Is Africa ditching the US dollar for Bitcoin?

As several African countries struggle with the negative effects of the ongoing US dollar crisis, there is growing interest in adopting Bitcoin as an alternative currency. The potential of this digital currency to revolutionize Africa’s $86 billion banking sector has been a topic of discussion among key players in the financial industry.

In the first ever Africa Bitcoin Conference held in Accra, industry leaders explored how Bitcoin could potentially transform Africa’s financial infrastructure. The aim is to provide essential tools for unbanked populations facing issues such as currency instability, dependence on remittances and financial sanctions.

Abandoning the US dollar

In light of the US dollar crisis, Kenyan President William Ruto recently unveiled a new proposal. The initiative aims for Kenya to buy oil using its local shilling currency to ease fuel shortages caused by oil cartels hoarding US dollars. Ruto accused the cartels of exacerbating the US dollar crisis, leading to fuel shortages in Kenya.

In response, his administration took measures to address the scarcity of US dollars. These include allowing Kenyans to buy petrol on six-month credit and signing agreements with Saudi Arabia and UAE firms to supply diesel, petrol and jet fuel on credit.

These deals, supported by government-to-government arrangements, involve Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company, which supply fossil fuels to Kenya. This scheme aims to ease the pressure on demand for foreign exchange. It also aims to stem the fall of the Kenya shilling against the US dollar and other major currencies.

Kenya’s fossil fuel demand amounts to a staggering $500 million per month. This constitutes a significant part of the country’s total import bill.

Africa’s digital options

Mobile money, a digital wallet linked to a phone number, has seen rapid growth in Africa. Transactions increased by 39% to over $700 billion in 2021. However, users still lack some benefits of traditional banking, such as access to credit and protection against currency volatility.

Bitcoin can eliminate intermediaries and enable direct digital payments between individuals without credit or additional fees.

The Lightning Network is a second layer built on top of Bitcoin’s main chain. It reduces transaction costs and enables faster payments, making Bitcoin more efficient for everyday use.

Companies such as Yellow Card, Africa’s largest centralized crypto exchange, are exploring the Lightning Network. The goal is to further reduce transaction costs and enable seamless international payments between Lightning-enabled Bitcoin wallets.

Innovative projects such as Bernard Parah’s partnership with Strike, a Lightning Network payment platform, demonstrate the potential for Bitcoin to facilitate cross-border transfers without requiring recipients to interact with cryptocurrency themselves. Parah’s “Send Globally” service allows people in the US to send money to Nigeria, Ghana and Kenya.

South African developer Kgothatso Ngako developed a Lightning wallet called “Machankura”. It allows people without internet access to send and receive Bitcoin. The service is compatible with any Lightning wallet globally, enabling instant transfers even to basic mobile phones in remote areas.

Transferring money in Africa can be expensive and difficult due to limited access to commercial bank branches. Digital banking options are scarce, and issues such as hyperinflation, government corruption and capital controls further complicate matters.

Africa’s payment system is heavily dependent on foreign processing, which leads to increased costs and long processing times.

Bitcoin enables a decentralized future

Bitcoin offers a potential solution to these challenges by offering a decentralized, borderless digital currency. It can empower people who would otherwise be economically excluded.

In cases like Nigeria’s #EndSARS protests, the government tried to block protesters’ access to funds, but Bitcoin provided an alternative means of support.

But transferring money via the Bitcoin blockchain also has challenges, such as increased fees during high demand and transaction delays. The Lightning Network solves these problems, making Bitcoin more accessible and viable for widespread use across the continent.

Despite potential regulatory challenges, these innovative projects could drive mass adoption of Bitcoin in Africa, gradually reducing dependence on the US dollar.

During the Africa Bitcoin Conference, Block CEO Jack Dorsey highlighted that mass adoption of Bitcoin could ultimately undermine government efforts to control financial activity. He emphasized the importance of continuing to build and innovate.

Adopting Bitcoin as a mainstream currency in Africa faces significant obstacles. Nevertheless, a combination of innovative technologies such as the Lightning Network, collaboration between major industry players and grassroots efforts to educate and empower the population can usher in a new era of financial independence for millions of Africans.