Before we get into what's happening in Africa, let's ponder the following.
"Is the blockchain a solution looking for a problem?"
This was the keynote remark made by Ravi Menon, the Managing Director of the Monetary Authority of Singapore (MAS). He later clarified his answer and stated that "blockchain technology is mostly use-case driven: there is almost always a real problem to be solved." Ravi's question above implies a common (mis)perception of cryptocurrency's role in developed economies and is a consistent argument made by critics and no-coiners alike - although it has merit.
A recent video of Packy from Not Boring made the rounds on Twitter after he stumbled over defining how transacting real estate on a blockchain would differ from the incumbent real estate industry. In his defense, that's a tricky question to answer. When dealing with any real-world asset on a blockchain, tokens only serve as promissory notes. Sure, you don't have to wait 30 days to close the sale, and there are interesting ways you can use a tokenized real asset as on-chain collateral. Still, the tangible assets are ultimately subject to the reign of the very real governments and countries where they exist.
At this point, it's safe to say that blockchains make more sense in some regions and industries than others.
Africa
Africa is burgeoning. It's the cradle of humankind and is a resource-rich, expansive landscape that can fit China, India, the USA, and half of Europe's landmass within its boundaries. Roughly 1.5 billion people live across 54 countries, and it's estimated that 40% of the population is 15 years old or younger, and the ITU forecasts that 500 million Africans will have smartphones by 2025.
Half of the battle of implementing blockchains is educating people on how to use them. While the average African may not be acquainted with self-custody or the difference between the consensus methods underlying Ethereum and Solana, the average American or European isn't either. Africa's young and tech-savvy population has more ability and incentive to learn how to utilize blockchains effectively, and many countries have already made leaps and bounds.
The more prominent players like Nigeria and Seychelles, Ethiopia, Ghana, Mauritius, Kenya, Rwanda, Sierra Leone, South Africa, and Tanzania have already made inroads or formally declared their interest in blockchain and fintech industries. This growing adoption signals that blockchains offer novel solutions to longstanding problems in Africa and their potential is being recognized by world leaders.
Speaking of Nigeria and Seychelles, check out this graph.
Nigeria and Seychelles raised over 50% of all blockchain-based venture capital investments on the continent as Africa's YoY VC investment increased by over 1100%. Nigeria is also one of the largest oil exporters in the world and has become the wealthiest country in Africa. As oil cruises to near all-time highs, Nigeria continues to collect a pretty penny from energy-dependent countries like India, China, Europe, and elsewhere in Africa. Nigerian millionaires grew by 44% over the past decade, although 60% of the country still lives on less than $1 / day.
This uptick in crypto-related investments is significant. Investors envision the possibilities of blockchains in Africa, and they're putting their money where their mouth is.
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Blockchains as a Solution
Most countries don't have the luxury of managing their currency. Having the ability to put money into the system or take it out using the medium of a domestic central bank is an underrated superpower. For example, smaller and less affluent European nations are at the whim of Christine Lagarde and the European Central Bank (ECB). If the ECB wants to print money until eternity, the less powerful nations in the region must deal with the consequences.
Yes, the following video from Twitter is cherry-picked, but it sure doesn't make you feel good about the Euro or the aptitude of central bankers.
With all the hullabaloo surrounding Nigerian investment and advancement, you still need to consider that the Nigerian Naira's annual inflation rate accelerated to 16.82% in April of this year. Put $100 worth of Nairas (or eNairas) in the bank last year and now have around $83.18 worth of buying power. That doesn't bode well for individuals or corporations, and unfortunately, much of the world is in a position similar to this.
Currencies
Currencies traditionally have acted very similar to languages in that the ones that survive only do so with an army and a navy. Bitcoin changed that.
Bitcoin, and blockchains at large, offer entirely new frameworks for global payment rails to function. Using USD worldwide is doable, but there are plenty of limitations, and USD is also experiencing surging inflation rates. If you put $100 into your Chase savings account to earn 0.01% last year, you have about $92 worth of buying power now (unless you're buying groceries or gasoline, then it's less).
Rather than be subject to the volatility of Bitcoin or the more minor domestic currencies that stand to be manipulated by outside forces, African countries can take advantage of both stable coins and interconnected token networks to expand upon their economic progress.
Remittances
African remittances are in a perpetual bull market. The following represents the number of remittances sent via crypto to Africa over the past few years.
