Updated: Jul 21
Blockchain: a network of computers that acts as a decentralized digital ledger, securely and openly recording transactions.
Cryptocurrency: a digital or virtual money that runs without a central bank and employs cryptography for security.
dApps (Decentralized Applications): applications that operate on a peer-to-peer network or a blockchain rather than a single machine.
Decentralization: the process of transferring authority and control from a single source.
Hyperinflation: a sudden and uncontrollable rise in inflation that frequently causes people to lose faith in a currency.
Mobile Money: a digital wallet service that enables users to conduct transactions electronically via their mobile devices, frequently by SMS.
Smart Contracts: Self-executing contracts that take effect when the circumstances are met and have the terms put straight into the code.
Stablecoin: a type of cryptocurrency that links its value to a reserve of assets, either a fiat currency or a commodity, in order to maintain a constant value.
Limited access, extreme inflation, and corruption afflict Africa's banking system, preventing many citizens from accessing credit.
Bitcoin and blockchain technology could provide established banking and financial institutions with quicker, less expensive, and more transparent alternatives.
Cryptocurrencies may help stabilize hyperinflation-stricken economies and act as a buffer against the collapse of national currencies.
Blockchain technology has the ability to promote democracy by enhancing transparency and lowering corruption in governmental and financial institutions.
The implementation of blockchain technology and cryptocurrencies in Africa could result in financial inclusion, resource distribution that is fair, and general prosperity.
Introduction: Bitcoin & African struggling banking system
It was evident at the first Africa Bitcoin Conference in Accra (Ghana, 2022), that blockchain technology and Bitcoin may possibly alter the continent's $86 billion banking system. Block CEO, Jack Dorsey and other prominent business figures were present at the event and spoke about the future transformations of the African banking system.
Layer 2 technology: an answer to a struggling banking system
Numerous financial issues have systemically plagued the continent, ranging from restricted access to banking services to hyperinflation and widespread corruption. But the emergence of decentralized cryptocurrencies such as bitcoin and its layer 2 technology (The Lightning Network) might provide a much-needed lifeline for African nations, opening the door to financial inclusion and perhaps even promoting democracy. Although the lack of democracy in Africa is not the direct result of a lack of financial institutions but rather a will from Western countries and its neocolonial policies but this could be the subject of another text…
The banking system in Africa is far from ideal and doesn’t seem to embrace change. Many Africans are financially disenfranchised due to limited access to commercial banks, especially in rural regions, and a dearth of digital banking options.
Furthermore, the majority of cross-border payments in Africa are processed offshore, primarily in the U.S. or Europe, where the continent's financial system continues to be heavily dependent on a quasi-colonial payment framework. The expenditures and processing delays associated with this ineffective system are significant and frequently measured in weeks.
Mobile money has enabled customers to make purchases and pay bills via SMS texting without the need for a smartphone or data. Africa saw a 39% increase in mobile money transactions in 2021, totaling over $700 billion. However, with only 2% of the 2,000 payment networks on the continent being able to connect with one another, even mobile money providers face major difficulties.
In order to send money for the unbanked, traditional money transfer businesses like Western Union and MoneyGram have created vast physical networks. However, these services have high costs (up to 18%). Bitcoin and blockchain technology can present a game-changing substitute.
With the use of cryptocurrencies like Bitcoin, people may send digital payments to one another directly (Peer-to-peer transactions) without using credit or paying several settlement fees, eliminating the need for middlemen.
The Human Rights Foundation's Chief Strategy Officer, Alex Gladstein, expressed it this way:
"It's literally like sending a piece of gold or a $20 bill instantly somewhere else."
Finding stability in bitcoin
As cryptocurrencies become more widely used in Africa, they might offer a special remedy for many of the continent's financial problems. For instance, Zimbabwe and other hyperinflationary nations may find stability in Bitcoin's fixed supply since it might serve as insurance against their collapsing national currencies.
Additionally, it is possible to use blockchain technology to improve transparency and fight corruption in governmental and financial institutions. Among other things, supply chain management, property registration, and safe, impenetrable voting systems can all be made possible via smart contracts and decentralized applications (dApps). Such programs might also support the development of democracy and a more equitable distribution of resources.
Conclusion: the financial inclusion of hundreds of millions of African is around the corner
The crippled African banking system has the potential to be transformed by Bitcoin and blockchain technology, enabling financial inclusion for hundreds of millions of Africans. Cryptocurrencies have the potential to drastically better the lives of countless Africans by providing a quicker, less expensive, and more transparent alternative to conventional banking and financial services. The inherent decentralization and openness of blockchain technology may also help open the door for democratic reforms, which would ultimately strengthen the continent's resilience and prosperity.
It is critical for governments, companies, and individuals to embrace these innovations and explore their possibilities as we see the emergence of cryptocurrencies and blockchain technology across Africa. The prospect of a financial system that is more inclusive, transparent, and democratic makes the uncertain road ahead well worth it. Therefore, let's fasten our seatbelts and watch as Africa gets ready to fly into a better, more connected future.