Bitcoin and other cryptocurrencies are now commonplace in the West. So much so that the world's biggest banks are starting to develop platforms to handle crypto transactions.
Elsewhere in the world though, bitcoin has been slow to catch on. Despite being the first-ever cryptocurrency, markets in some parts of the world have just not responded. That is now changing in Africa.
African entrepreneurs and consumers alike are finally being made aware of the benefits of cryptocurrency as a supplement to, or replacement of, fiat currency. They are responding positively. There is now a movement in countries like South Africa that experts say will eventually lead to bitcoin being accepted as general currency among most South Africans.1
So what is it about bitcoin and other cryptocurrencies that have Africa so excited? Well, it's not just one thing. African countries are looking at a lot of different things that all add up to something very positive.
A Reliable and Workable Blockchain
The biggest barrier to most technological innovations in Africa is the technology itself. If African countries do not have the infrastructure to support innovation, it goes by the wayside. Bitcoin is an exception thanks to the reliable and workable blockchain on which it is built.
Bitcoin does not rely on a single database located on a single server in a single country. In fact, one of the hallmarks of cryptocurrency is its decentralized nature. There is no central bank that administers bitcoin or controls transactions. Therefore, African countries do not necessarily need the same level of network and computing infrastructure to use bitcoin as is required by more traditional banking systems.
The bitcoin blockchain works thanks to a network of nodes located around the world. It is maintained, updated, and made available without the need for any particular infrastructure supporting it. In essence, bitcoin's blockchain is a self-sustaining entity that does not rely on Africa's technology to work. African businesses and consumers can access bitcoin with nothing more than a smartphone.2
Bitcoin Is a Source of Revenue
African entrepreneurs have discovered a hidden benefit of getting involved in bitcoin: it becomes a source of revenue for funding their own dreams. Imagine yourself as an entrepreneur looking to start your own business but lacking in the financial resources to do so. If you can afford a fairly decent computer, you can set yourself up as a bitcoin miner. Every coin you mine means additional bitcoin in your pocket. Mine long enough and you will have all the financing you need to fund your business.
Hand-in-hand with bitcoin mining is the realization that African entrepreneurs can use the cryptocurrency to purchase products and services that might otherwise be inaccessible to them. Tech start-ups find bitcoin especially attractive for this very reason. A new start-up can use bitcoin to pay for things like software as a service (SaaS), web hosting services, app development, and more.
Mining bitcoin and then using the generated revenue to support a new business is a natural fit for younger entrepreneurs looking to do things outside of traditional paradigms. Those younger entrepreneurs see cryptocurrency as the wave of the future, both personally and for their business dealings.
A New Social Order
Young entrepreneurs in Africa have also discovered that the power of bitcoin and other cryptocurrencies goes way beyond what it offers as a revenue stream and a means of paying for goods and services. They have also discovered that it holds the key to a new social order.
University of Pretoria Full Professor of Political Economy Lorenzo Fioramonti is known in South African educational circles as somewhat of a radical. When he first began teaching back in 2012, he proposed the idea that money and social order are intrinsically linked. He also wrote about it in a 2017 piece published by Quartz Africa.
Fioramonti believes that bitcoin is creating a more level playing field in terms of social order by removing traditional financial institutions from the equation. He makes a great point. Central banks have a bad habit of controlling the flow of currency in such a way as to unfairly benefit those with power and position. Bitcoin bypasses all of that.
As bitcoin is not controlled by a central authority, it is freely accessible to anyone and everyone. The average African consumer can get on board the bitcoin train by purchasing some coins. And as previously mentioned, people can earn bitcoin by volunteering to be miners.
Once a consumer has bitcoin in his or her wallet, that bitcoin represents the ability to trade on the open market. More importantly, bitcoin has the same intrinsic value around the world. No money is lost or gained through exchange rates, Forex trading, and the like. Every bitcoin owner is on equal footing in the cryptocurrency universe.
