May 24, 2023

Can cryptocurrency advance financial inclusion in Africa?

topic:	Blockchain
editor:	Bob Koigi

Africa’s cryptocurrency market has been on a meteoric rise, buoyed by a tech-savvy young generation keen on alternative investments and by public and private institutions interested in using the emerging technology to find lasting solutions to local problems. 

Africa is one of the fastest-growing crypto markets in the world according to a report by Chainalysis, a blockchain data firm

Primarily, cryptocurrency has been embraced as a digital finance tool that is connecting people and businesses through modern transactions while opening up new frontiers to the continent’s population without access to banking systems. 

But beyond the democratisation of finance, the digital currency has pointed users to opportunities ranging from economic participation, enhancing cross-border trade, bolstering financial resilience and bridging the digital divide. It has been pivotal in instilling trust and accountability in governance and highlighting human rights abuses where traditionally it would be difficult to do so.

For example, in South Africa, a country that grapples with poaching, techies and environmentalists have embraced cryptocurrency in their conservation ventures by creating loyalty programmes, thereby allowing investors to adopt endangered species and contribute to the conservation of wildlife in a model that is delivering impressive dividends. 

But these emerging technologies have also come under criticism as a result of their negative impact on the environment. This is primarily due to their energy-intensive nature during transactions as players mine for new coins. For example, a Bitcoin transaction will use approximately 2,100 kilowatt hours - the equivalent of the energy a typical US household would consume in 75 days. The annual carbon footprint of bitcoin is equated to the release of some 97.3 tonnes of carbon dioxide, further detailing the contribution of the digital currency to greenhouse gas emissions. 

There are also consumer protection concerns due to the high price volatility of the currencies and collapse of some of the leading crypto exchange companies. 

While the potential of digital finance in the continent continues to excite Africa, despite growing concerns about their prospective risks to the environment, financial systems and consumers, players such as governments, private sector should closely examine the effect of digital currencies on the environment and social well being and advance their regulation.

Image by Shubham Dhage

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