In a daring move that has echoed across the African cryptocurrency sector, Nigeria's market regulators recently ordered a halt to Binance's operations. With many Africans already using cryptocurrencies for everyday transactions, it is important to understand why Nigeria has begun to back off, and whether it is time to regulate the growing crypto industry.
The growth of cryptocurrencies in Africa
Unlike Western nations, of their fault or not, Africa has struggled to harness its resources to achieve sustainable economic growth. This has led to most of the continent being hit by economic and political instability, which has affected the continent’s sustainable economic growth. The rise of cryptocurrencies has presented opportunities for many nations. Cryptocurrencies give low-income populations who have access to a mobile device and the internet the chance to engage in a variety of activities. Simply put, cryptocurrencies have the potential to address both the issue of financial exclusion and weak domestic currencies.
Recent trends have also suggested that Africa’s youth is leaning towards cryptocurrency as an alternative to their weak domestic currencies. This is due to high inflation rates, volatile currencies, a lack of banking infrastructures, and labour shortages. It is no surprise that the youth have begun to monopolise cryptocurrencies.
Inequality between the 10-12 million younger people entering the job market each year, contributes to a high percentage of youth unemployment. To name a few, Bitcoin can provide jobs in marketing, core distribution, blockchain development, and cybersecurity. All things considered; these new opportunities appear to give young Africans the chance to benefit from the emerging digital economy in ways they would typically find difficult to do so.
The Limitations of Cryptocurrencies in Africa
Whilst cryptocurrencies such as Binance have gained popularity across Africa, especially in Nigeria, there are legitimate concerns to consider.
The regulatory actions taken by Nigeria against Binance highlight that it is necessary to protect investors from fraud, scams, and the market manipulation that comes with the volatile crypto ecosystem. It was only this March that Nigeria announced crypto laws to regulate and standardise digital assets.
Another challenge posed by cryptocurrencies is the potential for illegal fund transfers and the circumvention of local regulations on capital flow. Moreover, the adoption of cryptocurrencies as legal tender carries risks. African nations seem to have already caught wind of this. Nigeria, Ethiopia, and Sierra Leone have placed implicit bans or limitations on how Bitcoin can be used.
As IMF had already reported, there is a much greater risk if crypto is adopted as a legal tender. The Central African Republic recently designated Bitcoin as a legal tender. The concern is that this will be a step too far - as central banks would not be able to set interest rates on a foreign currency. As a result, domestic prices could become more unstable than they already are.
The importance of sustainable financial growth
Given the rapid adoption of cryptocurrency in Africa, one of the main challenges is the lack of proper regulation in some African countries and the impact this will have on Africa’s sustainable financial growth. The mining of cryptocurrencies is an extremely energy-consuming activity.
Although it has its fair share of problems, crypto can help decarbonise unreliable power grids, optimise economic incentives, and help countries meet their climate goals.But before we can begin putting all our faith in crypto as an economically sustainable option, some changes are needed. Firstly, there will need to be open-source and data-driven information regarding crypto’s energy consumption. As Ribhu Baruah of Biodiversity has claimed, there will need to be ethical frameworks in place that foster meaningful change in tackling ongoing challenges and big-name cryptocurrencies working collectively to accelerate nature-based solutions.