Africa in 2022: Are crypto-currencies like Bitcoin set to soar?

Nicholas Norbrook
By Nicholas Norbrook
Managing Editor of The Africa Report

Posted on Monday, 24 January 2022 10:05
Between the end of 2019 and the second quarter of 2021, overall cryptocurrency ownership increased 24-fold. In the space of one year, the same rate increased by 880%. Ozan KOSE / AFP)

Whatever your take – hype? hope? – cryptocurrencies are part of the conversation. And many Africans are jumping into these digital assets with both feet. But with fiat money a key part of the glue of the state, will this lead to creative destruction... or just destruction?

Here are some data points: In September 2021, African users living below the Sahara accumulated $80m of cryptocurrency, according to UsefulTulips, a market analyst. It was a 20% bump compared to the previous month. And it was – for the first time – greater than the dollar amount of cryptocurrency accumulated by users in the US.

More crypto in Africa than in the US? Really?

‘Not only has Africa’s cryptocurrency market grown over 1,200% by value received in the past year, but the region also has some of the highest grassroots adoption in the world, with Kenya, Nigeria, South Africa and Tanzania all ranking in the top 20 of our Global Crypto Adoption Index,’ says the Chainalysis data platform.

African reaction: from interventionist to laissez faire

Reactions from central authorities have varied. Kenya is taking its usual hands-off approach, as it did to mobile money a decade ago.

This allowed the blossoming of peer-to-peer money transfer of another kind: the international smash hit known as M-Pesa. While he warned in 2015 of the dangers of Bitcoin, Patrick Njoroge, Kenya’s central banker, has not aggressively tried to halt its use.

Nigeria is taking its usual interventionist approach – at any rate, this is the stance Nigerians have become used to under the Muhammadu Buhari administration. In February 2021, the central bank prohibited banks from “facilitating payments for cryptocurrency exchanges”.

The matter is somewhat complicated by the fact that political organisers in Nigeria used cryptocurrencies to crowdfund the #EndSARS campaign that highlighted police brutality. Speaking to multiple blockchain operatives for a piece The Africa Report is working on, we found precisely no one willing to go on the record… but they all say crypto will continue regardless, as a hedge for inflation against the endlessly falling naira.

Arguments for

Blockchain – the distributed-ledger technology that makes Bitcoin and other cryptos possible – can cure multiple ills, argue evangelists. Take the nightmare that is cross-border payment in Africa. The vast majority of cross-border traders on the continent have small turnovers. Traditional banks require expensive correspondent banking networks and SWIFT settlements, which are out of reach for most of these companies.

So cryptocurrencies come into play. Looking for alternative payment methods, Nigerian businesspeople are, anecdotally, settling accounts across borders with Bitcoin, using private messaging services like WhatsApp.

Beyond money, blockchain solutions are proposed for land titling – a frequent headache behind the rash of ‘This Land Is Not For Sale’ signs one sees in many cities and towns on the continent.

While Japan and South Korea transformed their economies with wholesale land reforms after the Second World War, that was only possible because they had highly centralised and trusted states.

Africa’s own states, crudely drawn by greedy Westerners, are ‘low trust’ affairs. Even the most patriotic of Nigerians would agree the body politic could be healthier.

Blockchain might be an ‘expensive way to do a database’ – a key criticism levelled at it. But if it solves trust issues and unlocks capital when a family can borrow against its clearly documented land assets, that could make it revolutionary in many countries.

Remittances, for example, are subject to large fees in Africa. And beyond the clear benefits for the continent of having quick, safe and cheap remittance flows lies fresh innovation.

Paul Domjan, co-author of How Blockchain Will Transform The Developing World, talks about the possibility of effectively sending not just cash but your own personal credit rating as a remittance.

“The place where it’s begun, actually, is in refugee camps”, says Domjan. “Because one of the challenges in refugee camps is that when you move from one refugee camp to another, you basically start over so you lose all your documentation. You lose all your history. You lose all your credit history for micro-lending.”

Imagine a scenario where a well-­established member of an Ethiopian family in Oregon, US, sends her personal credit rating to her brother based in Addis Ababa. The bank in Ethiopia will recognise that the brother in Addis has a guarantor for his loans – a recognisable credit history.

India’s diaspora has been an essential part of the country’s economic transformation – just look at the giant tech and pharmaceutical industries built on diaspora investment. China’s own massive infusion of cash and skills via Hong Kong and the diaspora needs no further introduction. Innovation in this field would certainly be a game-changer for Africa, to accelerate the financial leverage, family by family, for the continent.

Suspect politics

But is there the political will for this kind of innovation? Not in Nigeria, perhaps, but what about Rwanda, Morocco, or Kenya, three more tech-friendly countries? Domjan sees a fork in the future between those countries that have seized upon blockchain technologies to fix developmental problems and those where governance weaknesses are actually beneficial to the political and economic elite, and therefore they prefer the status quo.

In Nigeria, that maps rather too well onto the generational divide in the country, where the ageing ruling class sees every benefit in maintaining the system, and the young Turks in the streets, protesting against police brutality, demand better governance.

So might blockchain be a force for political as well as economic destabilisation? Former US presidential candidate Hillary Clinton certainly thinks so. She has warned that China and Russia are putting efforts into moving the world away from the dominance of the dollar, and Bitcoin et al are paving the way for them.

So far, so parochial — why should the dollar be the global order of the day, asks anyone not born in the United States, keen to see the world move on from de jure US dominance. Especially given the de facto shift in economic geography since the rise of China and India.

But there are other substantial critics, who argue that you cannot divorce money and politics.

“All money talk is political talk. Indulging silly money talk is to indulge silly and dangerous politics. We should avoid doing that,” argues economic historian Adam Tooze.

“I didn’t want to talk about bitcoin because I regard it first and foremost not so much as a technical or commercial proposition but as a conservative/libertarian efforts to escape the shadow of the political order of money that has half-emerged from the collapse of Bretton Woods”, he says. “Crypto is the libertarian spawn of neoliberalism’s ultimately doomed effort to depoliticise money.”

The critiques have not dampened the tremendous amount of excitement generally in the blockchain community about the possibility for rewelding the societal and political structures of the day.

Just Google “DAO”, or decentralised autonomous organisation, for a science-fiction-style view of the future of the US, where city-states issue crypto bonds and sell access to their services and land.

While the US state may or may not be ripe for this kind of political shakeup, it does at least have many trusted institutions that could be rewired. How should African policy­makers, astride their fragile states, see this potentially upending force? Fiat money is a vital glue holding economies – and trust in the state – together. Will more cryptocurrencies lead to creative destruction? Or just destruction?

Is crypto the latest magic bullet proffered instead of doing the hard yards of political organising and civic coalition building that drives fundamental change and strong institutions? Is it a giant Ponzi scheme that forever needs new suckers to be introduced into the system?

Does it offer a chance to ask about the value of the states leagued to African peoples by European colonialists? Is a BiafraCoin the next rallying call of secessionists in the Niger Delta?

The blockchain era has arrived and is asking you questions.

update: we have just discovered that BiafraCoin already exists, and looks like a scam to some internet users

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