For as long as one can remember, Africa has been called the land of opportunity that promises many ‘emerging markets of the future’. However, this then raises the question ‘which catalyst is atually going to bring forth the emergence of the African market?’. The main answers have always been healthcare, education and a reduction of corruption, amongst many others. But a new solution may have entered the market, with a large shift towards mobile money over the past few years, many members of the crypto-community believe Africa is a ripe for cryptocurrency adoption.
Firstly, its use as a currency could serve to benefit many economies in the region. The local currencies used in many countries in Africa are quite difficult for local businesses as many do not hold value, or are too volatile. This would mean they need to be changed into dollars to access the international market for essential business operations such as purchasing materials. Cryptocurrency has an advantage here by being able to hold the same value everywhere in the world, thus giving Africans quicker access to the international market but also being protected from local inflation that may be triggered by war or internal crisis. This would be especially useful in countries recovering from political instability such as Egypt where inflation amounted to 24.4% in 2016 compared 13.6% in 2010.
A common misconception is that the blockchain is cryptocurrency, when in fact cryptocurrency is only one function of the blockchain. The blockchain is essentially ‘a distributed database that maintains a continuously growing list of records, called blocks, secured from tampering and revision’ and this technology has evolved to be able to hold contracts and conditions. The fact that this can be accessed from anywhere with an internet connection comes as a strength to many African countries as the lack of infrastructure will not affect the capabilities of the blockchain.
Another benefit of the blockchain is that exchanging data through it does not depend on the help of a central authority or traditional bank. Currently, in Africa, there is a large dependence on foreign capital as a source of investment which is coupled with a small financial services industry. The use of the blockchain can help alleviate this problem by cutting out the use of banks. In 2014, the World Bank reported that only 34% of adults had a bank account. The blockchain is potentially something that could provide better access to capital since it is not run by complicated bureaucracies. This implies the technology can be more efficient providing capital, at a cheaper rate and faster speeds.
A strong theme of corruption has led to a reduction of trust towards governments in African nations. Using a blockchain, everybody would have a copy of the ledger so there is no longer a need to trust a single organisation. The trust-less nature of the blockchain has already started being utilised in some parts of the continent. Bitland in Ghana has been focused on building a blockchain to “streamline and automate the entire land registration process so it provides a better system of record.” This system aims to allow people to register property ownership through a blockchain. This again removes the need for an authority that people are forced to trust to guarantee property rights.
Currently, news substantially affects the cryptocurrency sphere. The rumours of China banning Bitcoin exchanges wiped 15-20% off the whole market value. This could cause problems for countries where currencies would be widely adopted, making them highly susceptible to macroeconomic events which would lead to constantly evolving prices. Secondly, the aspect of regulation is also an issue facing cryptocurrencies. The current unregulated state is unlikely to last forever. With there already being little trust towards African institutions, the way they choose to regulate cryptocurrency will affect how willing crypto companies are to venture in these locations.
This week Ripple announced their entry into the Indian market, aiming to facilitate global money transfers- a large theme in growing economies. This is an example of a step towards bridging the gap between LEDC and MEDC countries. But for this to exist in Africa there needs to be more awareness of its potential benefits. With a stronger emphasis on the uses of the blockchain rather than just the benefit of a new currency, financial markets could be accessed and used in a much easier and safer way with the new technology.