Bitcoin and other virtual currencies offer a range of unique benefits for people who regularly need to transfer money to someone in an African country. They are relatively secure, but in many countries they remain unregulated, so as with any payment method, there is an element of risk.
After protracted negotiations, the Treasury Secretary of Kenya was asked by the Kenyan parliament to conduct a study on the use of cryptocurrencies in the country. There has been some opposition from state banks, but while the government white paper is still in progress, cryptocurrencies remain unregulated in Kenya.
As such, the situation is still uncontrollable, not forgetting that there is a lounge at Kenyatta University, an ATM in Nairobi City and a Hotel in Nyeri County that trade in Bitcoins.
Although the African continent may not have been as quick to adopt cryptocurrency payments as Europe, Asia and North America, in recent years both individuals and businesses have built up a network of bitcoin initiatives.
Moreover, it is now easier than ever to send money to Africa from abroad using a bitcoin wallet. A typical situation is the support of family members at home, for example to help studying and to get an academic degree (see article about “Getting a bachelor degree online: high quality, low costs”).
Why Is The African Cryptocurrency Market Growing?
Also referred to as fiat currency or a digital currency, cryptocurrency remains completely virtual. This is one of the key reasons why users across Africa were initially sceptical about using it for making or receiving payments.
However, these fears have been gradually eroded as people realise the potential for getting extra value from the abundance of informal markets which span the continent.
As an increasing number of states begin to digitise financial transactions, they are able to offer more choice to consumers. Eventually, public services could be accessed through bitcoin and the currency could even be issued by banks.
For now, it is South Africa which has been at the forefront of a formal blockchain technology uptake, with trials taking place to test out the currency in a range of diverse financial transactions (article convert btc to zar).
During these tests in June 2018, the central bank of South Africa reported that transactions were completed much sooner than usual, as processing speeds were faster.
Kenya is another country which is installing a bitcoin infrastructure, but here the purpose is mainly to boost start-up businesses. Giving owners the chance to have their creditworthiness scored and potentially obtain commercial loans via their phone through a scheme managed by IBM.
It is the sheer scale and the informal nature of Africa’s financial markets that drives cryptocurrency forward, indeed, the International Labour Organisation has suggested over 66% of work in Sub-Saharan Africa is carried out in the informal sector.
In South Africa and Zimbabwe, bitcoin ATMs are already in use and business-minded young people from Kenya are using bitcoin mining as a method of raising funds for their start-ups and day to day living expenses.
Over in Nigeria, $4.7 million worth of bitcoin sales took place per week in January 2018, and the figures continue to rise. A virtual currency can offset the problems faced by residents of any country with a volatile economy, as virtual cash is not subject to exactly the same market forces.
What Are The Advantages Of Bitcoin-Based Money Transfers?
Payments Can Be Made Anonymously
Any cash which is sent in bitcoin takes place discreetly. A crypto user can choose to share their transactions, but unless they do so it is not possible to link any purchases back to them and their identity remains protected. All the best bitcoin wallets encourage a user to generate a new address for every new purchase, so the level of anonymity is only really matched by a cash purchase.
Mobile Payments Are Simple
Just like with PayPal and other online payment services, people who use a bitcoin wallet can make payments from any location which offers access to the internet. Therefore, it is not necessary to visit a bank, money transfer specialist or shop, in order to send funds. The key difference between PayPal and bitcoin is that no personal information is required for each crypto transaction.
No Purchases Are Subject To Tax
As it is not possible for governments or law enforcement departments to detect or follow transactions made using bitcoin, any sales tax which might usually be applicable is not added on to a purchase.
There is No Need for Third-Party Involvement
A crucial feature of bitcoin is that no bank, regulatory body or government is able to monitor, disrupt or intercept cryptocurrency accounts. The benefit of a person to person system is that each user gets to make the transactions they need across international borders, free from conventional currency restrictions.
Attractively Low Fees and Charges
When people send money abroad using a wire transfer or they make purchases from a foreign source, this can often generate a range of exchange fees and charges. The difference with bitcoin is that there are no outside interests, so all of these costs are minimal. This is especially advantageous for people sending funds abroad. Furthermore, as most bitcoin transfers take place at a rate of one block every ten minutes, the wait times are smaller.
How Do Bitcoin Payments Differ From Money Transfer Apps Like Worldremit And Azimo?
WorldRemit and Azimo are online services which enable their users to transfer money abroad (mobile money transfers). They present a very convenient method of payment but are lacking compared to the freedom offered by cryptocurrency transactions.
Primarily, with bitcoin there is no one who can see what you are transferring or whom you are transferring it to. Unlike with WorldRemit and Azimo where your transaction history is visible to certain members of staff.
Moreover, WorldRemit and Azimo payments can be traced back to you in seconds, because you have opened an account with the service and verified your identity.
Aside from a greater degree of privacy, a bitcoin payment does not have to be converted from one currency to another, so there are no exchange fees. Moreover, any fees which are charged tend to be very low.
As with all traditional online wallets, payments made through WorldRemit and Azimo are completed with the services' permission. If the company believes there is a problem, or their terms and conditions were not met, they can cancel transactions and even ban users.
With bitcoin, no permissions are required regardless of the transaction and your account can never be frozen as part of an investigation.
An Emergent International Trend
There is an inherent risk with spending, receiving and transferring any kind of funds and cryptocurrency payments are no different. However, sending money to someone in an African country using these methods does provide a wealth of innovative benefits.
The entire transaction is as simple as sending of an email and funds can be sent anywhere there is internet access. Moreover, bitcoin users avoid the volatility of national currencies and a range of charges associated with transfers.
In the near future it is likely that peer to peer crypto wallets with their advanced levels of privacy, will be used by larger sections of the continent, but for now, it is just the early takers who are maximising on this universal currency.
By Jens Ischebeck
The author is an Africa focused website publisher. The main sites are apps-for-money-transfer.com and bitcoin-guide-africa.com (both sites cover international money transfer apps for inward and outward remittances) and fast-bachelor-degree.com (accelerated bachelor degree by online studying).