The U.S. company Insights recently conducted a survey of the use of cryptocurrency in regions and found that Africa has the smallest cryptocurrency economy, receiving $105.6 billion worth of cryptocurrency between July 2020 and June 2021, although Africa The cryptocurrency economy in Africa is the smallest, but Africa is one of the most dynamic and growing regions for cryptocurrencies.
Not only has the cryptocurrency market in Africa increased in value by more than 1,200% in the last year, but the adoption rate of cryptocurrencies among the bottom of the population in Africa is also the highest in the world, for example, Kenya, Nigeria, South Africa and Tanzania are all in the top 20.
In addition to being the third fastest-growing cryptocurrency economy, Africa also has a larger share of retail-scale transfers in overall transaction volume than other regions, at just over 7 percent, compared to the global average of 5.5 percent.
Digging a little further, it can be seen that large and small retail payments in Africa also account for a higher share of transaction volume than the global average.
Smaller transfer sizes indicate higher grassroots usage among everyday users. As discussed, P2P platforms are very popular in Africa compared to other regions, and Maoqiu Technology believes that the reason is that many African cryptocurrency users rely on P2P platforms, not only as a gateway to cryptocurrency, but also to transfer their For money transfers and even business transactions.
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What is driving the adoption of cryptocurrencies in Africa?
An important trend in Africa has been the continued growth of P2P cryptocurrency exchanges over the last year. The graph below shows how trading volumes for several African currencies have grown since 2016 on LocalBitcoins and Paxful (the two largest P2P platforms in the world by trading volume).
Thanks in part to this recent growth, no region uses P2P platforms at a higher rate than African cryptocurrency users, as they account for 1.2% of all African transaction volumes, with Bitcoin in particular accounting for 2.6%.
Why are P2P platforms so popular in Africa? One reason is that some countries, such as Nigeria and Kenya, have passed laws or simply proposed that banks will not support transfers, thus making it difficult for customers to send money from their bank accounts to cryptocurrency businesses.
However, for P2P platforms, this is not a problem because these platforms are non-custodial in nature, and cryptocurrencies can be exchanged for cash between customers. There, users can also get more trading options if they choose to transfer their cryptocurrencies to a centralized exchange.
Adedeji Owonibi, CEO and founder of Nigerian blockchain consulting firm Convexity and the associated No. 1 cryptocurrency community hub, CBHUB, told the media that Nigeria’s cryptocurrency economy has changed since the country’s central bank did not allow banks to facilitate cryptocurrency transactions. .
“Binance used to be the most popular platform so far, but after the central bank’s sanctions, many are moving to P2P platforms such as Paxful and Remitano,” he said. However, according to Owonibi, much of the P2P activity takes place through informal group chats on messaging apps rather than traditional platforms.
Owonibi also said, “In Nigeria, there is a lot of informal P2P transactions on Whatsapp and Telegram. I have seen young people and businessmen in these groups make multi-million dollar transactions with popular off-market merchants”. One more thing to keep in mind here is that these informal P2P trading activities are not included in the statistical data, so the P2P activity rate in Africa is even larger than that shown in the above figure.
Artur Schaback, chief operating officer and co-founder of Paxful, a must-go P2P exchange in Africa, confirmed that his platform grew 57% in Nigeria and 300% in Kenya last year. “In many of these frontier markets, people cannot send money from their bank accounts to centralized exchanges, so they have to rely on P2P platforms,” he said.
And he also highlighted the importance of user interface improvements that P2P platforms have made over the past year in attracting new users to these markets. “Crypto products are getting better UX so they can bring more people into the crypto economy and help them buy cryptocurrencies faster, cheaper and more conveniently.”
So after African users use P2P platforms to obtain cryptocurrencies, what do they use them for? Money transfers are one use. In 2019, sub-Saharan Africa received an estimated remittance worth at least $48 billion, about half of which went to Nigeria, according to research by the Brookings Institution.
While most money is transferred to Africa from Europe and North America, there are also significant remittances between Africa, though some African countries impose strict controls on how much currency can be transferred abroad. In Nigeria, for example, some banks limit customers to sending money abroad to $500 at a time.
Cryptocurrency-based remittance payments may be on the rise in Africa. The chart below shows the monthly growth in volume and number of transfers in cryptocurrency payments under $1,000, which Maoqiu believes is the estimated upper limit for sending money to African countries.
It can be seen that the available cryptocurrency remittance payments have been growing since April 2020, but declined in June.
Many African users also rely on cryptocurrency exchanges for international business transactions. Owonibi and Schaback briefed the media on several examples of African business owners using cryptocurrencies to pay for goods imported and sold domestically. “If you’re working with a partner in China to import goods to sell in Nigeria or Kenya, it can be difficult to send enough fiat currency to China to complete the purchase,” Schaback said. After buying bitcoin locally on a P2P exchange, it is often easier to send it to a partner abroad.
Finally, many African users are turning to cryptocurrencies to preserve their savings during poor economic conditions. Schaback said Paxfuls growth in Nigeria accelerated last year amid the currency depreciation. You can check the chart below, the left axis shows the dollar value of Nigerian Naira, and the right axis shows the Naira transaction volume of the P2P platform.
Data shows that when the value of the naira falls, trade in the naira increases.
Owonibi also expanded on the above, noting the nuances of how different socioeconomic groups in Nigeria use cryptocurrencies in different ways. I hear a lot of young people say, Dont depend on the naira, its too volatile, put your wealth in a stablecoin. He said, But this is a middle-class move. Rich people who want to make money are buying Bitcoin and other more speculative cryptocurrencies. It will be interesting to see how cryptocurrency usage continues to diverge by income level.
There is also a scenario where African governments could follow the example of countries like China and launch their own central bank digital currencies (CBDCs), blockchain-based versions of national currencies that can be held and sent in digital wallets. Nigeria has announced plans to launch an electronic currency, but it is unclear whether this will solve the problem of citizens turning to cryptocurrencies.
While it is not certain that users will eventually embrace e-naira (electronic naira), this also suggests that CBDCs may not be a panacea for better monetary policy, especially if citizens do not trust them enough to use them .
