The future of crypto adoption is in Africa
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Demand for crypto is created mainly by two different types of users – financial institutions and regular people. It is still asymmetric: dozens of first-world investment funds are responsible for a bigger share of crypto transaction volume than hundreds of millions of people, mostly from developing countries, who use crypto because it is a better money for them.
Africa is one of the regions where grassroot crypto adoption progresses the fastest: the advantages of independent money are better seen in a situation where domestic currency fails, cross-border payments are expensive and cumbersome (sometime impossible), and international markets in general are very difficult to reach.
Cryptocurrencies solve all these problems, and countries like Nigeria, Kenya and Ghana are emerging as major crypto users. Several smaller countries from Central Africa are also taking steps to stimulate crypto adoption, notably those that are still obliged to use the colonial money issued by France – the CFA.
Grassroot adoption on the rise
A recent Chainalysis report analysed on-chain crypto activity in Sub-Saharan Africa and revealed that despite the smallest share in overall transaction volume – only 2%, or $100 billion – the region’s grassroot adoption is among the highest.
Small retail crypto transfers under $1’000 make up 80% of all Sub-Saharan African transactions – more than any other region. Moreover, while worldwide crypto activity has slowed down in the bear market, the number of small transactions in this region has actually increased since May 2022.
P2P exchanges are also a good way to follow African crypto adoption. The region has the highest rate of transaction volume happening on P2P exchanges – 6%, while other parts of the world register only 1-3%.
Leading P2P exchange Paxful notes 55% year-over-year user growth in Nigeria — already its biggest market — and almost 140% in Kenya. Another country with a rapidly growing crypto adoption is Ghana, where, according to Paxful CEO, many Nigerians go on vacation and educate the locals on all things Bitcoin. Paxful’s trade volume in Ghana grew 100% in the last year and 400% in the last two years.
Real figures, however, may be higher. Chainalysis can only analyse data from exchanges, whereas Africans also use a lot of alternative P2P solutions, such as trading in Telegram or Whatsapp channels, where the funds are sent directly from wallet to wallet.
What are Africans using crypto for?
The reasons for using crypto are different, but they all stem from crypto’s borderless and undiscriminating nature.
Day trading
Many young African specialists who cannot find a job due to the difficult economic situation turn to day trading. While this enterprise carries big risks, most talented traders develop successful strategies and earn their living with crypto.
Hedge from volatility
National currencies in developing countries have always been a major headache for their citizens. With crypto, and more precisely – stablecoins, people can hedge from their currencies’ volatility and inflation.
Remittances
In 2021 remittances to Sub-Saharan Africa exceeded $49 billion, despite major obstacles.
There is no pan-African payment system, and many countries employ drastic capital control measures, which makes it very difficult – and very expensive – to send and receive cross-border transactions.
While 20% is a standard remittance fee for fiat money, crypto transactions are easy and inexpensive.
International commerce
African businesses also experience payment problems.
For example, in Nigeria, which has capital controls in place since 2020, individuals can always buy cash dollars on the black market (even if at crazy rates), but businesses that need to buy materials from abroad are facing difficulties. For many, crypto is the best option, and even the central bank banning financial institutions from facilitating crypto transactions in 2021 did not change that. The ban, by the way, was judged as “harming” for the Nigerian economy by the OECD.
Central African crypto projects
Some countries are far from willing to control capitals… because they cannot control even their own money.
The CFA franc is basically a colonial money used by 14 African countries, which must keep 65% of their reserves in the French Treasury. The CFA franc can be exchanged only against euro, its banknotes are printed in France, and French officials still sit on the boards of the regional central banks, holding de facto veto power.
Moreover, the capitals can circulate freely between the CFA and the Euro zone, which leads to massive repatriation of funds from Africa to European banks, widening already huge gap between the African elite and the rest of population.
In 2019 eight West-African countries signed a deal with France, supposed to end the CFA and replace it by the new currency called Eco, but the project hasn’t progressed much since.
Despite this very strange situation, few people really speak about it… until a recently elected Italian Prime Minister Georgia Meloni used the CFA franc to accuse the French President Emmanuel Macron of maintaining colonial practices and hindering African countries’ development.
Luckily, some countries did not wait for Mrs Meloni to conceive alternative solutions.
In April, Cameroon, Republic of the Congo and the Democratic Republic of the Congo (DRC) decided to build blockchain-based solutions to serve as pillars to the future development of their economies. The DRC also considers creating a national stablecoin (DRC is the only country which used to be a Belgian colony and therefore not using the CFA franc, but the Congolese franc too has its share of disadvantages).
The countries are reportedly considering using TON, the coin of The Open Network – a PoS blockchain created by the founders of Telegram. TON can be easily integrated into the Telegram messaging app, and in a region where owing a mobile phone is 4 times more common than holding a bank account that can be a game changer.
Later in April, Central African Republic, another country using the CFA, de facto adopted Bitcoin as legal tender, aiming at boosting the country’s financial sector and innovation. The Bank of Central African States, of course, did not fail to react, urging the country to abolish the law. In the end of August, Binance opened an education hub in Cameroon’s capital Yaoundé.
The future
Africa is responsible for only 2% of global crypto transactions volume, but this volume has a totally different quality from the one generated by first-world investment funds. Grassroot crypto adoption is much healthier for the crypto ecosystem and for cryptocurrencies’ price stability – because the main goal is not to speculate, but use as money or payment within web3 dapps. We are still far from the moment when real crypto use will compete with the speculation around it, but this moment approaches every day, and Africa plays an important role in the process.
We believe that crypto adoption rate in the region is bound to increase, alongside technological progress (for the moment, only around 45% of African adults own a smartphone) and the development of web3.
Good news: Africa is young (the median age is only 19.7 years old), and young people tend to understand crypto’s importance, learn how to use it, and participate in the emerging web3 faster than anyone else.
With the continent’s population projected to reach 1.1 billion by 2040, it will also become one of the largest workforces globally. Chances are, a big part of it will be raised understanding and using crypto.
