Can African countries avoid digital currency adoption? (2) 

Continued from last edition

After the CBN’s order on February 5, 2021, prohibiting Nigerian Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFs), and Other Financial Institutions (OFIs) from working with cryptocurrency exchanges, Helicarrier found a workaround to help their customers. They no longer directly accept deposits or process withdrawals in Nigeria but they introduced peer-to-peer (P2P) deposits and withdrawals by matching user deposits to user withdrawal requests.  The following is how this alternative works according to medium.com: (1) User A wants to deposit N5,000. (2) User B wants to withdraw N5,000. (3) Helicarrier matches these two requests. (4) The depositor (User A) is instructed to make a transfer to User B through a payment method of their choice. (5) After confirmation of receipt of payment, Helicarrier debits the withdrawer’s (User B) Helicarrier NGNT balance, and credits the depositor. This seems to be cumbersome as getting deposit and withdrawal amounts of equal proportion may be difficult and matching may take some days.

Sun Exchange: Sun Exchange makes it possible for South African businesses and individuals to buy solar panels and to lease them to companies, farmers, or schools. This project allows the growth of innovative solar panel networks made possible by mobile payments, online payment, and the use of cryptocurrencies.

LEAF: LEAF is a Rwandan company that is developing a platform of mobile applications to facilitate the conversion of currency into virtual currency via blockchain technology, dedicated to the population that does not have access to banks in Africa, especially in the rural areas.

Bitmama: Bitmama, a Nigerian fintech company that allows people to trade by converting their local currency to cryptocurrency, was launched in 2018. It provides a platform for traders to exchange their fiat currency directly with digital money like Bitcoin, Dash, and Ether.  It allows its users to create their own wallets and start buying or selling digital currencies by connecting with their bank accounts, credit or debit cards, and mobile money accounts. It also offers institutions and professionals the ability to trade a variety of digital currencies like Bitcoin, Dash and Ethereum. They have released several communications to their customers educating them about cryptocurrencies ban and how it affects some services such as naira deposits and withdrawals while providing alternate solutions.

Centbee: Centbee is an innovative South African Bitcoin start-up with global ambitions. It is a payment company specialising in merchant payments, cross-border remittances, and other cryptocurrency-related products. This is possible through its mobile wallet which allows users to make transactions with Bitcoin SV, making it easy to spend, receive, and store the Bitcoin SV.

Cajutel: Cajutel, a Swiss Internet access provider, aims at deploying its internet broadband in Guinea-Bissau through virtual currency fundraising. This internet broadband network is to be powered by solar energy. This will not only reduce its dependency on electric energy which often impairs its operations, but also its costs by not using fuel when the electric supply fails. The company intends to fund this large-scale project through a virtual currency fundraising: the “Ether” with 720,000 tokens and 60,000 added actions to fund allowances and advertising costs. 1,000,000 tokens will be retained by existing shareholders. In total, 1.78 million tokens will be in circulation. In constructing a solar-fuelled high-tech broadband internet network, Cajutel aims to become a reference at providing access to high-quality internet access at reasonable prices.

Cryptocurrency challenges in Africa

Resistance from regulators is one of the biggest challenges of cryptocurrency in Africa but digital literacy in Africa is also a barrier. Since cryptocurrency currently uses the internet to be processed and Africa still has low internet penetration, African citizens will find it hard to exchange cryptocurrencies with one another. A lot of Africans still believe in transacting with physical currencies. The digital platforms for transacting digital currencies are not licensed by the central banks of African countries and so are not legalised for banking transactions and may be banned from the internet.

However, according to bitcoin.com, there is also an increasing focus on the transmission of encrypted payments without internet connectivity. As exemplified by M-Pesa in Kenya in 2013, investing in technology by these mobile money operators may be a challenge, thereby affecting quality of services.

To date, Blockstream has been the pioneer in the field of technology investment, creating a satellite network with global coverage that broadcasts the Bitcoin network for free. Even at this, transacting in exchange of money or trading in money are banking services that require approval from the national central bank. The founder of the first cryptocurrency is faceless. The first cryptocurrency was created by Satoshi Nakamoto, the pseudonym for an anonymous computer programmer or group of programmers, on January 3, 2009, when Bitcoin software was made available to the public. Claiming investment in cryptocurrencies by third parties as an inheritance may be difficult. The depositor needs to pass on to the heir/s the private key and wallet address; without this information, the funds would be unrecoverable.

Cryptocurrency prospects in Africa

Despite all the challenges of digital currencies in Africa, the idea is fully gaining ground and operates in a background market form. Cryptocurrency may serve as a solution for the banking need of the “unbanked”. It is a method to economically allow the population to control their own wealth. The intangible nature of digital currencies means that a government cannot physically remove the wealth of a citizen. Successful adoption of mobile money in Africa can either be a good starting point for a citizen to understand and adopt cryptocurrency or be a comfort zone for the citizen who wants to trade digitally.

About 144 mobile money providers operate in sub-Saharan Africa, with four companies such as M-Pesa, MoMo, Orange Money and Opay accounting for a significant share of the market. M-Pesa, managed by Vodafone and Safaricom and operating in seven countries, has been growing considerably in recent years. While mobile money services rely on a centralised business model to operate, extracting fees and revenues from customers, cryptocurrency is decentralised and has the potential to offer almost-free transactions.

According to the cynics, the greatest challenge of non-banking institutions offering cheap banking services is the security of the money collected as the institutions are neither insured by deposit insurance corporations nor have a solid capital base stipulated by central banks for banking institutions. This is a great concern for bank regulators especially in a sector known worldwide to be rife with Ponzi schemes. But since countries like Jamaica are beginning to recognise digital currency as legal tender, one can only imagine the position of African countries in the scheme.

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