Updated: Jul 21
Cryptocurrency: A digital or virtual form of currency that uses cryptography for security. It is decentralized and operates on technology called blockchain.
Bitcoin: The first and most well-known cryptocurrency, created in 2009.
Ethereum: A type of cryptocurrency that also provides a platform for building and executing smart contracts and distributed applications.
Crypto Exchange: A platform where customers can trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies.
LocalBitcoins: A peer-to-peer Bitcoin exchange that allows users to trade directly with one another.
Crypto Assets: Digital assets that use cryptographic techniques to secure transactions and control the creation of new units.
Blockchain: A decentralized and distributed digital ledger that records transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks.
Chainalysis: A blockchain data platform providing data, software, services, and research to government agencies, exchanges, and financial institutions across 40 countries to engage confidently with cryptocurrency.
Legal Tender: A medium of payment recognized by a legal system to be valid for meeting a financial obligation.
Central Bank: A national bank that provides financial and banking services for its country's government and commercial banking system.
Bank of Central African States (BEAC): The central bank that serves six central African countries which form the Economic and Monetary Community of Central Africa.
Economic and Monetary Community of Central Africa (CEMAC): An organization of states of Central Africa established to promote economic integration among countries that share a common currency, the CFA franc.
Central Africa's Banking Commission: The banking sector supervisory body for the CEMAC region.
FTX: The world's third-largest crypto exchange platform.
Sub-Saharan Africa: The area of the continent of Africa that lies south of the Sahara Desert.
Implicit Bans: Restrictions that are not officially stated but are enforced in practice.
Capital Outflows: The movement of money for trade, investment, or business production out of a country.
Monetary Policy: The policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency.
Macroeconomic Stability: The stability of the economy at a large scale, usually at the level of a country, involving aspects like economic output, unemployment, inflation, and fiscal policy.
Public Finances: The revenues and expenditures of the public sector, including the government's fiscal policy decisions.
Regional Economic Outlook: A report by the IMF that presents economic developments and prospects for regions around the world.
Crypto Adoption in Kenya: A Rising Trend
Kenya has emerged as a prominent player in the African continent's cryptocurrency environment in a world that is embracing bitcoin and other digital currencies. Mass adoption is on its way! An estimated 6.1 million people, or 10.71% of Kenya's population, are expected to own bitcoin by 2023, which represents a substantial advancement in the use of cryptocurrencies, payment systems and blockchain.
Along with Nigeria and South Africa, Kenya is one of the three biggest Bitcoin marketplaces in Africa. The trading volumes recorded by LocalBitcoins, a website that enables over-the-counter trading of local currencies for Bitcoins, show the country's sizable market dominance in the cryptocurrency. Kenya was among the top nations on LocalBitcoins by trading volume in the second week of January 2021 with a volume of KES 150 million ($1.3 million) worth of Bitcoin traded.
To maintain purchasing power in the face of local currency devaluation, Kenyans are adopting cryptocurrencies. Many African countries are adopting cryptocurrencies as a means of wealth preservation and store of value, thus Kenya is not alone in this trend. Kenya has the greatest percentage of its population using cryptocurrency on the African continent, according to a UN report and the trend is getting traction.
The Central Bank of Kenya has chosen to consider Central Bank Digital Currency, cryptocurrency and bitcoin as an effort to manage the nation's escalating financial problems in reaction to this growing importance of the deterioration of the world economy. The Kenyan government is also taking steps to modernise the financial industry. The Kenyan Ministry of ICT is creating the National Payments Vision and Strategy with an emphasis on regulation and security for digital payments as part of its Vision 2030 plan.
According to demographic data, 60% of cryptocurrency owners in Kenya are men, following the global trend of more men than women owning cryptocurrencies. However, ownership of cryptocurrencies is equally spread across all age groups, with 36% each of 18–34-year-olds and 55+-year-olds.
The nation's crypto community is upbeat following the recent Kenyan presidential election. Given the absence of a legislative framework for regulating cryptocurrency since the central bank's advisory notice in 2018, the next president, William Ruto, is anticipated to take a more pro-crypto attitude and recently urged his counterparts on the African continent to kickstart the process of ditching the U.S. dollar and replacing it with a pan-African settlement system.
In sum, economic circumstances, demographic trends, and a favourable regulatory environment are causing a steady increase in the usage of cryptocurrencies in Kenya. The development of the nation in this field is evidence of how cryptocurrencies have the power to alter economies and financial systems.
The Need for Better Crypto Regulations in Africa's Growing Market
There have been increasing calls for stronger consumer protection and regulation of the cryptocurrency business following the recent failure of FTX, the third-largest crypto exchange in the world, and the consequent decline in the prices of Bitcoin, Ethereum, and other significant crypto assets.
For most governments, controlling a highly volatile and decentralised system like bitcoin and other cryptocurrencies is extremely difficult. A careful balance must be struck between reducing risk and increasing creativity. Currently, just 25% of sub-Saharan African nations have established cryptocurrency regulations. Six nations
Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo—have officially banned cryptocurrency, while the other two-thirds have imposed certain limitations. Implicit bans have been implemented by Zimbabwe ordering all banks to stop processing transactions and Liberia ordering a local cryptocurrency firm to stop operating.
According to Chainalysis, Africa has one of the fastest-growing crypto markets worldwide despite these legislative difficulties. However, it continues to be the smallest, with crypto transactions reaching a monthly peak of $20 billion in the middle of 2021. The most users in the region are in Kenya, Nigeria, and South Africa. Although many people utilise crypto assets for business transactions, their volatility prevents them from being useful as a store of value but bitcoin is now perceived as such.
Politicians are also concerned that cryptocurrencies could be used to evade regional regulations intended to stop capital outflows and transfer money illegally out of the area. The widespread usage of cryptocurrencies might also undermine the efficiency of monetary policy, endangering the stability of the financial system and the macroeconomy.
The risks are even greater if crypto is adopted as legal tender, as the Central African Republic recently did. If crypto assets are held or accepted by the government as a means of payment, it could put public finances at risk. The Central African Republic is the first country in Africa, and the second in the world after El Salvador, to designate Bitcoin as a legal tender.
This measure has put the country at odds with the Bank of Central African States (BEAC)—the regional central bank that serves the Economic and Monetary Community of Central Africa (CEMAC), of which the Central African Republic is a member—and violates the CEMAC Treaty.
BEAC’s banking sector supervisory body—Central Africa's Banking Commission—has banned the use of crypto for financial transactions in the CEMAC region.
In conclusion, even though the crypto market in Africa is expanding quickly, it is obvious that stricter restrictions are required in order to safeguard customers and ensure monetary stability. The difficulty for policymakers will be finding the ideal balance between encouraging innovation and risk mitigation.