Blockchain And The Future of Cryptocurrency in Africa
Africa, the second largest and most populated continent in the world, is bubbling with a lot of business and development opportunities in recent years. Blockchain and cryptocurrency have become the buzz of the moment; Chainalysis (a major blockchain data platform) reported in 2021 that adoption of crypto surged about 1200% between July 2020 and June 2021 (about $105.6 billion worth of crypto payments).
Due to the astonishing success of Bitcoin, and its quick rise to fame, world governments have begun to explore the idea of Central Bank Digital Currencies (CBDCs). In October 2021, Nigeria became the first African country to launch a CBDC called e-Naira. Although it doesn’t run on blockchain technology and is obviously centralized, it was definitely influenced by the concept of Bitcoin.
Also, back in 2018, the South African Reserve Bank embarked on an experiment to test the effectiveness of blockchain technology in handling interbank settlements in a simulation of the real world. Using blockchain tech, SARB and seven other commercial banks were able to cut down the daily transaction-processing time by about 75% without a single point of failure. Project Khokha was later tagged “Best Distributed Ledger Initiative” of 2018.
It is noteworthy that Africa alone accounts for about 70% of the world’s $1Trillion mobile money market, implying that the continent is a major driving force in this industry. Nigeria in particular boasts of the second-largest bitcoin market in the world, behind only the USA. This inspires optimism for crypto aficionados, but what exactly is blockchain or crypto? How does it work? What can we benefit from it in Africa?
Benefits of Blockchain in Africa
Blockchain is a decentralized technology that records “blocks” of transactions made on it and makes the records available to all nodes on the network. The most popular example of blockchain technology is Bitcoin — the world’s most valuable cryptocurrency. One of the biggest advantages of blockchain is decentralization — it is not controlled or regulated by any governing body or central bank. Let us now outline some of the benefits of this technology to Africa as a continent:
- Ease of Intercontinental Trade
Technological advancements have made Africa a large hub for global and intercontinental trade. However, differences and fluctuations in currency values tend to pose a challenge to traders. Cryptocurrency can help to resolve this problem as transactions can be made with coins like Tether and USDC which are more stable. Adopting crypto payment also cuts out unnecessary hassles as well as the exorbitant fees incurred by traders while transferring funds across borders both within and outside the continent.
- Improved Stability of Funds
Business owners and individuals who wish to save money can buy and hold stable cryptocurrencies instead of leaving the funds in local currencies that are more prone to fluctuations and devaluation. Whether you’re stashing up funds for a future project or just for emergencies, crypto is a good way to save money. This is because, as compared to fiat currencies, coins like USDT and USDC are fairly stable and can also even increase in value. This ensures that when the stored funds are needed, their value will be the same or more, rather than depreciating.
- Quicker & More Secure Transactions
Another huge advantage of blockchain technology, such as crypto, is the high level of security. Blockchain ensures that every transaction is well-secured using hashing algorithms. The distributed ledger technology also makes sure transaction records are always available to both parties involved in the transaction (i.e. sender and receiver). With blockchain, users can rest assured that their sensitive information is safe from the reach of hackers and cybercriminals. Crypto payment is also generally faster than inter-bank transfers irrespective of sender or receiver location, as long as there is an internet connection. This could improve the process of salary payments in large organizations. Crypto allows for seamless, secure transactions from just about anywhere.
- Removal of a single point of failure
Imagine if all the servers of a country’s central bank suddenly go down, it means that commercial banks will not be able to exchange money with each other or release cash to the public. Purchase and sales of foreign currency will be halted; basically, the entire nation’s financial ability will be put on hold. This is the definition of a single point of failure. The beauty of blockchain is that because the ledger is decentralized; if one or more nodes malfunction or shut down, the network can still function well because there are plenty of other nodes that are recording and publishing the same information, hence eliminating a single point of failure.
Future of crypto in Africa
We’ve examined some of the key advantages of blockchain, particularly in Africa. In the light of the foregoing, one may wonder: What really is the future of crypto in Africa?. Does it portend great prospects for businesses? Well… let’s now take a look at some of the possibilities that lie ahead of us.
- CDBCs Running on Blockchain Tech and Available to All Citizens
We’ve already begun to witness some progress with central bank digital currencies (CBDCs). Although one might argue that at the moment they are still centralized which defeats the whole idea of blockchain, it is a step in the right direction. The next step should be using blockchain technology to record CBDC transactions so as to ensure that the grand record of all transactions remains indelible.
Furthermore, the use of mobile devices has greatly improved in Africa over the last decade. CBDCs, leveraging blockchain technology, can now be linked to citizens’ mobile phones. This will surely reduce the risks associated with cash transactions and over time possibly eliminate the need for fiat currency.
- Improvement in AfCFTA’s Processes with Decentralization
The African Continental Free Trade Area is a trade bloc formed by 54 African countries for the purpose of facilitating trade among African countries and boosting Africa’s influence in the global market. Terms of the agreement include reduced import tariffs and quotas, as well as the elimination of trade barriers. For the free trade area to successfully achieve its objectives, a reliable common means of payment is required, and the answer to this is cryptocurrency. This is because crypto solves the problem of which currency to trade in, eliminates currency exchange charges, and confers a general sense of oneness among the member nations. Also, it makes transacting with foreign countries seamless which will attract foreign investors to Africa and ultimately lead to growth and development.
- Cryptocurrency as an Investment Medium
Due to its numerous benefits, more Africans now see cryptocurrency as a better means of preserving the value of their money for the long term. According to the former Chairman of the United States Securities and Exchange Commission, cryptocurrency investment would yield better returns than other conventional means of investing such as bonds and stocks for investors in countries with weak currencies.
Also, Initial Coin Offerings (ICOs), a means of fundraising through crypto, can serve as a good source of capital for small businesses and startup companies in Africa. Through the use of ICOs, investors will have to use cryptocurrencies to purchase the security tokens offered by startup companies.
- A Decentralized Marketplace for NFT Creators
As understanding and acceptance of blockchain and crypto continue to rise, even more individuals are getting in touch with the NFT craze. Non-fungible tokens (NFTs) are digital assets that can be traded using blockchain technology. This new means of trading digitally spells good news for African creators because it gives them access to a global decentralized marketplace where they can sell their digital content and get paid in cryptocurrency. Hence, NFTs can further boost the adoption of crypto in Africa.
Summary & Conclusion:
In this article, we have discussed the adoption of blockchain and crypto in Africa, its benefits, and the possible future it can lead to. We can predict from the points raised here that in the less than distant future, cryptocurrency will very likely replace fiat currency in many sectors of the economy. Indeed, blockchain technology adoption will be highly beneficial to the African business climate and with adequate regulation, we can largely eliminate skepticism, promote transparency, and prevent crypto-based crimes to build trust and ease the adoption process. Blockchain technology is applied in a wide range of areas as we have seen; Montech Software Studio is a leader in the development of modern blockchain technology that not only help organizations thrive well in the current business climate, but also keep them a step ahead, ready for the challenges of future advancements. From web and application development to NFT drops, Web2 to Web3 integration, seamless UI/UX, Smart Contract Auditing, among other cutting-edge services, the Montech team creates ‘magic’ with blockchain technology, and can certainly help your organization prepare for the future that is already upon us!