Could Cryptocurrency be the answer to Africa’s volatility?
Denis Gitau  |  Jun 18, 2020

A new study has recommended the mass adoption of digital currencies by African nations to act as a stop-gap measure against high inflation rates.

As a result of their disinflationary monetary models, limited supply, and decentralized governance, cryptocurrency could offer protection against these effects accordingly the report titled The State of Crypto in Africa.

Most African countries suffer from often volatile and depreciating currencies.

With countries such as South Africa losing as much as 50 percent of its value against the US dollar over the past 10 years.

However, according to the report released by Arcane Research in collaboration with crypto exchange provider Luno, despite Africa's current underdeveloped financial infrastructure, there exist various factors (many unique to Africa) that make it ripe for widespread adoption of a cryptocurrency over the next ten years.

The report stated, "Disinflationary crypto assets that enjoy digital scarcity are certainly one option for citizens to escape these effects. Stablecoins pegged to fiat currencies such as the US Dollar that have historically outperformed African currencies also present an effective solution."

A recent survey conducted by Luna indicates that it's African client base favors USD-backed stablecoin as compared to users in other regions.

A staggering 80 percent of Nigerian users showed interest in purchasing a USD stablecoin. While only 37 percent of European users did the same.

In addition to that, unstable political and government structures also stand to benefit. How? Cryptocurrencies combine wealth preservation properties of assets such as gold and land with the added benefit of the portability of digital currencies and resistance to censorship.

As such, cryptocurrency could be the much-needed antidote to the political chaos that punctuates a majority of African countries.

So far, digital currencies offer low cost and faster remittance payments than current systems.

Remittances under KSh.20,000 cost an average of around 9 percent in Sub-Saharan Africa while the global average stands at 6.8 percent. Not to mention even more costly intercountry transfers.

This can be attributed to an inefficient and uncompetitive banking market coupled with over-reliance on legacy financial communications systems.

While some countries in Africa do have high ownership rates, there is a clear lack of digital currency infrastructures such as mining operations, miners, ATMs, and exchanges present elsewhere.

Ironically, Africa holds the most promise when it comes to the adoption of cryptocurrency. This is unfortunately held back by a myriad of issues.

"This is due to its unique combination of economic and demographic trends. While the overall adoption is relatively low, the potential is enormous, the growth is rapid, and the development is likely to become defining for the cryptocurrency industry going forward," states the report.

According to Google Trend data, Uganda, Nigeria, South Africa, Kenya, and Ghana all rank in the top 10 over the past year on the topic cryptocurrency. While relative, this data is a clear indication of a growing interest in digital currencies.

Among internet users owning cryptos, South Africa ranks third worldwide at 13 percent while Nigeria ranked 5th at 11 percent. In South Africa, 16 percent of those with access to the internet had interacted with or owned cryptocurrency.

The ownership rates, according to the report, are however mirrored by an infrastructure that is unable to keep up.

Case and point: Of the 10,267 Bitcoin miners (nodes) present worldwide, only 0.2 percent (20) are based in Africa. While only 12 Ethereum nodes are present. Of which the majority operate from South Africa.

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