Africa is one of the fastest-growing crypto markets in the world, according to Chainalysis, but remains the smallest, with crypto transactions peaking at $20 billion per month in mid-2021. Kenya, Nigeria, and South Africa have the highest number of users in the region. Many people use crypto assets for commercial payments, but their volatility makes them unsuitable as a store of value.
Policymakers are also worried that cryptocurrencies can be used to transfer funds illegally out of the region and to circumvent local rules to prevent capital outflows. Widespread use of crypto could also undermine the effectiveness of monetary policy, creating risks for financial and macroeconomic stability.
The risks are that much greater if crypto is adopted as legal tender—as the Central African Republic recently did. If crypto assets are held or accepted by the government as means of payment, it could put public finances at risk.
Crucially where the USA is sceptical about the scope of cryptocurrencies, African nations are evaluating and assessing the avenues of cryptocurrency. As Chris Maurice, founder and CEO of Yellow Card Africa’s largest cryptocurrency exchange, mentioned, crypto in Africa “is growing at the speed of light” because it allows many Africans to escape from the traditional financial system’s failures and transact more freely.
It was also highlighted that crypto helped the nations to counter the issues of hyperinflation etc. Cryptocurrency in Africa is growing at an unprecedented pace, and the most common use cases include international payments, sending money to friends and family, and saving against inflation.
According to Kevin Imani, founder and CEO of Sankore 2.0, blockchain-based payments can act as a human rights technology that provides greater financial inclusion and control over money to people in underdeveloped nations. Cryptocurrencies offer a lifeline to individuals in developing countries who are struggling with hyperinflationary pressure and corruption, Imani added.
Important to note that, across nations, there is constant uncertainty and fear regarding legalizing cryptocurrency and its impact on sovereign economies, amid this doubt, the African Blockchain Report published by CV VC and South Africa Standard Bank highlights a new belief of confidence in the crypto ecosystem.
According to the report, blockchain funding in Africa raised a total of $474 million in 2022 from $90 million in 2021 highlighting a 429% year-on-year increase from 2021 to 2022. This growth in the funding sphere outshone the 4% global average.
As per a report published earlier by Bloomberg despite the increase in venture funding in Africa stalled growth and currency devaluation are significant problems in most of the developed economies of Africa leading to restrictions on funding to start-ups in Africa. A recent example is the closure announcement of LazerPay, a B2B crypto payments company.
Similar to other nations, even African countries have issues of regulation and problems with implicit and absolute bans. For example, cryptocurrencies are not illegal in Nigeria but banks are banned from transactions. Nigeria is currently working on its finance bill to make crypto rules formal.
Another African country, Ghana calls cryptocurrencies digital assets and is still working on the formulation of rules. According to a report published by Chainalysis, an analytics firm mentions country may compete with other African countries such as Nigeria to bring cryptocurrencies on the floor. An earlier statement by the CEO of a P2P platform, Paxful points towards the need for it to meet economic trends. On the other hand, South Africa Reserve Bank issued guidance for implicitly legalizing cryptocurrencies.