Bitcoin's contribution to Africa

Bitcoin's contribution to Africa

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Bitcoin’s influence in Africa

Bitcoin, a cryptocurrency with the goal of decentralizing payments through a trustless protocol, is currently reshaping the world, and Africa is not immune. Africa is not only the world's fastest growing continent, but also the youngest demographically. Furthermore, recent trends indicate that its economy is becoming more stable and egalitarian.

Has bitcoin, on the other hand, helped to advance Africa's economy as a whole? YES! This is mostly due to the fact that the concept and use of cryptocurrencies in Africa is increasing at a quicker rate than everywhere else on the planet. According to Chainanalysis, the volume of crypto transactions in Africa surged by 1200% between 2020 and 2021. Given the restrictions imposed by some African governments on cryptocurrency usage, as well as the lack of infrastructure (such as bandwidth and bitcoin knowledge and education) to execute frictionless transactions, this result is amazing.

Despite the government's ban on bitcoin, Nigeria, Africa's largest economy, is swarming with users. This is largely due to the youths' unwavering desire for payment freedom without central authority oversight. Kenya came out on top in the world for bitcoin peer-to-peer trading. This could also be due to the growing number of young people who see virtual currency as a safer alternative to fiat money. In comparison to the Western world and some African countries such as South Africa and Mauritius, Africa lag behind in terms of Bitcoin and cryptocurrency adoption and implementation.

Let's have a look at the many possible bitcoin implementations in Africa before emphasizing these issues.

African bitcoin implementations

While this list of implementations may not be applicable to all African countries, it does provide some insight into what is possible in the bitcoin innovation arena. Some, if not all, of these changes have already been implemented.

None of these implementations are specifically pioneered by me. The concepts, on the other hand, came from my research and analysis of the gaps in Bitcoin's application in Africa.

  • USSD mobile bitcoin payments

The major technology and interface for making mobile payments in Africa is USSD (Unstructured Supplementary Service Data). According to statistics, USSD was used to conduct 90 percent of mobile money transactions in Africa in 2018. Given these figures, receiving and sending bitcoin in Africa would be a huge step forward.

Here are some examples of previous and current technology developments, the significant number of which were unfortunately abandoned.

Dialcrypto: is a digital currency wallet and payment system that uses the same technology as mobile money products to allow consumers to immediately transfer Bitcoin and Ethereum between phone lines (USSD).

BitSim:

BitSIM is a dual-chip overlay that sits on top of a phone's standard SIM card. The BitSIM transforms the phone – even if it's a "dumb" phone – into a Bitcoin wallet once it's there. It achieves this by sending encrypted text messages to the Bitcoin network. A PIN is used to unlock the phone's private key, which is saved in the BitSIM overlay.

Other notable mentions but not a bitcoin implementation is Africastalking. Here's the article detailing the post (devpost.com/software/ussd-for-all)

  • Withdrawals of Bitcoin from ATMs and POS terminals

This isn't only an African initiative. A bitcoin ATM is an Internet-connected machine that allows customers to deposit cash and purchase bitcoins and other cryptocurrencies. It is distinct from a regular ATM in that it generates blockchain-based transactions that send cryptocurrency to the user's digital wallet through QR codes.

More than 14,000 bitcoin ATMs are currently operational throughout the world. In March 2022, roughly 686 Bitcoin ATMs were installed globally, according to a Finbold analysis. There are 15 of them in Africa. South Africa has seven, Ghana has two, and Kenya, Nigeria, Botswana, Zimbabwe, Djibouti, and Uganda each have one.

The first bitcoin POS system in Africa was adopted in Kenya by a company named eFiat in 2022. The bitcoin POS basically has the same functionality as the bitcoin ATM.

Businesses in Africa will benefit from the POS system since they will be able to accept bitcoin (lightning) payments as a substitute to receiving cash. The QR code technology simplifies the procedure by abstracting the complexities.

  • Adoption by Fintechs for payment processing

According to a survey by market intelligence firm Briter Bridges, fintechs dominated fundraising last year, accounting for roughly $3 billion, or two-thirds of all funding realized by startups throughout the continent. Fintechs in Africa raised $1.35 billion in 2020, and tripled that amount in 2019. Some fintech companies involved in bitcoin are Bitnob, Patricia, Quidax, Luno among others.

The majority of these businesses operate as exchanges, earning money through commissions on bitcoin conversions to fiat currencies.

Other business ideas for Bitcoin's implementation in Africa's fintech are still being considered. One of these is a mechanism for processing external payments comparable to services offered by Flutterwave and Paystack. However, how the company receives its charges (which are a tiny portion) in bitcoin, as well as how they will deal with bitcoin's volatility, are two key challenges. Large transactions might be processed on chain, whereas smaller ones would be processed on lightning. However, this raises the issue of large on-chain fees, which may be prohibitively expensive for users. There's also the issue of payment transaction fees (which add up to earnings for the corporation) becoming bitcoin dust. As a result, settling all transactions on the lightning network, which handles dust bitcoin (transaction fees) more efficiently, would be a superior solution. My forthcoming essay will go through a more extensive way to avoid the issue of bitcoin volatility and on-chain transaction fees.

  • Adoption by SME's for Micropayments

The bulk of businesses in Africa's economy are small and medium-sized. Because of the petty trading nature of the firm, micropayments are popularly the norm. As a result, cash is the most prevalent mode of payment for these enterprises, with virtual internet payments being used by only a few. This is due in part to the sole proprietor's skepticism of the banking system, as well as the bank's constant charges and account maintenance costs.

But what if we had a system that allowed for virtual payments, cheap transaction fees, and little to no reliance on a trusted middle party for payment receipt (aside from cash)? Here comes bitcoin, but how? Using lightning, a bitcoin layer designed specifically for receiving micropayments while ensuring trustlessness and decentralization. A business owner can use lightning to accept and process tiny payments that would be too expensive to handle directly on the bitcoin network.

However, some difficulties exist. For starters, most of these business owners are unfamiliar with bitcoin and how to use it. Adding lightning to the mix just adds to their despair. Secondly, because to the high cost of a smartphone, let alone a computer, most small traders do not have access to one.

These two key concerns, as well as some other obstacles that these firms encounter when it comes to Bitcoin adoption, make it difficult, if not impossible.

Bitcoin implementation problems in Africa

  • In many jurisdictions, bitcoin and other cryptocurrencies are unregulated, and their legal position is uncertain or restricted.

  • Third parties are used to convert local currency to and from bitcoin (brokers).

  • Prices fluctuate, and buying and selling is a complex procedure that necessitates technical expertise.

Conclusion

Africa's economy is the youngest at the moment, and the fact that Bitcoin has sparked debate despite its contribution to the continent's economy shows that its influence is perceived. Although its ambiguous legal status and, in some cases, regulatory limitations constitute a significant threat to its long-term viability, bitcoin has proven itself and has had a significant impact on African youths.

However, there is still a shortage of bitcoin education and awareness. In order for Africa to continue to expand and flourish, several concerns, such as those described above, must be solved. Qala, a bitcoin education initiative, is dedicated to resolving this issue by teaching African bitcoin developers to pioneer the technology's contribution to Africa's development.

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