As many African countries grapple with the negative effects of the ongoing US dollar crisis, there is growing interest in adopting bitcoin as an alternative currency. The potential of this digital currency to revolutionize Africa’s $86 billion banking sector has been a topic of discussion among major players in the financial industry.
At the first-ever Africa Bitcoin Conference held in Accra, industry leaders explored how bitcoin could potentially transform Africa’s financial infrastructure. The goal is to provide a vital tool for unbanked populations facing issues such as currency volatility, reliance on remittances, and economic sanctions.
except US dollar
In light of the US dollar crisis, Kenyan President William Ruto recently unveiled a new proposal. The aim of the initiative is for Kenya to buy oil using its local shilling currency to ease fuel shortages caused by oil cartels hoarding US dollars. Ruto accused the cartel of exacerbating the US dollar crisis, causing fuel shortages in Kenya.
In response, his administration implemented measures to address the shortage of US dollars. These include allowing Kenyans to obtain petrol on six months’ credit and signing deals with Saudi Arabian and UAE firms to supply diesel, petrol and jet fuel on credit.
These deals, supported by government-to-government arrangements, include Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company, which supply fossil fuels to Kenya. The purpose of this arrangement is to reduce the pressure on the demand for foreign exchange. It also aims to arrest the fall of the Kenya Shilling against the US Dollar and other major currencies.
Fossil fuel demand in Kenya is a staggering $500 million a month. It forms a significant portion of the country’s total import bill.
Africa’s Digital Options
Mobile money, a digital wallet linked to a phone number, is growing rapidly in Africa. Transactions to grow by 39% to over $700 billion in 2021. However, users still lack some of the benefits of traditional banking, such as access to credit and protection against currency volatility.
Bitcoin can eliminate middlemen and enable direct digital payments between individuals without credit or multiple fees.
The Lightning Network is a second layer built on top of the main chain of Bitcoin. This lowers transaction costs and enables faster payments, making bitcoin more cost effective for everyday use.
Companies such as Yellow Card, Africa’s largest centralized crypto exchange, are exploring the Lightning Network. The goal is to further reduce transaction costs and enable seamless international payments between Lightning-enabled bitcoin wallets.
Innovative projects such as Bernard Parra’s partnership with Strike, a Lightning Network payment platform, demonstrate the potential for bitcoin to facilitate cross-border transfers without requiring recipients to interact with the cryptocurrency themselves. Mercury’s “Send Globally” service allows people in the US to send money to Nigeria, Ghana and Kenya.
South African developer Kogothatso Ngako developed a custodial Lightning wallet called “Machankura”. It allows people without internet access to send and receive bitcoins. The service is compatible with any Lightning wallet globally, enabling instant transfers even to basic mobile phones in remote areas.
Transferring money in Africa can be expensive and difficult due to limited access to commercial bank branches. Digital banking options are scarce, and issues like hyperinflation, government corruption, and capital controls complicate matters further.
Africa’s payment systems rely heavily on overseas processing, which increases costs and lengthens processing times.
Bitcoin Enables a Decentralized Future
Bitcoin offers a potential solution to these challenges by providing a decentralized, borderless digital currency. It can empower those who would otherwise be financially excluded.
In examples such as Nigeria’s #EndSARS protests, the government attempted to block protesters’ access to funds, but bitcoin provided an alternative means of support.
However, there are also challenges with transferring money via the bitcoin blockchain, such as increased fees and transaction delays during peak demand. The Lightning Network addresses these issues, making bitcoin more accessible and viable for widespread use across the continent.
Despite potential regulatory challenges, these innovative projects could lead to mass adoption of bitcoin in Africa, gradually reducing dependence on the US dollar.
During the Africa Bitcoin Conference, Block CEO Jack Dorsey highlighted that mass adoption of bitcoin could ultimately undermine government efforts to regulate financial activity. He stressed the importance of continuing to build and innovate.
The adoption of bitcoin as a mainstream currency in Africa faces significant hurdles. Nevertheless, the combination of innovative technologies like the Lightning Network, collaboration between major industry players, and grassroots efforts to educate and empower the population could usher in a new era of financial freedom for millions of Africans.
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