In Africa, Blockchain And Crypto Hold The Keys To Economic Growth

Africa is well on its way to becoming a hub for Web3 and crypto development, with a thriving startup ecosystem backed by a population that has shown tons of enthusiasm for the idea of decentralized money. 

Blockchain and crypto are playing important roles in Africa’s digital transformation, and many in the industry see huge potential for its expansion. 

In the last few years, crypto has exploded into the African economy, with adoption rates accelerating across the continent. A 2021 report from Chainalysis revealed that adoption of crypto accelerated by 1,200% between July 2020 and June 2021, and it has only continued to grow since then. The reason for this growth is simple. With blockchain and crypto, the citizens of African countries can finally enjoy unhindered access to a wealth of financial services and opportunities. 

Countries including Nigeria, Kenya, South Africa and Tanzania are among the world’s top 20 nations in terms of crypto adoption, thanks in part to a lack of infrastructure for traditional financial services. Many people there see crypto as a viable alternative to fiat for storing and transferring funds, and with the advent of decentralized finance, many are also learning how to benefit from passive income-generating activities such as staking, lending and yield farming. 

It’s noteworthy that the Central African Republic last year became only the second country in the world to officially declare Bitcoin as legal tender, following the precedent set by El Salvador in 2021. 

Another promising sign is the amount of funding pouring into African crypto startups. In a 2022 report by CV VC, it was revealed that African blockchain startups raised $91 million in venture capital funding in the first quarter of 2022. For instance, the Congo-based blockchain software developer Jambo raised $30 million, while Nigerian e-wallet provider Afriex nabbed $10 million and the crypto exchange MARA recently landed $23 million. In what was one of the biggest ever rounds from an African crypto startup, the South African exchange platform VALR closed on an impressive $50 million Series B round in March 2022. 

In addition to these funding rounds, a number of high-profile African tech firms have also moved to embrace crypto and blockchain, such as the Senegalese fintech firm Wave and Nigerian digital payments provider Interswitch. 

Africans are even beginning to fund other Africans. Adanian Labs launched in 2020 with a laudable mission to support no less than 300 African crypto startups by 2025 in order to create one million new job opportunities across the continent. 

Fertile Ground For Blockchain

Africa’s attraction to blockchain and crypto is due in part to the continent being a fertile, almost virgin territory. It’s no secret that Africa is one of the world’s most undeveloped regions, and many of its countries lack the financial infrastructure, record-keeping systems and personal identification technologies to support a modern financial ecosystem. Due to this poor state of affairs, blockchain becomes even more desirable, as it can leverage Africa’s existing mobile infrastructure to empower anyone who has access to a smartphone and WiFi. 

In an interview with Forbes Africa last year, Del Titus Bawuah, chief executive officer of Lili Smart City, pointed out that Africa’s population now numbers 1.3 billion. Moreover, it is home to 70% of the world’s youth, but its GDP is only 42.5 trillion. 

“We have four tech companies in the world that combined are 10 times the size of Africa in global domestic product,” Bawuah said. “That’s crazy and they employ less than 10 million people.” 

These days though, a rapidly growing number of Africans have access to a smartphone device and internet connectivity, and that reality has dovetailed with the rising adoption of digital payment services and crypto. As a result, decentralized money provides a more convenient alternative to the mostly cash-based economies in Africa. 

According to data from the World Bank, more than 370 million Africans are classed as unbanked, and this is where blockchain can make a real difference, facilitating greater financial inclusion. With the emergence of peer-to-peer marketplaces such as Paxful and LocalCoinSwap, millions of people can now access financial services for the first time. 

This bodes well for Africa’s overall growth, as financial inclusion is key to the economic success of any country. Africa’s young demographics mean that much of its population is tech-savvy, too. When we combine all of these factors, it’s easy to see why blockchain and crypto have found such fertile ground in the continent. 

Startups Fostering Greater Inclusion

One of the most successful African startups is Kenya’s M-Pesa, which uses its crypto-based digital payments services to foster financial inclusion among that country’s unbanked population. Another is the Pan-African exchange platform Yellow Card, which has launched its services in more than 10 countries and has plans to further its expansion. 

