Uses and applications of Blockchain and cryptoassets in Africa
In developed countries, cryptocurrencies are mainly known and used speculatively, with as yet few concrete economic applications. In Africa, however, cryptocurrencies and Blockchain technology are directly considered with a much more concrete aspect: they help improving the standard of living for Africans and they allow them to better meet their needs in many sectors.
This article aims to understand how and why Blockchain and cryptocurrencies have real potential in Africa.
First of all, according to a 2014 study, nearly 35% of the charities’ remittances sent to Africa do not reach the targeted people because of fraud, embezzlement, or theft. This is partly due to the many intermediaries involved from the donor to the receiver of the donation. By using Blockchain technology (as currently allowed by UNICEF in Australia) or cryptocurrencies such as Bitcoin or Ethereum, it becomes very difficult to divert donations made in cryptocurrencies because of their “peer to peer” characteristic (sent directly from one person to another, without intermediaries or with intermediaries but easily identifiable and manageable thanks to smart-contracts).
Moreover, only 23% of adults in Africa have a bank account for a variety of reasons: they are insolvent, they have no collateral wealth value, they have identity issues or they have no regular income. This financial exclusion seriously hinders the development of the African continent. However, several solutions seem to be emerging, such as the use of crypto-currencies as a means of exchange. Indeed, the penetration rate of mobile telephony in Africa is 80% and continues to increase. This could allow people without an identity — or those who are insolvent — to live decently despite the fluctuations in the price of cryptocurrencies (knowing that there are many alternatives available such as Maker to avoid the traditional fluctuations in the price of crypto-currency).
Consequently, the argument of cryptocurrencies price volatility is often put forward to curb their massive acceptance by firms and individuals, but keep in mind that many national currencies are still very unstable (especially in Africa). Indeed, a study of 10 African countries in 2016 highlights unusual inflation ratios for several countries such as Southern Sudan (with an inflation rate of 295%) or Egypt (with the lowest rate of 12.30%). Moreover, to be strong, a currency must be recognized and accepted by all: which is not always the case in Africa. On the other hand, Bitcoin (among others) reports a proven international consensus for its users and high reliability in its transactions. Thus, some players such as Bitpesa have established themselves on the market for exchanging cryptocurrencies in Africa.
One billion people around the world still struggle to prove their identity and, as a result, they may have difficulty exercising their rights and accessing basic services. Of the one billion, 78% are African or Asian. Blockchain technology could thus enable the identification of people from birth, in a transparent, unalterable, secure and decentralized manner, to enable individuals to prove their identity quickly and efficiently, while avoiding the alteration or destruction of their identity documents (see the OVERTECH project).
The example of the UN Food Program “Building Blocks”, currently operational in Syria to enable 100,000 refugees to identify themselves, pay and access (via iris recognition) basic care, could thus be rapidly democratized in Africa. This system has also made it possible to reduce traditional transaction costs by 98% for equivalent situations.
Similarly, in the case of armed conflict, a refugee could access a bank account even after being displaced from his or her country of origin. This could help maintain the refugee’s dignity and hopefully alleviate the extreme poverty caused by this terrible upheaval.
Thanks to the well-known ICOs (Initial Coin Offering: a quick way to participate and invest with few constraints, using cryptocurrencies, in high-potential projects in order to hopefully benefit in the long term from the goods and services created by these projects), the very dense entrepreneurial fabric in Africa will be able to develop more quickly and efficiently. The aim is to see the emergence of African giants in promising sectors such as humanitarian aid, finance, and insurance. With a young and fast-growing population, digital technology, therefore, seems to be a privileged path for young Africans (if they can access the Internet with computers of course). The establishment of ICOs can help them to materialize and finance their various projects more easily than if they were to use traditional fund-raising methods (risk of dilution of capital by foreign actors, slowness of the process …).
Sending money using traditional banks is very expensive for the African Diaspora with transaction fees of 10% on average (with Western Union for example). This represents a real loss of revenue for the African economy. Indeed, if members of the African Diaspora used cryptocurrencies such as Bitcoin or Ethereum (or even “stable corners” such as Tether or more recently USDC or the DAI stable coin from Maker), they could exchange financial assets simply and quickly with their mobile phones in a reliable and secure way, and with very little cost and access requirements. Moreover, in the last two years, the use of smartphones on the African continent has doubled to 226 million users: a boon for the growth of cryptocurrencies in Africa.
Indeed, many alternative mobile banking services have emerged, such as M-Pesa, which now has 17 million users in Kenya. This is evidence of African people’s desire to find alternative ways of transferring funds. In the end, crypto-currencies allow investment, improve business capacity, and restore purchasing power by allowing people to bypass national or international banking restrictions.
With 2.5 billion Africans by 2050, the insurance system in Africa will have to be equal to the needs of the continent. At the same time, the technology of Ethereum Blockchain’s Smarts contracts (or those of other similar cryptocurrencies such as Lisk or NEO) should make it possible to automate, improve and simplify many administrative procedures in various sectors. One example is fast, reliable, and direct compensation from one person to another due to climatic incidents. Thanks to Smart-contracts, the finance and insurance sectors can be revolutionized in Africa, in order to move towards greater reliability, credibility, and internationalization of the transactions carried out.
Finally, one of the last and most disruptive potential applications in Africa is in the area of transparency and government accountability. Indeed, Blockchain technology could finally allow an effective and sustainable fight against corruption and money laundering, while respecting the decisions of the populations during elections (without controversy as is often the case today). A Blockchain to certify and monitor the voting rights of the inhabitants may thus seem utopian to some. However, once a certain number of implementation constraints have been overcome, it could be quite feasible and would also give lasting political and financial stability to many African countries.
Originally published June 25, 2018.
Author : Thibault Langlois-Berthelot
