Africa’s quiet crypto revolution

Africa is undergoing a financial revolution that has nothing to do with banks or questionable macroeconomic policies. Monthly cryptocurrency transfers to and from Africa have shot up by 55% over the past year, reaching a peak of $316-million in June 2020. These numbers, which are based on data from US blockchain research firm Chainalysis, are likely to keep rising.

While cryptocurrency is more commonly used by financial traders in other parts of the world, Africa is bucking this trend and mainly using it for remittances and commerce.

According to the research, retail-sized transfers (under $10,000 USD) make up a larger share of Africa’s cryptocurrency activity than any other region.

Africa also has the smallest cryptocurrency economy of any region analysed in the report, with just $8.0-billion having been received and $8.0-billion sent on-chain in the last year. However, that relatively small amount of activity is creating life-changing value for users in the region facing economic instability, offering low-fee remittances and an alternative way to save, says Marcus Swanepoel, CEO and co-founder of cryptocurrency platform Luno. “The opportunity in Africa is vast because the financial systems leave much to be desired.”

Ordinary users battle problems such as high interest rates and inflation, a scarcity of hard currency, instability and capital controls and poor financial infrastructure.

“Africa’s youthful population has embraced digital technology and this provides fertile ground for new technologies,” he says.

Remittances are a key driver of the change. The World Bank estimates that the roughly 25 million sub-Saharan ex-pats remitted $48 billion in fiat back to the region in 2019.

Many are turning to cryptocurrency to send funds back to the region. Cryptocurrency worth about $562-million was transferred directly from overseas addresses to ones based in Africa in retail-sized payments, according to Chainalysis.

Intra-region remittances between African countries, which have historically been made difficult by large fees, are also driving crypto adoption, says Swanepoel.

According to research from the World Bank, remittances below $200 between two sub-Saharan African countries cost an average of 9% in fees, compared with the global average of 6.8%. For some country pairs that see large remittance flows, such as South African to Nigeria or South Africa to Malawi, the fees can be as high as 15%.

“These fees could be justified back in the day when it was a difficult process, but not today when technology has made it far simpler,” he adds.

Individuals and small businesses in Nigeria, South Africa and Kenya account for most of this activity. These are countries where regulators have embraced digital technology. However, other countries like Ghana, Zambia and Uganda are not far behind.

Africa’s youthful population has embraced digital technology and this provides fertile ground for new technologies.