A recent report by digital analytics firm Chainalysis shows that Africa has the smallest cryptocurrency economy in the world and that between July 2020 and June 2021, the continent of Africa received cryptocurrency worth $105.6 billion. Compared to other parts of the world, Africa has the smallest cryptocurrency and this can be blamed on several factors. The rate of crypto adoption in the country is quite slow and countries that have the largest markets, like Nigeria, have either outrightly banned cryptocurrencies or have huge reservations about them.
“Africa has the smallest cryptocurrency economy of any region we study, having received $105.6 billion worth of cryptocurrency between July 2020 and June 2021, but despite that, it’s also one of the most dynamic and exciting”, the Chainalysis report stated.
Let’s look at the Nigerian situation as an example. The Federal Government banned the use of cryptocurrency in the country. Nigeria was the country with the highest trading volume after the United States as of that time and had traded over $500 million worth of cryptocurrency. Banning cryptocurrency in the country meant shutting down businesses in crypto and bringing crypto-related activities to a halt. Nigeria contributes one of the largest, if not the largest, part of Africa’s cryptocurrency economy, and bringing crypto-related activities was tying a rope to the neck of the growing cryptocurrency economy.
Irrespective of the crypto ban in Nigeria, the Chainalysis reports explained that the cryptocurrency market in Africa has grown by more than 1,200 percent under the space of one year. Kenya, Nigeria, South Africa, and Tanzania had the highest adoption rate in the whole of Africa according to the report which also included these countries in the top 20 countries of its Global Crypto Adoption Index.
Although it has the smallest cryptocurrency economy, the continent is one of the fastest-growing cryptocurrency economies in the world. The Chainalysis report says that it is the third fastest-growing crypto economy in the world. “In addition to being the third-fastest growing cryptocurrency economy, Africa also has a bigger share of its overall transaction volume made up of retail-sized transfers than any other region at just over 7%, versus the global average of 5.5%”, it said.
For Nigeria, peer-to-peer (P2P) transactions (which is also a part of the cryptocurrency system in other parts of Africa) took over after the ban. Statistics show that the continent has the largest share of transaction volume which is made up of large retail and retail-sized payments when compared to other continents/regions. The report says that “these numbers are a big part of why so many African countries rank high on our adoption index, as smaller transfer sizes suggest higher grassroots adoption amongst everyday users.”
The report also did a critical analysis on peer-to-peer transactions, as it is the widely used ‘loop’ that cushions the effects of the regulations standing against cryptocurrency in various African countries. A February report from us showed that a week after the crypto ban, Nigeria led other countries with about $7.35 million in P2P trading on LocalBitcoins and Paxful. Kenya, her closest rival had a transactional value of just $2.86 million, while South Africa took third place with a transactional value of $2.38 million.
The Chainalysis report revealed that peer-to-peer transactions have continued to grow and that Nigeria continues to lead the pack. Nigeria’s Year-to-date (YtD) peer-to-peer trading volume is over $300 million on platforms LocalBitcoins and Paxful. “No region uses P2P platforms at a higher rate than African cryptocurrency users, as they account for 1.2% of all African transaction volume and 2.6% of all volume for Bitcoin specifically”, the report added.
The report also included the comment of Adedeji Owonibi on how Nigeria’s cryptocurrency economy has changed since the country banned cryptocurrency in the country. Adedeji Owonibi is the CEO and Founder of the Nigerian Blockchain consultancy firm Convexity. In the report, he said that “Binance used to be the most popular platform by far, but after the central bank’s sanction, many are moving to P2P platforms, like Paxful and Remitano. Informal P2P trading is huge in Nigeria on WhatsApp and Telegram. I’ve seen young people and businessmen in these groups carry out transactions for several million with popular OTC merchants.”
“In many of these frontier markets, people can’t send money from their bank accounts to a centralized exchange, so they rely on P2P. Crypto products are getting more user friendly, so they can onboard more people into the crypto economy and help them see that crypto is faster, cheaper, and more convenient”, Artur Schaback, the COO and co-founder of exchange platform Paxful said explaining that the platform has seen 57 percent growth in Nigeria over the past year and 300 percent in Kenya.
Following its ban on cryptocurrencies, Nigeria has announced that it is launching its Central Bank Digital Currency (CBDC). There is a lot of controversy and sentiments surrounding the digital currency called e-naira. The e-naira is set to launch on October 1st this year to commemorate the country’s 61st independence anniversary. With the launch of the e-Naira less than a month away, there are many questions on the lips of skeptics as well as on the lips of the average Nigerian. The questions surround how feasible the project is compared to the country’s realities, and also how useful the e-naira will be.
Africa has shown, from the Chainalysis report, that it has huge potentials in regard to cryptocurrency, and irrespective of the unfavourable regulations surrounding cryptocurrency, it has thrived. Cryptocurrency has thrived with options like peer-to-peer and have attained new milestones. Africa has huge potentials and in years to come would grow out of the title of ‘smallest cryptocurrency economy’ to become one of the most formidable. Innovation and technology could make this happen quicker than imagined, and the fact that Africa remains one of the places with lots of opportunities that are yet to be tapped into.