The paradoxes of cryptocurrencies in Africa

The paradoxes of cryptocurrencies in Africa

Bitcoin and other digital currencies may facilitate money remittances and the economy, but the cost of electricity and government straits put limits on their development

Image by Darwin Laganzon from Pixabay Cryptocurrency transactions are or are growing quickly in Africa. For a young and digitally native people (1.4 billion people, destined to become 2.5 billion by 2050) and who have long been using money online, with applications such as M-Pesa (owned by Vodafone, and sponsored between 2003 and 2008 from the UK) electronic coins offer enormous benefits.

Transferring money in the form of cryptocurrencies is much cheaper than using intermediaries such as Western Union or Moneygram, which charge fees that can reach 10%. According to United Nations data, Africa has experienced the largest diaspora since 2010, with an average growth of 50% of immigrants from sub-Saharan countries. As a result, the market for money sent to families in Africa, by those who have settled elsewhere, is registering interesting figures. Over $ 50 billion in cryptocurrencies, helping to save at least $ 2 billion in transaction costs.

There are three main characteristics of this sector in relation to Africa: the electricity paradox, the inflation rates, which have been reducing the growth of this continent for years, and the political situation.

Energy has its price

The cost of electricity is a key factor in the world of cryptocurrencies. The electric current is used to "undermine", that is, to extract the coins. For example, today to mine 1 bitcoin (which is now worth just over 38 thousand euros) in 10 minutes you need 20 gigawatts of electricity. A hair dryer uses 1,500 watts. Mining 1 bitcoin in Italy would cost 10 thousand euros, in Venezuela around 500 euros, while in South Korea it would cost 25 thousand.

What about Africa? Here is the paradox: on the continent there is no electricity and what there is is expensive. This is where world powers such as China come into play (where a flight of "miners" is underway, pushing the share of hashrat and mining globally from 75.5% to 46% within seven months) and the United States, but not only.

Africa is the new frontier for the energy giants to conquer: the other markets are now mature. The Chinese are building miles of roads and railways, asking African countries in exchange to buy their coal to burn in power plants, and to export the rarest and most precious minerals for electronics to China. Getting your hands on raw materials useful for technology is a cornerstone for the growth of the Asian country. And at the same time, China has every interest in supporting the cryptocurrency market in Africa, partly to indirectly target American banks, partly to continue to feed the "energy-consumption of electronics" circle.

The African continent is demographically young, and is defined as tech-savvy, ie expert in the use of hi-tech equipment, and despite the internet penetration rate is only 50% (even 20% in Central Africa), the connected population is growing.

Let's take the example of Ethiopia, where only 15% of the population has access to the internet. The cryptocurrency economy is still struggling to get going. However, the federal government recently announced a major turning point in the use of the blockchain, through an agreement with Iohk. It is an American company - founded by Jeremy Wood and Charles Hoskinson, father of the Cardano blockchain - based in Hong Kong. In Ethiopia, where there are almost 5 million students and 750,000 teachers, out of over 3,500 schools, they have therefore built a database with the identifiers of students and teachers verified by blockchain, identifying places and causes of insufficient performance in education, addressing the educational resources and avoiding fraudulent applications from universities and institutes. The Ethiopian government then decided to purchase the exclusive supply of tablets for students from a well-known Chinese manufacturer.

The unknown of inflation

An increase in interest in cryptocurrencies was also due to the continuing economic crisis of 2013. We recall the decision of the European Central Bank on the forced withdrawal of 15 % on Cypriot current accounts with more than 100 thousand euros deposited: in two countries such as Spain and Greece, which were in conditions similar to those of Cyprus, there was an increase in demand for cryptocurrencies by 45%, seen as an escape from control of banks.

The recent history of Zimbabwe is very similar. On November 15, 2017, bitcoin was traded globally with a value of 7 thousand dollars, but in the African country, on the Golix platform, it could reach a record figure of 13,500 dollars. That day the army had risen and with a coup d'état removed. then president Mugabe. In such an unstable situation, some Zimbabweans rushed to convert their savings into bitcoin. Other countries with double-digit inflation rates include Egypt, Ghana, Malawi, Mozambique, Nigeria, and Zambia. Unsurprisingly, some of these are among the top markets for bitcoin in Africa.

The role of governments

The governments of African countries are looking for ways to control what is born to be decentralized. In Algeria, for example, it is forbidden to buy electronic coins, on pain of imprisonment. In South Africa, efforts have been made for years to increase digital literacy, also in order to warn against the volatility of cryptocurrencies, to avoid sensational scams. Like that of last June, by Africrypt, a startup of two brothers who disappeared with a booty of 2.3 billion dollars.

The idea of ​​African governments would be the one already implemented by Algeria. But beyond external pressures, they may simply find themselves powerless. For example, the Central Bank of Nigeria, which is facing an inflation rate of around 12%, has said that it is absolutely unable to control and regulate bitcoins, and probably never will, but that it will launch its own electronic money. by the end of the year, as reported by Reuters.

And to say that in Nigeria, which has the highest growth rate and digital literacy, according to data from the Pew Research Center, the youngest think that blockchain is useful for improving transparency and efficiency of the public administration. Cryptocurrencies and blockchains can be a stimulus for economic growth, as also highlighted by the German government's Smart Africa report, and guarantee revenues of a turnover of 10 billion dollars by 2030 (as reported by Tech Africa).

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