African nations have persistently suffered from high inflation rates, robbing citizens of wealth and purchasing power in the past decade. Now a new study recommends that the mass adoption of digital currencies to erase such hurdles.
“Bitcoin and other cryptocurrencies that have limited supplies, disinflationary monetary models, and decentralized governance, offer protection against these effects,” says a report titled The State of Crypto in Africa.
Many countries on the continent suffer from depreciating and often volatile national currencies. Over the past 10 years, for instance, the South African Rand, despite recent stability, has lost over 50 percent of its value against the US Dollar.
Other African currencies such as the Nigerian naira (NGN), Egyptian pound (EGP), Algerian dinar (DZD), Ethiopian birr (ETB) and Ghanaian cedi (GHS) have fared similarly.
The findings released recently by Arcane Research in collaboration with crypto exchange provider Luno, suggests that despite Africa’s currently underdeveloped financial infrastructure, several major catalysts exist that are conducive to the widespread adoption of cryptocurrencies over the next decade.
Many of these factors are unique to the continent and present an excellent opportunity for projects that can leverage the region’s potential.
“Disinflationary crypto assets that enjoy digital scarcity are certainly one option for citizens to escape these effects. Stablecoins pegged to fiat currencies such as the US Dollar that have historically outperformed African currencies also present an effective solution,” states the report.
Data from a survey recently conducted by Luno, shows that its African users are much more interested in a USD-backed stablecoin compared to their users in other regions.
“Eighty percent of Nigerian users expressed an interest in buying a USD stablecoin. Amongst the European users, only 37 percent expressed such an interest.”
The fragility of national politics and unstable government structures can also be partly addressed by cryptocurrencies, the report notes.
Not only does political instability exacerbate inflation and currency volatility but it can also have far deeper effects such as forced migration, GDP collapse, and wealth confiscation, all of which have been prevalent over recent decades, the survey says..
“Bitcoin and other cryptocurrencies are unique in that they combine the wealth preservation properties of hard assets such as gold and land with the portability of digital currency, combined with an unparalleled degree of censorship-resistance,” the survey explains.
These properties, the research says, make cryptocurrencies the ideal antidote to political chaos.
Africa has been beset by regime change, civil wars, and mass migrations for much of the past 70 years.
Cryptocurrencies also offer the ability for lower-cost and faster remittance payments than is currently available.
Remittances below Sh20,000 to Sub-Saharan countries, cost an average of about 9 percent compared to the global average of 6.8 percent, while payments between countries are even more expensive.
These costs are due to a combination of an inefficient and uncompetitive banking market as well as a reliance on legacy financial communications systems.
“Cryptocurrencies are a possible solution to these problems, especially the solutions that prioritize lower fee payments,” asssers the report.
But although high ownership rates exist in some African countries, there is a significant lack of the typical infrastructure seen elsewhere such as miners, mining operations, supporting merchants, ATMs and exchanges, a new study reveals.
However, Africa is the most promising region for the adoption of cryptocurrencies but huge stumbling blocks have held back tangible progress in the field.
“This is due to its unique combination of economic and demographic trends. While the overall adoption is relatively low, the potential is enormous, the growth is rapid, and the development is likely to become defining for the cryptocurrency industry going forward,” it states.
Over the past 12 months, Google Trend data shows that Uganda, Nigeria, South Africa, Kenya and Ghana are all ranked in the top 10 on the topic of cryptocurrency.
While this data is relative and not necessarily indicative of absolute values, it does demonstrate a growing interest in cryptocurrency in these countries.
Among internet users who own cryptos, South Africa ranks third highest worldwide at 13 percent with Nigeria ranked fifth at 11 percent, while 16 percent of South Africans with internet access had either used or owned cryptocurrency, ranking only behind Turkey, Brazil and Colombia.
However, these ownership rates, the report illustrates, are mirrored by an extremely underdeveloped infrastructure.
“Of the 10,267 Bitcoin nodes (miners) worldwide, just 20 (0.2 percent) are located in Africa. For Ethereum nodes, the number is smaller at 12. Of the nodes that exist, the vast majority are based in South Africa,” the study finds.
Bitcoin’s Lightning Network is similarly immature. Africa accounts for just 0.24 percent of Bitcoin Lightning nodes, contributing just 0.07 percent of total network capacity, yet again with almost all contributions stemming from South Africa.
[source: The Business Daily]