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Why Cryptocurrency Matters in Africa’s Quest for Economic and Financial Sovereignty

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Cryptocurrency Matters in Africa
Image Credit: Bitcoins/Pixabay

In April 2019, Google Trends reported that Nigeria’s commercial hub, Lagos, had the highest Bitcoin search queries in the world. This poses the question: are Africans keen on finding an alternative to the incompetent traditional banking system? 

With over half of its adult population still unbanked, it is safe to state that the Bitcoin search queries were driven by frustrations triggered by the unavailability of financial services.

The volatility of African fiat currencies is also a threat to Africa’s financial and economic sovereignty. Cross border payments are a nightmare for Africans. Months ago, the South African Rand was named the world’s most volatile currency.

As the longing for foreign investments intensifies in Africa, currency volatility is still a major barrier. Some two decades ago, the “aid narrative” was the pattern of investment in Sub-Saharan Africa. Charities and NGOs only came to the aid of Africans, seeing that the continent had no room for self sustainability.

Although, it cannot be said that the need for aid has been totally expunged, the continent has been displaying potential, and investors are equally taking note. Africa is no doubt an emerging market and investors might just help catapult the emerging economy into a sovereign financial entity. However, liquidity and volatility issues must first be addressed.

The unstable currency does not only deter investments, but it also gives the Central Banks a hard time maintaining monetary stability.

Africa needs to give room for the rise of the digital currency era, in order to solve the issues that plague its financial ecosystem, and in turn, build a financial system where the holders of the currency are the owners of the financial infrastructure.

Cryptocurrency has the potential to replace the current economic system and governance in Africa. 

Several African countries already have start-ups and exchange in the cryptocurrency sphere. This has significantly improved cross border trading for these countries, and they are experiencing the bright pastures of a crypto world, as opposed to the dark traditional financial system.

The infrastructure for the adoption of cryptocurrency is somewhat ready for Africa. As it stands, Africa could leapfrog the current financial system before any other region. Although challenges of education and awareness are still existent, Africans already have some experience with digital versions of the fiat currency.

Cryptocurrencies are bound to create unprecedented opportunity for Africans to create and trade value. Similarly, inflation will be curbed easily, as cryptocurrencies will provide a stable store of value.

Financial inclusion is another area where  cryptocurrencies will play a big role in Africa.

1.7 billion people in the world do not have access to financial services. A large amount  of these people live in Africa. What are the implications? They live without being able to properly manage their finances, and the ability to obtain a loan, save or invest, is often ruled out. 

Denied the fundamentals of financial empowerment, these people, commonly known as the “unbanked”, are prone to inhumane standards of living. They face the harsh economic realities with no sustainable financial aid.

For low income earners who are also a majority in Africa, financial services are not feasible. The cost of these services could do more in crippling their finances, than upholding it.

Undoubtedly, financial inclusion is an important part of ridding poverty and boosting prosperity in Africa. If about half of the continent’s adult population still do not have access to financial services, the Sustainable Development Goals might be a mirage for a very long time.

While a large number of Africans are without financial services a good number of them have access to mobile phones. 

Last year internet users in Africa surpassed users in Latin America. 525 million Africans accessed the internet as of June of 2019. The numbers in Latin America fell slightly below this with 447 million users.

These numbers indicate the world is fast becoming digitalized and Africa isn’t left out of this race. In a world so technologically driven, Blockchain or DLT (Distributed Ledger Technology) could be the solution to Africa’s problems. 

When Bitcoin broke its way into the financial scene in 2008, there was a beacon of hope, as the traditional banking system wasn’t doing enough to help citizens of every corner of the continent.

Not only will Cryptocurrencies provide an alternative means of exchange, the unbanked will easily store and manage their finances without a bank account. 

A mobile phone with internet access is all that is needed to transfer, store and receive cryptocurrencies. A digital wallet can be created within minutes, without the traditional KYC (know your customer) procedure  that requires the physical presence of customers. 

However, Africa’s problems stem beyond fiat currency volatility or financial inclusion. The political realities in Africa also directly affects the finances of its citizens.

A nation riddled with war and political instability could displace individuals who would in turn, lose access to their finances and get stripped of their means of livelihood. With cryptocurrency, an internally displaced person or refugee, can easily gain access to all financial services, even in the face of chaos or crises. 

Beyond solving the problem of financial inclusion and cross border trading. Cryptocurrencies have the potential to give Africans the power to control their wealth without intermediaries thereby opening doors to a sovereign financial and economic ecosystem. 

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Bolu Abiodun is a recent graduate of Theatre and Media Arts, Federal University Oye-Ekiti. A journalist with over a year's experience on the job. A former editor at American Media company Project Forward, he is a skilled content creator, social media manager and digital marketer.

Market Watch

Jack Dorsey‘s Square to develop open source Bitcoin mining

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Jack Dorsey Bitcoin

On Friday, October 15, Twitter CEO Jack Dorsey announced that American fintech company, Square, would be looking to get into Bitcoin mining. Jack Dorsey who is also Square’s CEO announced this on Twitter which subsequently sent waves through the bitcoin market, surging its price to almost a record high, rising over $62,000 over the weekend. According to the Twitter boss, Square is looking to building an open source Bitcoin mining system that would be available to individuals and businesses.

