Monthly cryptocurrency transfers to and from Africa of under $10,000 – typically made by individuals and small businesses – jumped more than 55% in a year to reach $316 million in June, the data from U.S. blockchain research firm Chainalysis shows. The number of monthly transfers also rose by almost half, surpassing 600,700, according to Chainalysis, which says the research is the most comprehensive effort yet to map out global crypto use.
Four months ago, Abolaji Odunjo made a fundamental change to his business selling mobile phones in a bustling street market in Lagos: He started paying his suppliers in bitcoin.
“Bitcoin helped to protect my business against the currency devaluation, and enabled me to grow at the same time,” Odunjo told Reuters. He sources handsets and accessories from China and the United Arab Emirates. His Chinese suppliers asked to be paid in the cryptocurrency, he said, for speed and convenience.
The shift has boosted his profits, as he no longer has to buy dollars using the Nigerian naira or shell out fees to money-transfer firms. It is also one example of how, in Africa, bitcoin – the original and biggest cryptocurrency – is finding the practical use that it has always wanted. Much of the activity took place in Nigeria, the continent’s biggest economy, along with South Africa and Kenya.
Why a boom in Africa? There are a number of reasons: young, tech-savvy populations that have adapted quickly to bitcoin; weaker local currencies that make it harder to get dollars, the de facto currency of global trade; high transfer charges that drive up prices and reduce profits, and complex bureaucracy that complicates money transfers.
The bitcoin users interviewed by Reuters, based in five countries from Nigeria to Botswana, said cryptocurrency was helping people make their businesses nimbler and more profitable, and helping those working in places like Europe and North America hang on to more of the earnings they send home.
A Nigerian worker in London sending 100 pounds ($132) in cash to Lagos via a big traditional money-transfer firm, for example, would pay fees of around 5%. Costs are lower when sending larger amounts or using a debit card, but the exchange rates on offer are typically several percentage points less favourable than the market rate. Bitcoin fees, on the other hand, vary depending on the exchange or broker, but would typically total about 2%-2.5% for sending 100 pounds.
Yet risks abound.
Bitcoin and other cryptocurrencies are unregulated in many countries and their legal status is unclear, meaning there is no safety net and little recourse if you lose funds. In 2018, the Nigerian central bank warned cryptocurrencies were not legal tender, and investors were unprotected.
For many, converting local currencies to and from bitcoin relies on informal brokers. Prices are volatile, and buying and selling is a complex process that demands technical knowledge.
In addition, bitcoin, while handy for transfers, isn’t much use on the ground – shops and landlords rarely accept it, for instance. This means friends or family sent funds by workers must convert it back to traditional currency, often via a broker at their end, introducing additional risk
But, with Nigeria’s oil-dependent economy rocked by low crude prices and COVID-19, the central bank has twice devalued the naira this year. As a result, Odunjo and other importers must pay more to buy increasingly scarce dollars. The naira’s fall has pushed many Nigerians towards bitcoin, the interviews showed, as they seek methods of purchasing goods from overseas without having to buy dollars.
Timi Ajiboye, who runs Lagos exchange BuyCoins, said its monthly cryptocurrency volumes jumped over three-fold to $21 million in June after the naira was devalued in March. Exchanges across Africa spoke of a similar boom.
Yellow Card, which operates in five countries, said its monthly crypto volumes had jumped five-fold in 2020 to $25 million in August. A big driver was workers using bitcoin for remittances, it added. Luno said the combined monthly bitcoin trading volumes of all market participants in South Africa and Nigeria had jumped by half this year to more than $536 million in August.
“People are very adoptive of any technology that will make their life easier,” said Frankline Kihiu, a crypto broker in Kenya’s capital, Nairobi. “In most African countries, there are lots of government restrictions that bitcoin takes away.”
Source: Reuters