“Necessity is the mother of invention” would be the most suitable phrase to use when talking about the fast-growing enterprise, cryptocurrency. Satoshi Nakamoto saw the need for a decentralized global currency, realizing that it would be most unlikely to succeed in fiat form; Satoshi made a digital currency, “Bitcoin,” to serve the same purpose.
This also can be said of the rise of Bitcoin’s derivatives and other cryptocurrency tokens globally, and the need for a global currency. However, this doesn’t fully explain the sudden boom in the usually “overly cautious” African market. The mass adoption of cryptocurrencies, especially Bitcoin, in Africa, although not surprising, has been somewhat unprecedented and explosive.
The rise of Bitcoin in Africa can be likened to the “oil boom” era, with investors rushing to make either short-term or long-term profits, everyone looking to exploit open opportunities in the market, wealth creation, or wealth accumulation. However, Bitcoin is no mineral resource. Nevertheless, this makes it alluring—the lack of government presence or a regulatory body and the anonymity that follows transactions.
Most investors are either looking to create or acquire wealth, avoid taxes on business transactions and income or avoid the all-knowing eyes of the government.
Adoption Among African Youths: Gen-Z, Millennials, and the Crypto-Craze
About five years ago, only the most insane of cryptocurrency analysts would have been able to foresee the current state of cryptocurrency and blockchain technology in the African continent with multiple levels of skepticism. Although Africa is considered the smallest cryptocurrency market, the level of adoption of Bitcoin and its competition within the continent has caused the governments to fear the devaluation or fall of Fiat currencies in Africa.
While many, especially non-Africans or people in the diaspora, would argue that the current cryptocurrency surge in Africa is due to its wealth creation opportunities, there are underlying psychological undertones behind the mass adoption of Bitcoin and its competition within the continent.
Africans are naturally apathetic to authority or leadership. The average African would rather choose to live in squalor with their “dignity” intact than have someone lord over them because of certain benefits. Bitcoin provides an autonomous financial system for people who are already “disgruntled” and “apathetic” towards the traditional banking systems and their many failings. Banks in Africa run on a “dictatorship”; they embody nearly everything wrong with the conventional banking system. The already growing distrust in the traditional banking system operations contributed in no small part to the adoption of Bitcoin and other cryptocurrency tokens in Africa.
However, as every commodity has its target market, the primary users of Bitcoin in the African cryptocurrency market seem to be the youths, “Gen-Z and Millennials born in the 90s”. The popularity of social media within this group also plays a role in the Bitcoin boom, with social media influencers using their various platforms to popularize these cryptocurrency options.
Bitcoin a Cultural Phenomenon
Another influence is the innovative mindset of the African youth. The continent is plagued with “apathetic” governments who do not care or pretend not to care about the general welfare of their citizens; this has created lots of financial constraints, with the primarily impoverished masses having to fend for themselves or settle for the poor-paying scarce employment opportunities “hidden” within the nooks and crannies of these nations.
With the scarcity of jobs comes unemployment and growing poverty. Bitcoin serves as a viable investment for people looking to accumulate capital to either start or expand a business and people looking to save their financial resources. At the same time, it increases over time in the system. This brings us to the “grand” boom of the early COVID-19 lockdown phase.
Before the pandemic and the lockdown protocols which followed suit, Bitcoin, its derivatives, and every other cryptocurrency option was experiencing considerable losses. Losses do not exactly convince investors of the viability of a project; profits do. The pandemic created a scare amongst people, primarily the reluctance to touch the skin; hence “paper” fiat money declined. Tech-savvy individuals and organizations resorted to electronic transactions. With the pandemic restricting movement and contact, people lost their source of income, adding to the unemployment rate in the continent with the highest number of unemployed “youth”.
With the world economy failing, Crude Oil prices and its produce depreciating, African nations were worse hit. The tech-savvy youths turned to the most viable wealth creation option, which also happens to be a global currency and an acceptable form of payment globally, reducing the cost of transactions related to fiat currencies and enabling market-ready youths to make profits and attain some levels of financial independence.
Bitcoin was right on time to help the already teeming market of mostly unemployed African youths invest their funds for significant returns. It was already a majorly acceptable form of payment. It eliminates the need for African fiat currencies, which constantly face devaluation and make it hard for folks to create wealth for themselves.
Regulations Binding Cryptocurrency Operations in Africa
The original concept of cryptocurrency creation was establishing a financial system free from control, especially that of the world’s governments. Bitcoin’s “white paper” had it all in detailed letters, a decentralized system that allows users to control their assets and the transactions on its blockchain network.
Cryptocurrency only began to gain prominence in 2012 through Bitcoin and on the Bitcoin server slightly. Hence, blockchain and cryptocurrency are relatively innovations for some parts of the world. African leaders are often particularly suspicious about new technology; history shows that this isn’t without cause; this suspicion isn’t due to intruding external forces but rather a growing alarm signaled by the gap between leaders and should-be followers.
The consequence of this suspicion in some African states is complete apathy towards Bitcoin, cryptocurrency, and blockchain. They are resulting in a completely free market without regulations or control. However, while Bitcoin was designed to be unregulated, humans sometimes need rules to maintain the proper ethics, and no business can continuously do it on illegitimate operations. An unregulated market has increased the occurrence and likelihood of fraudulent activities in the crypto space. With no organization regulating cryptocurrency activities in most African countries, fraudulent exchange services have found a thriving market space, scamming people of their finances and cryptocurrency assets.
Reflecting on the business models of the unregulated cryptocurrency market, certain African governments have moved to regulate crypto exchange services, on realizing how much value can be extracted from this market. Since Bitcoin and its competitors aren’t taxable assets yet, African governments target the exchange services with ridiculous tariff rates. The Central Bank of Nigeria, on Feb 5, released a letter ordering banks to foreclose on accounts of crypto exchange services and other allied organizations, stating that Bitcoin and the likes remained illegitimate so long as they aren’t regulated or taxable. This move raised lots of dust in the Nigerian cryptocurrency market and beyond.
While regulation is needed, sometimes, for proper business ethics to thrive and tackle illegalities, overregulation hinders innovation and forces investors out of a region. It’s like they say, “moderation is essential for comfort.”
What Are the Likely Possibilities of Reaching a Consensus?
What is the way forward? What steps should or could be taken to help the government and cryptocurrency investors reach an agreement where both parties aren’t on the losing end.
Instead of stifling innovation and blocking the income bridges of the young masses like in Algeria, Libya, Morocco, and Nigeria, regulations that cajole foreign exchange services to establish offices and get registered in the country to carry out their business, just like the South African government did. This way, the exchange services are regulated, local investors are assured of the safety of their investments, the government receives taxes from the exchange services, and investors use their profits to bolster the local economy.
Creating investor-friendly regulations would serve the government better in the long run. Investor-friendly business laws boost innovation locally and help to build the interest of foreign investors, who in turn push cash into the system and the economy at large. Laws like those decreed in Algeria, Libya, Morocco, and Nigeria, only help further to aggravate the distrust between the government and its citizens.
Bitcoin and other cryptocurrency tokens have found a rather developed and booming market in the African continent, mostly financed and run by the youths; despite the harsh regulations of certain African governments, there seems to be a bearish trend in investing.
For the larger part of the African market, Bitcoin serves as a means of wealth creation to combat the failing economy and lack of opportunities. In a society with adequate infrastructure and competent financial advisors, African governments should encourage the adoption of cryptocurrency and the blockchain network, increase investment value, and possibly money promote the creation of a local digital currency. However, the reverse is the case.