Sharing his thoughts further on the initiative, he stated that “Mining needs to be more distributed” and that “the more decentralized [mining] is, the more resilient the Bitcoin network becomes. He also mentioned the apparent inaccessibility of mining stating that “Bitcoin mining should be as easy as plugging a rig into a power source.

Dorsey also believes that bitcoin mining “needs to be more efficient and that “clean and efficient energy use” would be undoubtedly beneficial to the digital currency in the long run.

Dorsey ended the thread by saying that a “technical investigation would be undertaken by a Square team led by Jesse Dorogusker, Square’s hardware lead. If successful, this initiative would be another of Square’s bitcoin focused projects which includes a Bitcoin hardware wallet.

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Financial Leaders from G7 Release Guidelines for Central Bank Digital Currency

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Source: World Atlas

At a meeting that was held in Washington, yesterday, October 13, G7 leaders discussed central bank digital currency and endorsed 13 public policy principles with regards to their implementation. The financial leaders from G7 agreed that CBDCs would complement cash and should not be detrimental to the monetary system. The G7 leaders have been discussing CBDCs this week concluding that they should do no harm and meet rigorous standards.

It should be noted that G7 includes finance leaders in advanced economic nations comprising of Canada, France, Germany, Italy, Japan, the U.S and the U.K. the G7 leaders make it mandatory that any newly launched CBDC should not harm the central bank’s ability to perform its duty of maintaining financial stability. In a joint statement by the G7 finance ministers and central bankers, they said that, 

“Strong international coordination and cooperation on these issues help to ensure that public and private sector innovation will deliver domestic and cross-border benefits while being safe for users and the wider financial system.” 

The joint statement further states that CBDCs are complements to cash and could serve as a liquid or safe settlement assets with an added advantage of anchoring existing payment systems. CBDCs issuance should be entrenched in a long-standing public commitment to transparency, rule of law, and sound economic governance. The statement added at CBDCs must be so efficient that they are fully interoperable on a cross-border basis. 

The G7 leaders agreed that they had a duty to minimize the incidence of ‘harmful spillovers to the international monetary and financial system” 

The G7 statement reiterated a similar statement earlier made by G20 that no global stablecoin project should begin operation until such a token has addressed legal, regulatory and oversight requirements. 

Countries like China and Nigeria are ahead of the pack with regards to the adoption of digital Yuan and Naira respectively. China’s crackdown on cryptocurrency may be a step forward for the country’s plan to promote its digital Yuan. Nigeria, on the other hand, postponed the launch of its eNaira in deference to the 61st anniversary of Nigerian independence on Oct 1. 

However, countries like the US and the UK are dragging their foot with regards to the introduction of CBDCs to their financial system. There are insinuations that America is in danger of being left behind technologically and financially if it doesn’t get serious with the implementation of CBDC in its financial system.

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Learning Guides

Understanding Speculation and Crypto Volatility

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Everyone who dabbles in the crypto industry learns almost immediately that the market is very volatile and oftentimes things can change very quickly. That volatility is the fundamental reason why some investors make absolutely stunning gains in so short a time and others lose a lot of money as well. Trading in crypto is one of the riskiest ventures any person can undertake and as they say, it’s not for the faint of heart. The risks can be mitigated of course and sometimes depends specifically on the coin or crypto asset being traded on, barring general market trends.

Nevertheless, to get to the bottom of the volatility concept, one must understand speculation in the market. To start off, the concept of speculation isn’t limited to cryptocurrencies, on the contrary, speculation has existed for as long as economics and trading has. But it is worth saying that speculation is often a feature of novel sectors, assets, commodities and the like. So, even though cryptocurrencies have been around for more than a decade, they’re still in their infancy as far as markets go. One could say that the market is still trying to find its feet.

One of the fundamental reasons why cryptocurrencies are so volatile is that they are fundamentally backed by nothing of value outside the attention that they get. Unlike many fiat currencies which are either pegged to another currency’s value or whose value is unilaterally determined by a central authority, cryptocurrencies only derive value as a function of how many people are willing to use is to transact, i.e. trust in the asset because other people trust it. As a rule of thumb, the larger the number of people who accept the asset, the more valuable it becomes.

This is one of the hallmarks of speculative trading. In the crypto world or in any market that’s novel and untested, many people are in it to win it which means their strategies in trade has the objective of making as much profits as possible in the short term. Therefore, the market enters a subtly dangerous cycle of rapidly changing prices of assets. Basically, investors typically buy assets when prices are low and wait. As more investors are attracted to the commodity for its low prices, it sets off a cascade where more people buy in, causing the price to steadily rise. 

However, all good things must come to an end and it almost always gets to a breaking point whereupon the price gets high enough for investors to begin to sell. This reverses the earlier cascade and as more and more investors pull out, the prices can fall dramatically causing even more to sell off in fear of losing whatever investments they have left. The prices having fallen resets the game and primes investors to begin buying again.

Volatility has been one of the talking points of many critics of cryptocurrencies often comparing it to a Ponzi scheme. And in certain cases, persons of interest with large pulls and audiences can substantially affect the rate at which prices rise and fall. Other factors include government regulations. Volatility at its core reflects the often chaotic nature of trade and market interactions and human hopes and fears.

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