Despite the benefits that Africa’s teeming demography of users stands to gain from cryptocurrency, its adoption on the continent has been met with some drawbacks, primarily from a lack of government approval and regulatory framework to guide its usage.
By Michael Akuchie
A cryptocurrency is a digital currency that is operated on a decentralised network powered by blockchain technology. It can be used to perform transactions within and outside a country. One major difference between a cryptocurrency and other legal tender is that crypto transactions can be completed peer-to-peer without the oversight of a third party such as the Central Bank. Cryptocurrency aims to help users transact with one another with a high level of privacy, while also enjoying cost reductions for transactions, among other benefits.
In 2022, there was a shutdown on FTX, the world’s third largest crypto exchange by volume at the time, following its trading options that did not align with existing United States regulations. But despite this shutdown, the hype around cryptocurrency has not faltered, as the tender continues to receive investment. Even celebrities such as Mike Tyson, Lindsay Lohan, and Snoop Dogg have made significant investments. According to crypto expert, Ryan Selkis, crypto, with the recently in vogue “Web3”, is becoming an unstoppable force in the long term.
In Africa, crypto’s presence has steadily grown over the years, and several factors have contributed to this growth, including the need for efficient cross-border payments and economic instability. The appearance of crypto startups like Bitmama, Flow Financial, and Busha, has further contributed to its growth in the region by enabling users to buy and sell digital assets conveniently.
Africa has unique problems that crypto seeks to help its citizens solve. For instance, there is the matter of financial inclusion where only 43% of the Sub-Saharan African population have a traditional bank account. Here, crypto can be used as an alternative to traditional banks in business and personal transactions. Add the growing inflation to the mix and it is clear that crypto is needed in the African financial conversation. When a crypto user stores stablecoins, a kind of cryptocurrency, whose value is tied to another asset like the US Dollar, the value of their funds is retained regardless of that of the local currency.
However, despite the benefits that Africa’s teeming demography of users stands to gain from cryptocurrency, its adoption on the continent has been met with some drawbacks, primarily from a lack of government approval and regulatory framework to guide its usage. Similar to fintech startups and virtually every tech startup, crypto startups have to navigate African governments’ regulatory policies to render their services. While some countries have been receptive, in some cases, there is no legislation for cryptocurrency which makes regulation difficult to achieve. In other cases, there is an outright ban of crypto transactions.
In Nigeria, for example, the apex bank led by then-governor Godwin Ifeanyi Emefiele announced an indefinite ban on commercial banks’ ability to open and hold accounts for crypto exchanges in February 2021. Last year, the restriction was lifted and crypto exchanges could own and operate their accounts with commercial banks. However, the exchanges are still unable to hold, trade, and transact on those accounts using crypto coins. This makes one wonder whether the ban has been really suspended.
In February this year, the Nigerian government initiated a crackdown on Binance, one of the world’s biggest crypto exchanges, over claims that it was responsible for the country’s currency devaluation as the government argued that Binance allowed its platform to be used for money laundering and tax evasion. On March 8 of this year, Binance made a shocking announcement that it was ceasing operations in Nigeria.
Despite the country’s confusing regulatory stance, it is worth mentioning that Nigeria is considered the continent’s second largest crypto user after South Africa, and since there are no enacted laws binding crypto transactions in Nigeria yet, crypto trading can technically not be termed illegal. Nigerians began to actively cryptocurrency sometime between 2018 and 2020, but considering that the currency is not part of the country’s legal tender — unlike the eNaira, the central bank’s digital currency — crypto struggled to make an impact.
In November, 2017, Morocco made history as the first North African country to ban. However, its financial regulator has since made efforts towards regulation. In March 2022, the country met with officials from the International Monetary Fund (IMF), the World Bank, the Swedish, French, and Swiss central banks to gain insights into their experiences with crypto and their approach to regulation. In June of the same year, the country revealed plans to release a crypto regulation bill. By December of the same year, the government it announced that the bill was complete and would be rolled out on an unknown date. As Moroccans await the bill, many expect the regulation to recognise crypto assets, provide measures to safeguard users from scams, address money laundering, and actively support fintech startups.
South Africa, however, is on the road to becoming one of the countries in the world to fully regulate crypto exchange operations. Last month, the nation’s financial regulator announced that it had approved operating licenses for 59 crypto exchanges in the country. It is also worth mentioning that in 2022, the country’s Financial Sector Conduct Authority (FSCA) recognised crypto assets as financial products, and as such, needed to be regulated accordingly. Aside from preventing crypto exchanges in the country from getting involved in underhanded activities like money laundering, the license mandates the crypto exchanges to report transactions involving crypto assets to the authorities.
In Kenya, the response to crypto is similar to that of South Africa’s. Last year, the Kenyan parliament requested that the Blockchain Association of Kenya (BAK), a group established in 2015 and registered in 2017, began working on the first draft of the country’s Virtual Asset Service Provider’s Bill. Put simply, this is a crypto bill. Crypto regulation in Kenya is a welcome development, following its citizens’ growing reliance on virtual assets for transactions. Between July 2021 and June 2022, the volume of crypto transactions was 3 trillion Kenyan shillings ($20 billion). The bill’s first draft hopes to focus on a wholesome regulatory framework, tax framework, and anti-money laundering measures.
Still, in East Africa, it is Mauritius, the island nation, that has set the pace for other African countries regarding crypto regulation, releasing a crypto licensing document in 2021 – the Virtual Asset and Initial Token Offering Services Act. Although it has put regulations in place, the Mauritian government still does not recognise crypto as a contributor to its economy, nor is it considered a legal tender. The major reason behind its regulation is to protect citizens from being victims of crooked dealings.
Judging by the current situation in these five countries, Africa is gradually marching towards an acceptance of crypto, along with establishing regulations that will ensure the proper conduct of exchanges. Of course, countries like Nigeria still have a lot to do, seeing as it has no official crypto law. But perhaps the rest of African nations can follow the path of South Africa and Kenya. That way, crypto operations can be effectively supervise. Cryptocurrency holds great potential for Africa and it’s time for countries to recognise its benefits by establishing laws to guide operations.
Michael Akuchie is a tech journalist with four years of experience covering cybersecurity, AI, automotive trends, and startups. He reads human-angle stories in his spare time. He’s on X (fka Twitter) as @Michael_Akuchie & michael_akuchie on Instagram.
Cover Photo: Kanchanara on Unsplash