A report by blockchain data platform, Chainalysis, has revealed that Nigeria currently stands among fastest growing crypto markets globally. According to the report, Africa is growing faster than anywhere else in the world. Data shows Nigeria, Kenya, and South Africa have the highest number of crypto users and in 2021, crypto transactions peaked at around $20 billion a month. Cryptocurrencies are an alternative to traditional banking. Smartphone adoption in Africa is rising fast and there are now more than 25 million smartphone users across the continent.
The report noted that infrastructure problems across the continent meant many Africans don’t have access to a bank, but could use a smartphone to make financial transactions. Financial services are often inaccessible in rural communities, but crypto transactions can easily take place on a smartphone, which is why countries like Nigeria have been quick to see the benefits of crypto adoption. Crypto may be booming in Africa, but analysts say this isn’t necessarily a good thing, as cryptocurrencies are notoriously vol- atile. This is evidenced by the recent collapse of crypto exchange, FTX, which triggered a massive slump in crypto prices, as can be seen on okx.com. Crypto regulation is one area of deep concern. Many governments around the world have struggled to find a balance between minimising the inherent risk of crypto while encouraging innovation. Some countries like China, Qatar, and Egypt have an absolute ban on cryptocurrency whereas countries like Australia and the US have embraced it. In Africa, it’s a mixed bag.
Some countries have an explicit ban on cryptocurrencies, including Tanzania, Cameroon, Ethiopia, and the Republic of Congo. Others have an implicit ban, including Zimbabwe and Liberia. The majority have some restrictions in place but crypto isn’t banned. Only in Central African Republic is crypto legally allowed, which makes it one of only two nations in the world to take such a step, the other being El Salvador.
This move has put it in direct opposition to the Bank of Central African States (BEAC) and violates the ban on crypto for financial transactions. The fact that Central African banks are hostile to the adoption of cryptocurrencies has led to a situation where the sector is largely unregulated, and many crypto users are forced onto P2P platforms via a VPN. This means many people are exposed to potential losses, as happened when FTX collapsed. One of the biggest fears about the rise of crypto in Africa is that if more countries follow Central African Republic in legally allowing cryptocurrencies as a form of legal tender, it could trigger an economic collapse. Imagine if a government moved the majority of its assets into cryptocurrencies and then prices fell by a significant margin. If this happened, public finances would be in jeopardy.