In November 2019, Twitter’s CEO, Jack Dorsey made headlines across the globe when he stated that Africa will define the future of Bitcoin. With its various use cases and suitability for the demographic and economic trends on the continent, there has been a growing buzz for its potential to upgrade Africa’s financial system. Due to its decentralized nature, Bitcoin can address many of Africa’s inefficiencies around payments, cross-border transactions and financial inclusion. However, it is not the only coin which could have a transformative impact on Africa.
There are currently over 5,000 alternative cryptocurrencies, known as altcoins, and whilst not all of them have sustainable use cases, there are a few that Africans should be aware of.
Otherwise known as “the silver to bitcoin’s gold” due to their similar functions, litecoin was launched in 2011 with the intention of being a global digital payments system. However, despite its comparison to bitcoin, litecoin is a cheaper and faster alternative, which can process payments four times faster than BTC meaning it is often seen as a more viable option for everyday transactions and purchases.
According to a 2019 study, more than half of Nigerians and South Africans said it took them more than a day to receive funds when they were transferred to them. This statistic is a cause for concern, especially when you consider it’s related to Africa’s two largest economies and most dynamic business hubs. The financial systems of these two countries, as well as the rest of the world, has been overdue for an upgrade and litecoin could provide the quicker and cheaper option they deserve.
Despite its common association with the US company, Ripple, XRP is an independent digital currency, which is neither owned nor controlled by any one entity or person. It is an open-source cryptocurrency and can be used by anyone, including Ripple. XRP’s main strength lies in its ability to enable cheaper and faster cross-border transactions than other payment networks. Operating on its own blockchain ledger, XRP transactions can take as fast as 3 – 5 seconds to process with the cryptocurrency acting as a bridge between different currencies.
One area in which XRP could benefit many Africans is remittances. According to the 2020 State of Crypto in Africa Report, in 2019 more than $48 billion was sent in remittance payments in Sub-Saharan Africa alone. However, despite being an important source of income to many families, traditional money transfer services charge very high fees, with an average of 9% for $200 worth of remittances sent to Africa. With intra-African payments also struggling with both high costs and low speed, XRP’s near-instant processing time and reduced transaction fees could provide a much-needed solution to the weaknesses of Africa’s current remittances system.
In simple terms, Bitcoin Cash (BCH) is a cryptocurrency that branched off Bitcoin (BTC). It is not the same currency and it operates across its own blockchain but they share many of the same properties. The main difference between the two coins is that Bitcoin Cash came from a desire to improve Bitcoin as a medium of exchange, rather than an investment medium. With this in mind, Bitcoin Cash is made to facilitate everyday transactions so that they’re cheaper and faster and aims to become global digital cash to compete with payments giants like PayPal and Visa.
For Africa, these qualities of speed and cost will be critical in light of the impending AfCFTA. Cross-border payments with traditional banks can be slow and expensive. In many cases, it can be much easier to take physical cash on an aeroplane and give it to the recipient than to make a bank transfer. Bitcoin Cash provides a secure, instant and cheap option for cross-border financial transactions that will make it easier for businesses to take advantage of the new business landscape.
Ethereum is a public, peer-to-peer network with its own cryptocurrency called Ether. While Bitcoin aims to become a globally adopted currency which could replace conventional money, Ethereum is a world computer upon which smart contracts (digital contracts which automatically execute when their terms are met) and decentralised apps can run.
These qualities could be especially beneficial for land and property registry in Africa. The current lack of a reliable, nationwide land and property register in many African countries creates cases of rampant land fraud, which is a major obstacle to the development of the continent. According to the UNECA, in the majority of African states, more than 90 percent of the rural areas are not listed, however, with its decentralised and encrypted blockchain, ethereum could act as a database which delivers much-needed trust and transparency to a critically underserved industry.
So what does the future hold?
Humans are creatures of habit and in order for natural evolution to happen, there needs to be a strong enough incentive. This is especially the case with technology and unless cryptocurrencies have some tangible form of utility, people are unlikely to make any effort to adopt them. But in the context of the altcoins mentioned, their use cases around speed, transparency and cost hold many benefits for Africa.
Cryptocurrencies have the potential to transform the financial system on the African continent to a better one but for that to happen, there first needs to be mass adoption. For this to be achieved, there needs to be greater awareness of the benefits, as well as robust investment in the required infrastructure across the continent. It is only then that we will see the full potential of cryptocurrencies in one of the most promising regions for their growth.
This Op-ed was written by Marius Reitz, the General Manager for Africa at Luno. Luno makes it safe and easy to buy, store and learn about cryptocurrencies like Bitcoin and Ethereum.