Digital currency could spark African financial revolution

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Cryptocurrency, or simply put, digital currency that uses cryptography as security, is now providing opportunities to reach Sub Saharan Africa’s largely unbanked population, with Bitcoin being the most popular.  According to the World Bank, the number of Africans using cryptocurrency stood at 326 million in 2011.

During the first half of 2017, Bitcoin’s average number of daily transactions totaled 288,953, up 182 per cent over the same period two years ago.  Currently the South African Reserve Bank is planning to trial regulations around digital currency.

Penetrating the market

Africa is arguably more suited for blockchain and cryptocurrency adoption than many of its more developed Western peers. The primary reason is that hard currencies of developed countries already satisfy the needs of most of their citizens, in contrast to many African currencies and payment systems, which fall well short.

A key example is remittance payments. These are a vital source of income for a number of African countries. The average migrant supports between 10 to 100 people in Africa, according to the World Bank. Nigeria is Africa’s largest receiver, with an estimated US$19 billion in receipts, followed closely by Egypt with US$16.5 billion.

The use of cryptocurrencies can significantly reduce, if not eliminate, the high transaction costs of remittance payments, encouraging further capital flows to African countries most in need. Africa’s leading Bitcoin startup BitPesa has already proved this to be true. Founded in Kenya, BitPesa provides an online platform to convert digital currency such as Bitcoin into local African currencies. Its chief executive Elizabeth Rossiello, has claimed that Bitcoin-based remittance services have reduced the costs of international payments by 75 per cent, and reduced the average time of settlement from 12 days to approximately 12 hours.

Blockchain opportunities abound

Newer blockchains, most notably Ethereum, have diversified the use of its distributed ledger, which provides an account of all transactions, by making it completely programmable. Apart from record-keeping, it now allows for the use of processing documents. Technology like Ethereum can revolutionize land ownership in Africa through the creation of virtual land and property registration, and private contracts execution all with secure and encrypted technologies.

One such initiative is Bitland in Ghana, which seeks to give African land titles the credibility they currently lack. A titled property encourages lending by having a legitimate asset as collateral resulting in more money for start-ups, education, investment and other essentials in Africa.

Further use of blockchain technology includes the potential for e-voting in Africa. The technology is currently being tested in both Africa and Europe.  Recently a company in Estonia held an annual general meeting, and allowed shareholders to e-vote. Students from 19 universities in the US and UK participated in a cybersecurity case study competition, hosted by The Economist’s “Which MBA?” website, looking at creating blockchain technology for securing digital voting systems. The pilots, though small, shows e-voting is in the horizon. That could see a move toward transparent elections, free from the widespread allegations of corruption often associated with them in a lot of African countries.

Pushing connectivity 

Access to the internet is key to using blockchain technology. This is a challenge in Africa where internet access is estimated to be at between 20 and 30 per cent. However, the increasing need for cryptocurrency and other internet-based activities, among the African population, is forcefully pushing against the connectivity boundaries. In the last two years, companies such as google and facebook, and some African governments have invest in the information and communication technology (ICT) infrastructure in Africa.

Despite the hurdles, the benefits of cryptocurrencies and blockchain technology in Africa should see more companies find increasingly creative solutions to the continent’s challenges. As listed above, there are already many blockchain developments in the pipeline and the continent is poised to benefit greatly.

Article was originally published by disrupt-africa.com 

 

Joanes Legiste

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