If you're unfamiliar with remittances, they're the payments foreign workers send back home to their families. The remittance industry is a reasonably dirty one. Average wiring fees of 7.45% equate to over 27 days of a low-income worker's annual income. In 2017, low and middle-income country remittances amounted to $466 billion, and remittance fees were $34.7 billion. This is not stealing from the rich and giving to the poor; it's quite the opposite. To put the absolute dollar value of these fees into perspective, the US's non-military foreign aid budget was $34 billion in 2017.
Crypto fixes this.
Using Solana, for example, you can make 1,000,000 transactions for a cost of ~$10. The issue is that banks and vendors in your region may not accept crypto, USDC, or other stablecoins. This is why crypto infrastructure in Africa must improve to facilitate low-fee remittances and benefit from the many other benefits that blockchains enable.
Debt & Independence
China recently banned holding and transacting cryptocurrency (although a few dozen Bitcoin nodes are active within the country) in preparation for their own Central Bank Digital Currency (CBDC). This CBDC would go hand in hand with China's surveillance state as the government would have unprecedented control and monitoring power of its people's finances.
Did you spend $100 on American media last month? You can only buy food this month and are on the no-fly list.
What does China have to do with Africa? China is Africa's largest creditor.
Time is a critical component of China's geopolitical strategies. Over the past few decades, there has been extensive investment from Chinese firms in infrastructure projects across the African continent. Many resource-rich but financially developing countries cannot pay their debts. This can lead to several unintended consequences, such as the Chinese government's nationalizing African public goods.
Rather than succumb to the external forces that China can put on less affluent African countries, blockchains present an alternative financial system for these countries to operate with. Businesses would be able to function globally without friction from Chinese authorities, and individuals would be able to decentralize their assets.
The situation is not dire but is very complex and needs more international attention.
Blockchains as a Problem
Rather than write more examples of how blockchains can help African economies, it's worth noting how they can cause and solve problems.
El Salvador adopted BTC as a domestic currency in June of 2021, and the results have been nothing more than lackluster. At the time of writing, President Nayib Bukele and the El Salvadorian government are down about 30% on their purchase, and citizens are unhappy with the situation. I say about because the government has continued to be opaque in its operations and has never publicized the address(es) of their wallet(s).
You also need to consider that Nayib "deployed the armed forces and civil police around and inside the Legislative Assembly" to "coerce the legislative branch to act on his crime bill."
I'm not saying that this is an authoritarian regime but what walks and sounds like a duck is usually a 🦆.
Crypto Critics' Corner recorded four informative podcasts about the situation in El Salvador, and all is not well. Those can be found here - 1, 2, 3, 4.
The IMF recently downgraded El Salvador's credit rating due to its lack of transparency and questionable financial activities surrounding Bitcoin. The rollout of Bitcoin's Lightning network has been met with significant resistance from vendors and individuals within the country. It simply doesn't make sense for a volatile currency to pay for goods and services in a nation where poverty is the norm.
Hence, my head-shaking apprehension when I found out that the Central African Republic (CAR), ranked 188/189 on the global welfare list, chose to adopt BTC as a domestic currency this past April. Like many in Africa, CAR is resource-rich, so it is a target of commodity-minded governments like China and Russia.
Most of the country doesn't have internet (~4% do). Over the past few years, the CAR government has become very close to Putin's regime in Russia after decades of internal strife and external influence from France. French analyst Thierry Vircoulon told the AFP news agency, "The context, given the systemic corruption and a Russian partner facing international sanctions, does encourage suspicion."
On the other side of the argument, Economist Yann Daworo told BBC Afrique that businesses and individuals "will no longer have to walk around with suitcases of CFA francs that will have to be converted into dollars or any other currency to make purchases abroad."
As Bitcoin and blockchains are more readily adopted in emerging markets across the globe, the need for scalable, decentralized networks is more apparent than ever.
Conclusion
Africa isn't looking to disrupt the mortgage industry by putting real estate on the blockchain. There are more fundamental incentives and use cases that are garnering support. The low-hanging fruit is to replace volatile domestic currencies with on-chain stable coins or other token networks, reduce the influence of foreign interests, and introduce transparency in financial Governance.
It's difficult not to get carried away with this article because there is so much more that can be done with blockchains once these other issues are resolved. New creator tools, access to financial freedom (DeFi), NFTs, DAOs, self-sovereignty, and all the other good stuff that comes along with blockchains will make them more useful and valuable to Africans in the coming decades.
But it's not going to be easy.
If it were, it would have already happened.