Africa has proven to be a hotbed of adoption for Bitcoin in 2020. But what fueled this growth? And what will next year look like?
2020 was unforgettable, especially for Bitcoin. To help memorialize this year for our readers, we asked our network of contributors to reflect on Bitcoin’s price action, technological development, community growth and more in 2020, and to reflect on what all of this might mean for 2021. These writers responded with a collection of thoughtful and thought-provoking articles. Click here to read all of the stories from our End Of Year 2020 Series.
The shift toward the adoption of bitcoin and other cryptocurrencies in Africa did not take off until 2014. That was when Bitcoin exchanges and transactions kicked off, with adoption led by Nigeria. Since then, the number of Bitcoin users and transactions done in bitcoin and other cryptocurrencies has exploded.
At no time in history has the use of Bitcoin in Africa been so frequent as it is today. Bitcoin has thrived in Africa, and 2020 has been a breakout year for Bitcoin in the continent. But where exactly was Africa coming from before this surge and where is it headed in 2021 and beyond as far as Bitcoin usage and adoption is concerned?
The Response Of African Governments To Bitcoin
As far as technology is concerned, Africa has not been the world’s center of innovation. Africa has usually tended toward slow adaptation to change and adoption of new technologies. Once adoption sets in, though, it tends to explode and outstrip the usage of the same technologies in other climes.
However, governments in Africa have traditionally been apathetic toward new technologies. They tend to lag in harnessing their potential and generally leave the ecosystem's development for these emergent technologies to the populace.
This has been the story of Bitcoin and cryptocurrencies in Africa, as governments in the continent have been very slow in understanding or harnessing the potential of distributed ledger technology. Indeed, some African governments tend to view emergent technologies with suspicion. Such has been the case with Bitcoin.
We can also see a similar pattern being used by the African governments in cases of forex trading, which is basically regulated only in South Africa by the Financial Sector Conduct Authority (FSCA) and newly in Kenya by the Capital Markets Authority (CMA). No other African countries have shown any significant interest in regulating this field of business, despite its continued growth in all African countries.
Many central banks have issued warnings about using bitcoin and other cryptocurrencies, even when no express laws or regulations are banning their use in those countries. Perhaps it is apt that this is the case; without centralized direction, the African population is now driving the decentralized use of bitcoin and other blockchain-based products.
What Drives Bitcoin Adoption And Use In Africa?
Perhaps the primary reason for the heavy usage of Bitcoin on the continent is the need to power transactions outside of the traditional banking system. Banking laws in Africa tend to be elitist, restrictive and do not make for the general populace's effective participation. That is why many African countries have large unbanked populations, which has made mobile payment systems and many fintech apps that aim to drive financial inclusion runaway successes.
Access to foreign exchange for trade and international transactions is another factor that has driven Bitcoin usage through the roof. In countries like Nigeria and South Africa, where strict controls over foreign exchange movement across the banking system are in place, those involved in international trade are now turning to Bitcoin to facilitate their cross-border deals.
In 2020, Nigeria was faced with a severe shortage of foreign exchange and was forced to cap international transactions done on point-of-sale terminals and ATMs outside of the country using the local ATM cards at a monthly limit of $100. Small scale importers that typically shop from Alibaba and other trade sites had no option but to seek alternative means of doing business. Bitcoin was a ready alternative, accepted by both shopper and vendor.
Africa can also be said to be on the fringes of the global financial system. Complete access to international online payment systems such as PayPal is restricted. South Africa is the only African country where users can pay and receive payments on PayPal. This situation has driven the need for the development of alternative payment systems. By a mistake of design, a globally-accepted payment means such as Bitcoin that can be converted to fiat in many countries has stepped in to fill this gap.
Bitcoin Usage And Adoption In Africa In 2020
The ownership, usage and volume of trades in bitcoin and other cryptos saw a massive surge in Africa in 2020. Nigeria, South Africa and Kenya led the charge in this regard and feature among the top-ten countries where Google searches about crypto are highest.
In Nigeria, most of the previous usage of Bitcoin was dominated by small-scale, peer-to-peer (P2P) traders, looking to buy and sell bitcoin for other cryptocurrencies and fiat currencies using escrow-based exchanges or face-to-face transactional modes. 2020 brought an evolution of the situation. International traders, importers and exporters seeking to bypass the Central Bank of Nigeria's foreign exchange controls have found Bitcoin as a suitable alternative.
Kenya's advancements in mobile payment systems have given it an edge over other African countries in terms of using alternative payment systems for e-commerce transactions. The coming of Bitcoin has seen Kenya increasing that edge. A BBC report indicated that the acceptance of cryptocurrencies for commercial payments in Kenya has surged. According to data from Paxful, cryptocurrency transaction volumes on its exchange from Kenya grew 400 percent compared to the same period last year. Recognizing Kenya's cryptocurrency market's potential, the tax authorities there have introduced a digital tax to enhance the government's revenue.
What Does This Mean For Bitcoin In Africa In 2021 And Beyond?
Major players in the distributed ledger technology space have noticed the growth of the ecosystem in Africa. Several cryptocurrency exchanges are either setting up shop in several African countries or merging with smaller domestic players to increase their footprint.
Binance has established a significant presence in Nigeria, and South African exchange ChainEx attracted funding interest from Malta-based exchange OKEx. M-Pesa, which had runaway success in Kenya's mobile money market, is in Ghana with its BitPesa exchange. These are just a few of several emerging partnerships in the crypto space in Africa.
The United Nations has also identified Africa as the next frontier for cryptocurrency adoption and usage. P2P transactions are expected to grow in 2021. A June 1, 2020 research document published by Bitcoin KE identified Africa's P2P market as worth over $54.8 million, with Nigeria dominating the space with $35.5 million in transaction value as of June 2020. Nigeria will retain its dominance in the P2P space.
Kenya is expected to lead the charge of cryptocurrency use for the purchase of goods and services. South Africa remains the top destination for the trading of cryptos as derivative assets on exchanges.
Meanwhile, Seychelles is an African island in the Indian Ocean that will build on its previous reputation as one of Africa's financial trading hubs. It is positioning itself as a hub for developing blockchain projects, much like Malta and Switzerland.
Africa looks set to witness even more explosive growth in use and adoption of bitcoin and other cryptocurrencies in 2021 and beyond.
This is a guest post by Michael. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.