In emerging nations like those in Africa, cryptocurrencies have gained popularity. According to a policy brief recently published by UNCTAD, a United Nations organization. Significant segments of the populations of South Africa (7.1%), Kenya (8.5%), and Nigeria (6.3%) use these digital currencies. The Central African Republic recognized bitcoin as legal tender in June.
Why Is Cryptocurrency Becoming Popular In Africa?
A sizable section of the previously financially disadvantaged low-income population has come to accept cryptocurrencies. The majority of African banks were inaccessible to this group. Low-income account customers were discouraged even when they were not by high transaction costs.
Another aspect is the economic stagnation that has plagued African economies since independence, which has been exacerbated by debt crises and political unrest. This has led to weak currencies in nations like Kenya and Nigeria that have been plagued by inflation.
Cryptocurrencies made a promise to address both the issue of weak native currencies and financial exclusion.
What Does A High Number Of People Holding Cryptos Imply?
This could help the continent of Africa’s economies. Cryptocurrencies can be used to pay for products and services by people who do not have access to banks or banking services.
Additionally, cryptocurrency transactions are thought to be a more secure form of payment. No one can sign transactions or access your funds unless they have access to the private key for your crypto wallet.
But There Are Risks, Too. What Are Those?
To start, cryptocurrencies are really complicated. To adopt them, you need to have some technological awareness. In sub-Saharan Africa, a sizeable chunk of the adult population—34,7 percent—is illiterate and may not be able to understand it. The case for financial inclusion is somewhat flipped on its head by this.
Second, even if it is asserted that the blockchain is a more secure method of conducting business, the drawback is that if you misplace your private key, there is no way to get your money back. If you have a bank account, this threat does not exist.
Thirdly, cryptocurrency volatility has a long history (as is currently being experienced in the crypto market). Retail investors have been negatively impacted by this, especially those who do not understand this type of asset class.
The deterioration of effective capital restrictions in African states is a related threat. These are necessary to stop capital from leaving home economies. Any weakening could cause severe currency rate volatility and a sharp depreciation of native currencies.
What Is The Future Of Cryptocurrencies In Africa?
Cryptocurrency represents the future of money and financial transactions, despite the market’s continuing decline. Additionally, there are signs that cryptocurrencies are here to stay, as seen by the fact that more and more nations are beginning to recognize them. At one extreme, the governments of El Salvador and the Central African Republic have accepted bitcoin as legal tender, despite harsh condemnation of the implementation and effects on their larger economies.Share & like