Cryptocurrencies have been gaining popularity in Africa as a way of facilitating cross-border payments, remittances, and financial inclusion. However, the regulatory landscape for crypto assets in the continent is still unclear and fragmented.
Africa is a continent with immense potential for the adoption and development of cryptocurrencies and blockchain technology. According to a recent report by Chainalysis, Africa is the third-fastest growing region for crypto transactions, with a 12% increase in volume from July 2020 to June 2021. The report also highlights some of the key drivers and challenges for the crypto industry in Africa, such as remittances, inflation, regulation, and infrastructure.
One of the main reasons why many Africans are turning to crypto is to facilitate cross-border payments and remittances. According to the World Bank, remittances to sub-Saharan Africa totaled $48 billion in 2019, accounting for 2.6% of the region’s GDP. However, sending money to and from Africa can be costly and inefficient, with an average fee of 8.9% per transaction, well above the global average of 6.8%. Crypto platforms such as Paxful, BitPesa, and Chipper Cash offer cheaper, faster, and more accessible alternatives for remittance services, allowing users to send and receive money in various cryptocurrencies or local currencies.
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Another factor that drives the demand for crypto in Africa is the high inflation and currency devaluation that plague many African countries. According to Trading Economics, the annual inflation rate in Zimbabwe reached 50% in June 2021, while in Nigeria it was 17.75%. In contrast, the inflation rate of Bitcoin is currently around 1.8% and is expected to decrease over time as the supply becomes scarcer. Crypto offers a way for Africans to preserve their purchasing power and hedge against the risks of fiat currency instability.
One of the main challenges for crypto regulation in Africa is the lack of a harmonized approach among different countries. While some countries, such as Nigeria, Kenya, and South Africa, have issued some guidelines or warnings on crypto activities, others have banned or restricted them outright, such as Algeria, Morocco, and Egypt. This creates uncertainty and confusion for both users and service providers, who may face legal risks or barriers to operate across borders.
Another challenge is the lack of capacity and resources to effectively regulate and supervise the crypto sector. Many African countries lack the technical expertise, infrastructure, and data to monitor and enforce compliance with existing laws and regulations. Moreover, some regulators may have conflicting or overlapping mandates, such as central banks, securities commissions, and financial intelligence units. This may lead to regulatory gaps or inconsistencies that could expose the sector to fraud, money laundering, terrorism financing, and other illicit activities.
However, there are also some opportunities for crypto regulation in Africa that could foster innovation and growth. One of them is the potential for regional cooperation and integration. Several regional initiatives, such as the African Continental Free Trade Area (AfCFTA), the Single African Digital Market (SADM), and the Pan-African Payment and Settlement System (PAPSS), could provide a platform for harmonizing and streamlining crypto regulation across the continent. This could reduce regulatory arbitrage, enhance market access, and promote interoperability among different crypto services.
Another opportunity is the adoption of a risk-based and proportionate approach to crypto regulation. Rather than imposing a one-size-fits-all framework that may stifle innovation or exclude certain segments of the population, regulators could tailor their rules and standards according to the specific risks and benefits of each crypto activity. This could encourage experimentation and innovation while ensuring consumer protection, financial stability, and integrity.
For example, some crypto activities may include buying and selling cryptocurrencies on an exchange platform, sending and receiving cryptocurrencies through a wallet service, or using cryptocurrencies to pay for goods and services on a merchant platform. Each of these activities may pose different levels of risk and require different levels of regulation. This could encourage experimentation and innovation while ensuring consumer protection, financial stability, and integrity.
Another challenge is the lack of adequate infrastructure and internet access that are essential for using crypto. According to Internet World Stats, only 39.3% of the African population had internet access as of June 2020, compared to 62.9% globally. Moreover, many Africans still lack access to basic financial services, such as bank accounts and mobile money platforms, which are often required for buying and selling crypto. According to the World Bank, only 43% of adults in sub-Saharan Africa had a bank account in 2017, while only 21% had a mobile money account.
Despite these challenges, the future of crypto in Africa looks bright and promising. The continent has a large and young population that is eager to embrace new technologies and innovations. The crypto industry also offers opportunities for entrepreneurship, job creation, social impact, and financial inclusion for millions of Africans. As more people become aware of the benefits and potential of crypto, and as more solutions emerge to address the existing challenges, Africa could become a leading force in the global crypto scene.
By adopting a harmonized, risk-based, and proportionate approach to crypto regulation, African countries could leverage the potential of cryptocurrencies to enhance financial inclusion, economic growth, and regional integration across the continent.