As mobile banking rises in Africa, with it comes the cryptic currency known as Bitcoin. The electronic currency will, if all goes as planned, make a huge impact on the African economy. Indeed, economists suggest that Africa will be well on its way to a normalized economy.
First, a short background on Bitcoin.
Bitcoin is a digital currency that was first introduced in 2009 by an unknown person who uses the pseudonym Satoshi Nakamoto. The currency is notable in that it operates without use of a central bank and uses peer-to-peer payment, which means money can be transferred anonymously. While the bitcoin has no fees for online payments, it is also not backed by any material goods.
As it turns out, this type of currency might have a strong foothold in Africa. Around 80 percent of adults in Africa have no bank account, but at least 15 percent have financial apps on mobile devices. This money is often charged a 12 percent interest rate by Western Union or other services that wire currency. This ends up being close to 50 billion USD yearly.
On the whole, though, the African continent has been lukewarm about accepting the virtual currency and proponents must pass a number of hurdles before it is widespread.
The first problem that Bitcoin faces is in acquiring the currency. The coins are “mined” online via a complex computer algorithm. Many areas in Africa do not have sufficient technology to mine the currency and will therefore rely on other countries to sell them coins. This creates an unfortunate dependency that the continent seeks to eliminate.
The anonymity of Bitcoin also faces concerns on the continent. Africa has anti-money laundering and cash security programs that the electronic currency would have to pass in order to work on a widespread level.
But there are additional positive benefits, as well. As a complementary currency, it could solve some problems related to inflation. This is because there are a finite number of Bitcoins that will ever exist—21 million. Inflation should have no effect, theoretically, although there has been massive speculation since July 2013, causing prices to skyrocket. This could solve problems in countries like Zimbabwe, where inflation has crippled their economy.
If Africa can figure out how to incorporate the currency while still maintaining good relationships between business and government, it could be a massive boon.
– Andrew Rywak