicate that cryptocurrencies have come to Africa for a long time. For some countries in the region, they may well be a salvation from permanent economic crises and political influences weakening the economy.

Following the Central African Republic, which has adopted cryptocurrency as an official means of payment, the governments of Nigeria, South Africa and Ethiopia are considering similar actions. Countries continue to conduct research on the economic impact of digital currencies, which means that in the near future the African continent may become the main region of the world where cryptocurrencies will turn into a tool for improving the economy and increasing the investment attractiveness of a new class of digital assets.

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