Roughly 57% of the 1.3 billion people living in Africa remain unbanked. This positions the continent as having the greatest potential for the adoption of digital financial services. Requiring only a smartphone and internet connection to function, cryptocurrencies provide a nascent solution to the historical problems plaguing the developing land.
The Rise of Mobile Payments
Mobile payments are already well established in Africa. M-Pesa, launched in 2007 in Kenya, is a mobile payments app that allows users with even the most basic phones to conduct payments.
In 2021, the financial services provider expanded to offer services to East African countries, increasing their user base to 50 million active users. As an indication of its success, in Uganda 11% of the population have a bank account, while 43% have a mobile payment account.
M-Pesa is Africa’s largest fintech platform and the most successful mobile phone based financial service in the developing world.
The Transition From Mobile to Blockchain
With over 50 million users already accustomed to using their mobile phones for payments, the transition to decentralized blockchain systems doesn’t seem like a giant leap. The concept remains similar: instead of using an SMS, as is the case with M-Pesa, users can simply open their wallet and make the transfer directly from there.
With plenty of blockchain platforms to choose from, the options are endless, as is the potential to change the lives of the financially marginised. Cryptocurrencies address two very real crises in African countries: the financial exclusion of large amounts of the population, and the problem of weak domestic currencies.
At the World Economic Forum (WEF) in 2021, leaders were discussing the validity of the Celo blockchain integrating into these unbanked populations (particularly Africa and South America). The network aims to turn sim cards into wallet addresses, allowing for easy and quick transactions.
The platform makes use of two tokens, CELO, used for governance and gas fees, and a stablecoin, CUSD, eradicating the risks of volatility. The network is also smart contract compatible, exposing users to DeFi products such as lending and borrowing.
The project has gained the approval and support of venture capital firm Andreessen Horowitz, aka “a16z”, Deutsche Telekom and the WEF, indicating that the future looks bright for blockchain integration if such big firms can all look in the same direction.
The Current State Of Cryptocurrencies In Africa
The pandemic fueled the adoption of cryptocurrencies as these digital currencies were more accessible than traditional banking services. With decentralized and deflationary natures, cryptocurrencies pose a more financially viable option to people that can’t rely on their national currency.
According to statistics from Chainalysis, Africa’s crypto market grew by $105.6 billion from July 2020 to July 2021, indicating a 1,200% increase in crypto payments. Adding to this, in 2021, the Central African Republic (and El Salvador) adopted Bitcoin as legal tender, while Nigeria launched its own CBDC (central bank digital currency).
The African continent has been labeled as the third-fastest growing cryptocurrency market in the world and the fastest-growing among developing economies, however, it still remains the smallest.
While it might be the smallest crypto market, three African countries made it into the top 10 countries in the world in terms of crypto use, namely South Africa, Nigeria and Kenya. With a financial system brimming with potential and bringing innovations otherwise inaccessible to millions of people, cryptocurrencies are expanding the finance horizons of underserved customer markets.
Closing Thoughts
Despite the recent bear markets, cryptocurrencies still provide an excellent means for people to engage in financial activities without the constraints of a centralized organisation. M-Pesa has been credited with lifting over 2% of the Kenyan population out of extreme poverty, can you imagine what cryptocurrencies could do?
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