VALR has also achieved considerable success. Following its bumper funding round, it has emerged as one of Africa’s top crypto exchanges, introducing innovations such as the world’s first Bitcoin and Tether perpetual futures, paired with the South African Rand, as well as DeFi services such as staking and spot margin trading. More recently, it has forged a key partnership with Visa to collaborate on expanding crypto payments in both South Africa and across the continent. By partnering with Visa, VALR will be able to tap the company’s global payments network to facilitate global transactions. 

But it’s not only financial inclusion where blockchain is seeing success. The technology is also helping to boost important sectors such as agriculture. For instance, BeefLedger SA is a pioneering project that uses blockchain as a provenance platform to verify the authenticity of beef products, to prevent fraud and ensure food safety. Meanwhile, the Ethereum Foundation has launched an initiative that offers crop insurance to more than 17,000 farmers in Kenya, should their harvests be impacted by climate change. Previously, these farmers were unable to access such protections. 

Other promising African crypto projects include the Stellar Development Foundation’s blockchain bootcamp for training Web3 developers, its Europe-Africa remittances program, and a Pan-African payment app that covers Ghana, Kenya, Nigeria and Uganda. 

Celo Foundation also deserves a mention for its CFA Franc stablecoin that aims to ease cross-border payments in West Africa, and its partnership with Mercy Corps Ventures that offers equity-free grants to startups and promotes financial inclusion for informal workers in Kenya. Another prominent blockchain network, Cardano, plans to invest more than $100 million in Kenyan pre-seed crypto startups. 

Finally, Africa’s important mining sector has also embraced blockchain technology to enable more efficient logistics and transparency. The world’s biggest diamond company, De Beers, launched its Tracr initiative, creating a blockchain-powered network to track the origin and quality of diamonds from the mines where they were produced, all the way to the jewelry stores in which they’re sold. 

Africa’s Challenging Regulatory Climate 

Once again, the growth of blockchain is as much about necessity as it is about opportunity. With its subpar infrastructure and systems that are often riddled with inefficiency due to bureaucracy, fraud and government red tape, blockchain acts as a clean canvas on which many promising solutions can be built, without interference or censorship. 

Even so, the ongoing development of blockchain and crypto in Africa faces some hurdles, such as its lack of connectivity. Although this is growing fast, internet penetration rates remain much lower than in other parts of the world, with broadband adoption being especially slow off the mark. The World Bank estimates it will cost over $100 billion for Africa to provide universal broadband connectivity to its population. 

Like elsewhere in the world, the regulatory climate is also challenging. For instance, it’s said that 31 of 54 African nations have implemented either a partial or full ban on crypto technology, while another 17 have what’s considered to be an “uncertain” regulatory environment. Just six African countries have established proper, crypto-friendly legal frameworks. 

South Africa has been one of the pioneers in that respect, establishing legal certainty around crypto technologies and designing two different central bank digital currency (CBDC) concepts. Mauritius has also taken positive steps, passing comprehensive legislation on digital assets and initial token offerings, as has the Seychelles. 

The situation is less clear in powerhouses like Kenya, which tops the world’s rankings in terms of P2P crypto exchange volume and ranks 5th in the world with regard to adoption. While Kenya’s government doesn’t have any rules in place that prohibit the use of crypto, it hasn’t made much effort to foster a friendly regulatory climate either. 

Meanwhile in Nigeria, crypto was effectively banned – but the move did little to discourage its citizens from using and trading digital assets, and it was later repealed. It’s said that crypto is growing there because of Nigeria’s poor economy, which is struggling with high interest rates, the volatility of the Naira currency, and its high rate of remittances sent home by citizens working abroad. Despite its ban, Nigeria went ahead and launched a pilot of its own CBDC, dubbed the eNaira. 

Blockchain Can Make Or Break Africa’s Economic Future 

Even with the regulatory uncertainty in Africa, the crypto industry looks set to increase its presence on the continent as it provides real solutions to its citizens. The growing adoption of crypto is empowering more Africans than ever before, and it could be just the spark needed to drive economic growth in a region that’s bursting with potential. 

Africa’s countries are desperate to create new economic opportunities and by leveraging blockchain and crypto, they can overcome many of their infrastructural problems and foster greater financial inclusion, leading to sustained socioeconomic growth. African governments must show more foresight and take steps to encourage exploration, investment and innovation. If they can do this, they may finally be able to unlock the potential within their young demographics and build a more promising future based on the foundations of a new digital economy.  

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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