Over the past 10 years or so, the significant opportunities presented by cryptocurrency for fast wealth creation, albeit at significant risk, have created a skewed perception of crypto as primarily an investment asset class. This is the view of Hannes Wessels, country head for Binance South Africa.
While well-considered investment in many types of digital currencies has the potential to augment the value of many portfolios, the most significant impact of cryptocurrency in the years ahead is likely to come from the steadily increasing acceptance of its function as a decentralised finance solution.
This is especially true in the African context, where the acceptance of cryptocurrency as a way of making and receiving day-to-day payments for goods and services is steadily gaining momentum.
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A June 2022 policy brief by the United Nations Conference on Trade and Development (UNCTAD) showed that between 7% and 9% of people in South Africa, Kenya and Nigeria are now regularly using digital currencies as a way to pay.
The recent adoption of crypto as legal tender by the Central African Republic points to the fact that digital currencies are not just gaining acceptance amongst the general public; their potential for economic transformation is also increasingly being recognised by African governments.
The reason for the good, and growing, acceptance levels of crypto in the emerging economies of Africa is not hard to see.
A long history of colonialism, and in South Africa’s case, apartheid, left the vast majority of low-income citizens of African countries isolated from mainstream financial systems.
While the “traditional” financial services industry has been working to rectify this situation in recent years, many poorer Africans still find themselves financially marginalised due to the high transaction costs involved in accessing mainstream banking and financial services.
When you add to this the local currency weakness still seen in many African countries, coupled with the high cost and low value of money in general, due to rampant inflation and interest rates, it becomes clear why the people of Africa are ready for a viable, cost-effective and affordable alternative to fiat currencies.
Against this backdrop, the potential for digital currencies to not only transform lives and businesses but also underpin the development of entire economies cannot be underestimated. There are too many proof points of this potential to mention.
For example, crypto allows families of migrant workers to receive money transfers far quicker, and at a higher value, thanks to fees of around 0,1% per transaction versus the 3% to 5% they’re currently paying.
Consumers won’t have to first open bank accounts before making payments, nor will they need to risk carrying any cash. Merchants, service providers and even taxi owners, will be able to receive immediate digital payments, also at a very low cost and with no risk of theft. And that’s just the tip of the iceberg.
What’s more, when you consider that the vast majority of African people and businesses already use their mobile devices to make and receive payments, the step from costly, and often cumbersome, fiat-based peer-to-peer payments to easy, affordable and fully secure blockchain-driven payments ecosystem is a very small one.
Of course, the value of digital currencies to Africa’s economic development is certainly not limited to their use as a currency. As crypto gains acceptance as an institutional investment vehicle, it will undoubtedly become an increasingly important and valuable component of most institutional investment structures, from retirement funds to various public sector investment vehicles.
Then there is the catalytic impact that blockchain is having on vital entrepreneurial development on the continent. Blockchain start-ups in Africa are on a stellar trajectory, accompanied by a steady increase in funders and venture capitalists ready to back the trend. Some tech commentators even contend that the continent will be a global leader in blockchain innovation and capitalisation by the start of the next decade.
Of course, there is still a long way to go for the full potential of crypto to be realised in Africa. This is evident from the fact that, despite being amongst the fastest-growing cryptocurrency markets in the world over the past year, the African region remains one of the smallest crypto markets in absolute terms.
Clearly, there are still many hurdles that digital currencies and blockchain technology need to overcome if they are to be the enablers of economic inclusion and development that they can be in Africa. For one, the exponential growth in uptake that is needed will only happen as more advocates for crypto emerge, both within government circles and in the business and consumer environment.
Then, effective and efficient digital currency connectivity needs to be established with fiat currencies, which are obviously still essential links in the crypto value chain. And, of course, that ever-elusive regulatory balance needs to be achieved where the potential for criminal activity using crypto is limited, without inhibiting its value as a legitimate currency, investment and tech development vehicle.
But while these challenges to full-scale adoption of crypto as a currency of choice in Africa still exist, they are steadily being chipped away. And as they are, even more opportunities are emerging for digital currencies to finally deliver the real financial inclusion and economic transformation for which Africa has so long been waiting.
- Hannes Wessels is the country head for Binance South Africa. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Ventureburn.