Africa's Regulatory Sandboxes
The new social order bitcoin is creating is a nightmare for government regulators. That makes it very attractive to African businesses and consumers. Why? Because African nations have a tendency to create regulatory sandboxes that place unnecessary burdens on cross-border economies.
Sandbox regulation causes individual countries to think only in terms of their own self-contained needs. Because they never look beyond their own borders, they often fail to take into account how their regulations may affect commerce in neighboring countries, across the African continent, and even around the world.
Bitcoin is borderless. A lack of centralization makes it very difficult to regulate bitcoin and other cryptocurrencies at the national level. As such, regulatory sandboxes that affect fiat currencies tend to have very little effect on bitcoin. That may change in the future, but bitcoin is generally free from regulatory interference right now.
Access at the Consumer Level
Government regulation aside, no currency is viable if access at the consumer level is unavailable. This is the very reason so many African currencies are essentially worthless on the world market. Currencies accessible only to the wealthy few do not have much value because they fundamentally limit the ability of consumers to do business outside of major metropolitan areas.
Bitcoin offers an alternative by allowing people to transact business among themselves without having access to either a traditional bank or hard currency. Bitcoin represents a cashless transaction that doesn't require the consumer to run to the bank and get money from the ATM. It doesn't require business owners to make nightly deposits. Everything is done digitally and seamlessly online.
This kind of access empowers consumers to make better business decisions. They are no longer limited by banking and spending options. If they can get into the bitcoin market with an initial purchase or investment, they immediately have the power to do business virtually anywhere in the world without the need for cash. This represents unlimited financial access at its finest.
Better Financial Security
Last but not least is the idea of financial security. As things currently stand, a number of African governments are wary of bitcoin out of concerns that it could lead to organized criminal activity. In fact, Zimbabwe has gone as far as to ban banks from processing crypto transactions while leaders try to figure out how to prevent crime.
While concerns over crime are understandable, they are terribly misplaced where cryptocurrencies are concerned. Bitcoin's decentralized nature and technological inability to reverse a finalized transaction makes the system very difficult to criminalize. That's not to say it's impossible; it is not. But there are so many easier targets right now that crypto isn't getting a lot of attention from criminals.
Moreover, bitcoin users are anonymous when engaging in transactions. Simply put, making a purchase with bitcoin doesn't require giving the vendor bank information, credit card information, names and addresses, etc. Bitcoin is simply transferred from one wallet to the next without any identifiable information attached to it.
You can sign up for a digital wallet and purchase your first bitcoins with little more than an e-mail address. You would then become yet another anonymous bitcoin user buying and selling in the crypto universe. No one else in the universe need know who you are. This makes for more financial security by eliminating the need for consumers to divulge personal information that criminals could use against them.
Summarizing bitcoin in Africa
Bitcoin has taken off in some parts of the world while remaining elusive in others. Africa certainly falls under the latter category. But thanks to a growing understanding of how cryptocurrencies work, African countries are warming up to bitcoin as an alternative to fiat currency. Experts expect African adoption of bitcoin to accelerate in the coming years.
Bitcoin is good for African countries still behind in technological innovation because it doesn't require a heavy investment in networking infrastructure. It helps create a more even social order while giving average consumers access to a decentralized financial system free of banking control. Bitcoin offers a higher level of financial security, fewer regulatory burdens on business, and the ability to buy and sell even outside major urban areas.
An understanding of the mechanics of cryptocurrencies should make it clear why they can work so well in Africa. It will be interesting to see the speed at which Africa adopts bitcoin. The African continent could represent a powerful bitcoin player within the next 5 to 10 years.
1) Bitcoin is already playing a key role in the unsteady financial systems of some developing markets, Quartz Africa. https://qz.com/africa/1021155/bitcoin-is-being-taken-up-in-zimbabwe-nigeria-south-africa-and-venezuela-among-developing-countries/
2) Why Africa Is Fertile Ground for Bitcoin Adoption, CCN.