Africa is evidently still ambivalent on the use of digital currencies and Blockchain technology. While some countries appear open to allowing these innovations to take root and see how they unfold, others seem not convinced at all that they have the needed attributes to be serious currencies as they look to be too easy prey for fraudsters and hackers.
Experts say this uncertainty among African countries is largely due to the lack of adequate knowledge on what these innovations portend for the financial sector.
Seven African countries have completely shut the door on cryptocurrencies while 10 countries are yet to make any decision regarding their adoption.
Kenya ranks high on the continent in adoption of cryptocurrencies. A Citibank report places Kenya among African countries holding the highest amount of cryptos that translate to 2.3 percent of Gross Domestic Product.
This fast adoption among Kenyans, however, runs against a series of warnings by the Central Bank of Kenya (CBK), which has vehemently stated that digital currencies are an unregulated territory.
“CBK reiterates that Bitcoin and similar products are not legal tender. The public should, therefore, desist from transacting in them,” CBK says in a statement on its website.
In East Africa, Kenya is not the only country that is yet to embrace cryptos. The Bank of Tanzania (BoT) has too advised its citizens to be very cautious when trading on the digital currencies.
“BoT considers the recent surge in the prices of cryptocurrencies to be driven by speculation. The risk of a sharp reduction in prices is high. Investors should be aware that they risk losing all their capital,” says BoT assistant manager Abdul Dolla.
Uganda’s central bank is not enthusiastic as well on the use of digital currencies. Trusting Bitcoin and other digital currencies, the financial regulator said, “is taking a risk in the financial space where there is neither investor protection nor regulatory purview”.
This position of cautious stance among East African countries is a common narrative in many other African countries such as Nigeria, South Africa, Zimbabwe and Malawi.
The only country in Eastern African which is apparently giving a serious thought to cryptos is Rwanda, which is looking into the possibility of having its own digital currency. The country is poring through diverse researches on the currencies to help them make informed decision on the matter.
Despite the uncertainties regarding Blockchain and cryptos, experts aver that these technologies will keep disrupting the finance sector, even in countries that are reluctant to embrace them. This eventuality appears to be clearer to citizens than the State as uptake of these technologies is on the rise.
Kubitx’s Ghanaian chief executive Eric Annan told Afcacia that as the government institutes measures to clamp down on cryptocurrencies, the interest among citizens seems to have been piqued.
Even the unfavourable position taken by Africa’s central banks seems not to dampen the usage of the currencies in Kenya, Uganda, Tanzania, Ghana, Nigeria, Benin, South Africa, Liberia and Burkina Faso.
Experts however say the reluctance and cautiousness among African countries is not entirely misplaced. Ray Youssef, chief executive of global peer-to-peer Bitcoin marketplace Paxful, noted that such caution is understandable, especially when there exists a knowledge gap on the implication of new technologies.
“I don’t blame them for being cautious. African countries will have to enact solid data protection laws to shield users against cybercrime,” he notes.
It is the duty of the government, Mr Youseff adds, to protect their citizens against all manner of financial frauds.
“When traders get scammed, governments get scared. But such fraud arises from the lack of awareness on the part of users. Regulators should help to educate the masses about safe crypto trade,” he says.
He is, however, confident that cryptocurrencies will transform transactions on the continent, and even holds the view the currencies represent the future of global exchange and trade.
Mr Youseff says Africa stands to benefit by creating a favourable financial and regulatory environment for digital currencies to take root and thrive. These benefits, he says, include easing payments across borders, fostering e-commerce, preserving wealth and helping to promote financial inclusion.
“An in-depth look at emerging technologies like Blockchain, cloud computing, Internet of Things, data science, machine learning and 3D printing reveals that these technologies will benefit Africa more than any other continent,” says Timothy Oriedo, founder of Big Data firm Predictive Analytics.
Dr Bitange Ndemo, the chairman of Kenya’s Distributed Ledger Technologies and Artificial Intelligence task force, says cryptocurrencies make transactions faster while cutting costs.
“Kenyans are now using cryptos to buy vehicles from abroad. There is a big capacity for their use in Kenya, especially for citizens in the diaspora who wish to send cash to their families in the rural areas,” he says
Mr Youseff advises users to familiarise themselves properly with intricacies and risks involved in the use of digital currencies in order to avoid being swindled.
Joshua Mutisya, co-founder of crypto solutions platform Totalcoin, says fraud can be addressed if proper systems are put in place.
“If you are selling Bitcoins to a user paying using M-Pesa, the Bitcoins are held for up to 15 minutes to validate the transaction. If the M-Pesa money is not received within that time, the transaction is cancelled. For those who steal from unsuspecting buyers, their wallets are frozen and money reversed in less than five minutes,” says Mr Mutisya.
Escrow accounts, he notes, are very crucial in the case of a transaction where parties who are strangers are involved and a certain number of obligations need to be fulfilled before a payment is released.
To curb the volatility in the trade of cryptos, stablecoins such as Maker, Tether, Paxos Standard, USD Coin and True USD have been developed. Stablecoins give owners a safe place to store their assets whenever uncertainty wrecks the global crypto landscape. Users can quickly convert from unpegged cryptos to stablecoins when they are worried about the future of the markets. This eliminates the stress of going back to a fiat currency.
However, these coins too are fraught with their own set of controversies. Tether, for instance, has been accused of manipulating the prices of key cryptocurrencies such as Bitcoin, Ethereum and Ripple during the crypto boom of 2017. Some researchers claimed that half of Bitcoin’s price in December of that year surged due to the stablecoin.
But more hurdles exist in mobile money integration, scalability, and transaction speed, interoperability of different ledgers, data privacy and network security. Africa has to surmount these formidable roadblocks to foster cryptocurrency adoption.
But despite these hurdles, technology and financial experts are confident that eventually, digital currencies will gain momentum and drive shared economic prosperity.
“Even with all of these problems the future is bright still. African start-ups have been leveraging Blockchain technology into making secure and transparent payment solutions. Cryptocurrency’s battle for dominance will not only help central banks in the continent improve and reform but it’s also advantageous for the crypto space and will help catalyse new ideas and innovations,” remarks Mr Annan.
However, the shackles of fraud, ignorance and scepticism in Africa’s crypto space, if not addressed will keep hurting the mass adoption of Blockchain, the technology behind cryptos, and to a big extent cause the continent to lose out on Industry 4.0 as other continents advance their economies.