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In the past five years, there has been one region where bitcoin’s use-cases are thriving non-stop. This region is none other than Africa, which comes second in terms of the number of population and geographical size. To be more specific, it is South Africa that is deemed to be an excellent spot for bitcoin.
Recent reports and researches reveal that many Africans are very much interested in the ingenious and most dominant cryptocurrency today. Another surprising fact is that the members of the general population who buy bitcoin in South Africa are millennials (people who are born between 1981 and 1996).
Continuous adoption and growth in the number of bitcoin holders and users being evident in the region are just a few of the many positive stories about the relationship between bitcoin and South Africa. Let’s discover more as we go along.
Africa’s economic status
The region is continuously witnessing gradual improvements in the growth of the economy for the past five years. According to the report published by the African Development Bank Group titled, “African Economic Outlook 2020: Developing Africa’s Workforce for the Future,” the economic growth of the region has stabilized at 3.4 percent last year and is anticipated to reach up to 3.9 percent in 2020, and 4.1 percent by next year, “but to remain below historical highs.”
However, this growth, as explained in the report, has not been inclusive, as only about one-third of the African countries have reached overall progress. Due to this, Africa is taking into account various steps in expediting growth in every possible aspect. These include “sustaining macroeconomic stability while improving financial management” in the region.
Payment systems in the region
An article published in 2017 regarded Africa as the unbanked continent, as over 60 percent of the Sub-Saharan population had no access to banking services. This is not only because commercial banks had a hard time meeting the unbanked population, but also due to some relevant factors such as lack of financial knowledge, political instability, low levels of income, and others.
Despite not having access to the services offered by commercial banks, Africa has come up with alternative solutions to respond to the region’s needs. These alternatives include local credit unions and the very popular mobile payment systems.
The majority of the African population still prefer to use cash or government-issued money in making monetary transactions. Payments in cash are made possible by the region’s payment alternative called local credit unions—financial cooperatives that are managed and run by its members, “operating on the principle of people helping people,” by providing various financial services like credit at reasonable rates. This group of people patiently and persistently visits payment kiosks and centers to place their payments, transfer money, and complete other monetary transactions.
The other payment alternative in the region is known as mobile payment systems or digital payments, which is a very well-known payment method in African countries as Africans have high levels of knowledge about finance and technology. Despite not having access to commercial banks, they are digital literates who are very much familiar with how digital solutions work and how such technology can address the challenges in their current situation.
However, this population does not include everyone. Earlier, we’ve discussed that some Africans are more comfortable using cash for payments. The group that prefers using paper money fears to lose their funds should their device get stolen or robbed. While digital solutions are emerging in the region, not everyone is fully trusting the potentials of technology yet.
On the flip side, an article published by The Africa Report in April 2020 reads that “In 2019, 50 million sub-Saharan Africans created a mobile-money account via a mobile phone.” This number, as per the report, implies that an increase of 12 percent was seen compared to 2018. This brought the total number of users to over 469 million throughout the region.
The emergence of Bitcoin and blockchain technology in Africa
Bitcoin (BTC) is today’s leading cryptocurrency when it comes to price and market capitalization. Due to its very unique features, it sparked a lot of interest amongst Africans. The underlying technology behind it is called blockchain, which is no stranger to a lot of Africans who are technologically savvy.
The data from Google Trends reveal that over the past five years, bitcoin is the most searched term in African countries, including Nigeria, South Africa, and Ghana, which all ranked the top three among 66 other regions, respectively. Interestingly, reports said that 70 percent of bitcoin owners in South Africa are below 30 years of age.
The African population that preferred to use technology in making monetary transactions found another remarkable approach, which is through blockchain technology and cryptocurrencies, particularly bitcoin. With these ingenious technologies, a significant percentage of Africans now have access to various markets throughout the world.
The significant rise in Bitcoin ownership and usage in South Africa
Bitcoin is a virtual currency, meaning that it works solely via digital technology. To be able to store, buy, sell, send, and receive bitcoin, one must first have a bitcoin or digital wallet. In South Africa, the data from Paxful—one of today’s leading P2P marketplaces for bitcoin trading— reveals that there’s an increasing trend in the number of new users on its platform from December 2019. This also implies that there is a rise in the number of new bitcoin wallet holders in South Africa, as users are entitled to a free bitcoin wallet upon signing up and creating an account on Paxful.
