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Is Africa the Next Crypto Hub?
A crypto hub/center is a country or city where a large and diverse number of crypto services providers are headquartered. For any city or country to become a crypto hub, several things must be in place to cater to the needs of crypto services providers, the most important of which are regulations and infrastructure.
There are many advantages to a city being a crypto hub. Institutions like cryptocurrency exchanges, DeFi Application developers, crypto minting companies, crypto infrastructure providers, and crypto investors prefer to be situated in crypto hubs because of the network effects. With so many institutions and individuals aggregated in the hub, the city or country stands to gain a lot, significantly the increase in tax revenues and employment rates.
This article will analyze crypto adoption in Africa to determine Africa’s prospects of becoming a global crypto hub.
Crypto Adoption in Africa.
The primary indicator of Africa’s crypto hub potential is the adoption rate of cryptocurrencies on the continent. According to a 2021 Report by Chainalysis, the value of cryptocurrencies transacted on the continent grew by more than 1200% between Q3 2020 and Q3 2021 as a result of adoption by everyday users.
Africa ranks as the third fastest-growing cryptocurrency economy, with Kenya, Nigeria, South Africa, and Tanzania ranking in the top 20 countries in Chainalysis’ Global Crypto Adoption Index. The primary reason for the rapid adoption of cryptocurrencies in Africa is the continent’s socio-economic problems.
Many African countries have turbulent political conditions and rampant inflation, making government-backed currencies volatile. This has led many to seek alternative means of safely storing their wealth. For example, rampant corruption and political instability in Zimbabwe have led to a growth in the inflation rate since 2009. It stood at 96.4% in April 2022. Zimbabwe’s hyperinflation results in a 38% drop in GDP and a 70% rise in unemployment levels.
Another socio-economic challenge pushing Africans to adopt cryptocurrency is foreign exchange remittance restrictions. Nigeria, for example, limits foreign remittances to $2,000 per transaction, and it can take weeks before each transaction is processed and approved. That leaves Nigerians with one of two options: go through the hassle of purchasing foreign exchange on the black market or purchase crypto through P2P platforms on a smartphone and make the transfer within minutes. Nigerians are increasingly choosing crypto. To prove this, Finder’s December 2021 Survey ranked Nigeria as number six on the list of countries with the highest proportion of citizens holding cryptocurrencies globally.
Challenges to Africa’s Crypto Hub Status.
Regulatory Challenges.
The significant challenge for Africa becoming the next Crypto Hub is the African governments’ outlook on cryptocurrencies. Of the 54 countries that make up the African continent, 23 have placed absolute or implicit bans on the use and trading of cryptos. The reasons African governments give for putting absolute or implicit bans on cryptocurrencies are typically taxation challenges, anti-money laundering laws, or combatting the funding of terrorism.
Although everyday users of cryptocurrencies have devised means of bypassing government bans, the move has had detrimental effects on Africa’s crypto industry. The crypto bans have extracted liquidity from formalized crypto exchanges hoping to collaborate with governments to make regulations for the industry.
With good players out of the way, bad actors have been given room to operate. The criminals who governments claim to have been targeting with their bans would usually have found it challenging to move large volumes of cryptocurrency on large formalized exchanges due to stringent KYC measures, but that is no longer the case as shady operators can now freely facilitate transactions below the radar of law enforcement.
Electricity Challenges.
Any region must have a steady power supply and a robust energy grid to become a crypto hub. However, even major African economies – like Nigeria, Egypt, and South Africa – currently find it challenging to supply stable and reliable electricity to their citizens. In most African countries, extended blackouts are the norm.
Crypto companies will not consider moving into regions with regular blackouts and expensive power. And as a result of pressure from climate change activists, crypto businesses are pivoting away from energy-guzzling technologies, like the proof-of-work consensus mechanism, and turning to green and cheap power alternatives like solar or geothermal energy, natural gas, or even nuclear power.
According to the Africa Development Bank (AfDB), Africa has the potential to produce 10 TW of Solar energy, 350 GW of Hydro energy, 110 GW of wind energy, and 15 GW of Geothermal energy. Africa must tap into this potential to become a Global Crypto Hub.
Final Thoughts: Africa’s Crypto Hub Potential.
Africa is home to the world’s youngest population. It is home to 226 million people aged between 15 to 24. They are eager to upturn the existing finance, government, and technology systems to introduce modern technologies that will support the speedy development of solutions to the problems in the continent.
The youth are eager to create a future where they can make the most of their skills and resources. They recognize that one key to unlocking Africa’s vast potential is to tap into the enormous potential of cryptocurrencies and the transparency, resilience, and accountability of blockchain technology.
Although there is a tight regulatory environment for cryptocurrencies on the continent, the fact is that the governments of most African countries – even those with bans – haven’t made amendments to their constitution to legalize their crypto bans fully. Other than directives from central banking authorities, governments have not gotten in the way of activities in the crypto industry.
Cryptocurrency presents an opportunity for Africa to become a global leader in new-age technology development. If cryptocurrency and blockchain technology is embraced, and a regulatory framework and critical infrastructure (such as green and stable electricity, shared workspaces, community conferences, and local government collaboration) are put in place, a Crypto Hub will be born in Africa that could trigger the creation of global multibillion-dollar businesses.
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