An African Perspective on Why the World Needs Cryptocurrency – Op-Ed Bitcoin News

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The growing use of cryptocurrencies in Africa in recent years has not only shown that digital currencies are now a critical means of moving funds across borders and between people, but that cryptocurrencies are also a important way to access global markets for financially excluded people.

Cryptocurrency is now a necessity

Despite the continued efforts of regulators to restrict the use or trading of cryptocurrencies, the number of users of these digital assets continues to grow. As some studies have repeatedly shown, cryptocurrencies like bitcoin – which are seen or used as an alternative store of value – have become a necessity.

With the exception of their volatility, cryptocurrencies offer users or holders a measure of control over their wealth, which they cannot do with fiat currencies. Indeed, in countries ravaged by inflation or those with unstable currencies, cryptocurrencies offer a loophole that was not available to them before the global financial crisis of 2008.

As recent reports from Turkey have shown, when a currency depreciates rapidly in an environment where ownership or access to alternative reserves of value like gold is restricted, residents will switch to crypto.

For many, using cryptocurrencies or cryptocurrency rails to send funds across borders has turned out to be the most important and perhaps even the best use case to date. Very few opponents of privately issued digital currencies will disagree with the assessment. This is because sending funds across borders is more efficient when using cryptos like XRP, Stellar or Bitcoin Cash than using traditional channels that are both formal and informal.

As the situation in Nigeria before the blockade of crypto entities in the banking ecosystem demonstrated, cryptocurrency-based remittances have the potential to overtake traditional channels for sending money. In addition to the speed of money transfer, sending money in the form of cryptocurrencies has enabled Nigerian migrants to bypass the many intermediaries traditionally involved in cross-border transactions.

For senders, this meant a much lower cost of sending funds to loved ones, while for recipients in Nigeria, cryptocurrencies – which cannot be easily vetted or censored like fiat money – gave them the ability to convert funds into local naira using the market rate instead of the overvalued official exchange rate. In fact, it was partly this reason that prompted the Central Bank of Nigeria (CBN) to finally take action against crypto entities on February 5, 2021.

Of course, this act and subsequent CBN actions did not kill the popularity of cryptocurrencies in Nigeria as the authorities had hoped. On the contrary, the restrictions have so far only succeeded in promoting peer-to-peer bitcoin trading, as data from Useful Tulips over the past nine months suggests. This failure of regulatory action by the CBN and that of many other regulators around the world proves once again that useful innovation cannot be stopped by regulation.

Access to global financial markets

Perhaps the least talked about but equally important use case of cryptocurrencies is the business opportunity and access they provide to people in less developed countries. Indeed, in many of these regions, access to certain financial products is limited by factors ranging from the size of a country’s financial system to its GDP. In some cases, access to certain financial services actually depends on the relationship between a less developed country and its more developed counterparts.

If relations are freezing, chances are that access to the global financial system and related services will be severely restricted. For example, a national of Zimbabwe interested in trading stocks on the New York Stock Exchange or buying goods on Amazon may be prevented from doing so directly due to OFAC sanctions.

However, by using certain cryptocurrency platforms, the same Zimbabwean national can actually buy hot global stocks like Tesla, Amazon, Microsoft, etc. In other words, thanks to cryptocurrencies, traders in Africa are exposed to some of the most liquid and profitable markets in the world.

Additionally, in addition to using cryptocurrencies to trade fiat stocks, traders on the African continent can trade directly, 24 hours a day, on many global cryptocurrency platforms. They can and have engaged in many other forms of crypto trading, including staking, risky futures, and margin trading. All of this is possible because cryptocurrencies can be owned by anyone, including those who are financially excluded.

Fighting crypto: a futile exercise

So while regulators may want to stop or limit the use of cryptocurrencies, the reality is that crypto has opened the door to many opportunities. Thus, attempting to ban the use or trading of cryptocurrency without offering something better or making the current financial system beneficial to all, is likely to be an exercise in futility.

This fact should be clear to African countries which have so far copied and pasted everything their Western counterparts have done to stop or restrict the use of cryptocurrencies. It should also be clear to African central banks and regulators that the launch of a central bank digital currency (CBDC) alone will not restore confidence in a currency.

Once a currency falls, it takes much more than giving it another name for a population to believe in it again. Therefore, instead of trying to prevent people from using cryptocurrencies, a smart regulator should view the popularity of crypto assets as a measure of lack of confidence in a financial system. Understanding the popularity of cryptocurrencies in this way should help African central banks craft the appropriate regulatory response.

What do you think of this story? Let us know what you think in the comments section below.

Terence zimwara

Terence Zimwara is an award winning journalist, author and writer from Zimbabwe. He has written extensively on the economic problems of some African countries as well as how digital currencies can provide Africans with an escape route.

Image credits: Shutterstock, Pixabay, Wiki Commons

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