Paxful.com South African Rand (ZAR) Volume
USD Equivalent
Source: UsefulTulips.org
More significantly, there’s also a positive trend in the trading volume using South Africa’s local fiat currency, Rand, for the past five months. Despite the dips in December 2019, the trading volume has been consistently rising since the beginning of the year until today. This trend is a good implication, most notably since the world is currently experiencing a lot of economic changes because of the COVID-19 pandemic for over a month now.
In terms of payment method, South African BTC vendors in Paxful mostly use Bank Transfer, FNB E-Wallet, Chime Instant Transfer, PayPal, and Cash App, among others.
As for BTC buyers, the most preferred payment methods include, but are not limited to, FNB E-Wallet, PayPal, Green Dot Card, MovoCash Transfer, Cash App, and Bluebird American Express. Zelle Pay and Cash App, on the other hand, are among the payment methods deemed to be emerging in the South African region.
These notable advances are reliable indicators of the growing adoption of bitcoin in the South African region. And among the most significant factors for this is the presence of P2P marketplaces and cryptocurrency exchanges.
The popularity of P2P exchanges
Bitcoin or cryptocurrency exchanges have two types: traditional exchanges and peer-to-peer (P2P) marketplaces. Let’s briefly describe each, starting with the traditional bitcoin marketplaces. This type, also dubbed as “regular exchanges,” are companies that act as mediators for their clients and collect fees or charges to earn profits. On the contrary, P2P marketplaces, also known as “decentralized exchanges,” enable customers to directly interact with one another via live trade chats on the platform, in completing crypto transactions.
In South Africa, P2P bitcoin marketplaces are more prevalent in trading and other crypto-related transactions. How do these platforms help bitcoin enthusiasts in the region? Let’s discuss a few of the many notable factors.
Advantages of using P2P marketplaces
These exchanges have their fair share of beneficial impacts in the South African region and its economy. These platforms allow not only sending and receiving money both locally and internationally, but also the processing of borderless and quicker payments for various products, goods, services, at low costs, and even commodities—like gold—to mention a few. Take a look at the following to learn more of these advantages:
- Confidentiality of transactions. In P2P marketplaces, users have the freedom to choose their trading partners. Buyers and sellers are directly connected on the platform’s live trade chat so they can process transactions and complete their deals without any mediators or intermediaries—not unless there is a trade dispute to be settled. Moderators usually enter the trade if there’s a disagreement filed by either party.
- Verification procedures. The majority—if not all—P2P exchanges are strictly compliant with AML (anti-money laundering) and KYC (know your customer) regulations enforced by governments in different countries. That is why these crypto companies are required to collect users’ information such as names, addresses of residency, valid or government-issued IDs, to name some.
- Security of funds. P2P exchanges don’t hold Bitcoin funds of users. They make use of a service called escrow, which holds the BTC of either the buyer or the seller as they are engaging in a transaction. This prevents prevalent scams, hacks, and frauds in exchanges, and allows users to trade whether or not they trust their trading partner.
- Variety of payment methods. Most Africans may not have access to traditional banks, but P2P exchanges allow them to make necessary payments through a wide range of payment methods. Let’s say, for example, Paxful offers over 400 payment methods, so users only have to find those available and most suitable for their needs.
- Low fees or charges. While a significant percentage of Africans have little to no access to commercial banks and the digital services they provide, those who have access, however, are being charged certain fees for money or fund transfer services. Fees or charges are also much lower in P2P exchanges compared to traditional crypto marketplaces, as they don’t use intermediaries to complete transactions.
These are just a few of the many positive implications of using P2P exchanges in the region. While these platforms also have their drawbacks and limitations, it can still be noted that these are indeed some of the essential factors that contributed to bitcoin adoption in South Africa (and other African countries as well).
South Africa and BTC in the long run
South Africa has been highly regarded as the best place for bitcoin. In November 2019, the chief executive officer of the social media giant, Twitter, Jack Dorsey—who is also a well-known bitcoin supporter—even expressed his confidence in Africa’s bitcoin potential, in a tweet.
However, recent reports stated that it was recommended by South Africa’s financial regulators for cryptocurrencies to “remain without legal tender status.” The Intergovernmental Fintech Working Group (IFWG), as per the report, said, “Crypto assets and the various activities associated with this innovation can no longer remain outside of the regulatory perimeter.”
This can imply various alterations on how cryptocurrencies like bitcoin and crypto exchange platforms will be utilized. Meanwhile, South Africa—or Africa in general—being one of the fastest-growing economies today, is not only moving towards a positive direction of financial inclusion through bitcoin, but could also be a game-changer in various economic developments globally in the years ahead.
Submitted and sponsored by Paxful (https://paxful.com/)
