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Bitcoin: a cryptocurrency ideal for Africa?

Bitcoin entrepreneurship is taking hold worldwide. The first quarter of 2015 saw record levels of investment pumped into Bitcoin startups across the world, with global Bitcoin startups receiving US$299 million – a 51 per cent increase on the end of 2014.Bitcoin entrepreneurship is taking hold worldwide. The first quarter of 2015 saw record levels of investment pumped into Bitcoin startups across the world, with global Bitcoin startups receiving US$299 million – a 51 per cent increase on the end of 2014 – Gabriella Mulligan.

Africa is also seeing a rise in Bitcoin activity, with the continent’s first Bitcoin conference having taken place earlier this year, and startups springing up continent-wide specialising in the cryptocurrency. We also previously reported how blockchain and digital currency can be used to reach the unbanked in Africa.

 

Bitcoin for remittances
One key ways in which Bitcoin could prove particularly disruptive in the African context is for remittances. Money remittances to sub-Saharan Africa, mostly sent from members of the diaspora working abroad, are expected to rise above US$34 billion in 2015, US$41 billion in 2016.  It is estimated that remittances in Africa account for a country-by-country average of 5 per cent of GDP.

Established players such as Western Union and MoneyGram have traditionally been the favouredbitpesa mobile remittance services used to convey money to Africa from abroad, and between African countries. However, these services come at a substantial cost – the average charge of sending money to Africa being 12 per cent of the value of the transaction; presenting the highest regional cost of remittances in the world.

Bitpesa an African digital exchange has taken issue with these exorbitant fees and aims to charge 3 per cent to the consumer. Charlene Chen, COO of Bitpesa tells Appsafrica.com  “our proposition is to be 50-75% cheaper than Western Union and other providers, while also sending money much faster.” BitPesa releases funds to recipients in their local currencies in Kenya and Tanzania, which can be deposited into bank accounts or paid out in shillings on mobile devices.

Ghanaian Bitcoin startup Beam, has recently discontinued its remittance product  but is working on new solutions. Beam was charging only 3 per cent of a transaction and Co-founder of Beam, Falk Benke explained that Bitcoin remittances can save costs for individual users.

beamOG“If people have Bitcoin already, they can save on fees, since common Bitcoin remittance companies like Beam only charge 3 per cent compared to the usual 10-12 per cent. In the long run, Bitcoin can become the underlying infrastructure to settle between agents in sending and receiving countries. In that case the sender and recipient never have to touch Bitcoin themselves, but leave that to agents specialized in buying and selling Bitcoin,” he says.

However, Benke cautions in the short-term, Bitcoin can only really have an impact in Africa if individual users are able to pay for products and services using the cryptocurrency, given that exchange rates between local currencies and Bitcoin often mitigate the lower cost of Bitcoin remittances.

“Bitcoin can only be a true alternative in the remittance market if recipients in Africa can start using them directly to make payments. This is because sending Bitcoin is almost free, but exchanging it to fiat to use it locally is expensive,” he says.



“After all, the added value of Beam is offering a way to exchange Bitcoin to [Ghanaian] Cedi. In a perfect world a solution like Beam is not needed, because recipients can use the Bitcoin right away.”

Indeed the exchange value of Bitcoin is one of the key challenges faced by the new currency.  The value of Bitcoin fluctuates wildly within short periods of time, contributing to its risky reputation.

“Volatility is a huge risk for everyone holding large amounts of Bitcoin. The price drops can be drastic.  For example, in January 2015 the price dropped from US$294 to US$177 within one week. And it is still unclear what the actual value of Bitcoin is, since there is a lot of speculation involved right now. So volatility rightfully affects adoption,” Benke says.

Bitcoin – the alternative to traditional banking?
Founder of Nigerian Bitcoin startup Bitstake agrees that cryptocurrencies can change not only the remittance market in Africa, but the banking sector at large.  Bitstake charges only 1 per cent of each transaction, claiming to be the cheapest remittance provider in Africa.

BitStake“Bitcoin I believe is one of the key features of technology in remittance markets of the future. Current prices for remittance are too high, the banking landscape in Africa does not cater to a large proportion of the populace because simply put the institutions are not there and thus not accessible,” Christian says.

According to Christian, Bitcoin has the potential to counteract the low levels of banking in Africa, by addressing many of the obstacles faced by African populations in trying to make use of formalised banking services.
“One of the biggest issues that the African populace has, is inaccessibility to banks, barriers to entry of banks are high in Africa. Much of the populace will have to travel hundreds of miles to even gain access to a bank. One of the other problems is that to gain access to banks and to move finances is hard, because of the many forms that have to be filled out to gain access to an account,” Christian says.

“One of the key social dimensions is the African populace wants control and access to their finances at all times. Bitcoin can help with this as funds can be accessed 24/7, they can be sent throughout the world without issues to anyone at any time (many countries restrict access to funds transferred to and from Africa because it is deemed high risk), they are also backed up and secured by the block chain and the Bitcoin network meaning that fraud is reduced completely which is also a prevalent problem in developing nations.”

As such, Christian says Bitcoin can offer a viable alternative form of financial services for Africa.
“Bitcoin can help financial institutions in Africa and produce healthy alternatives, if a bank is not in reach of a populace then they will need viable alternatives to safely secure and transmit finances – we believe our service caters to this “unbanked” segment.”

Still a long road for African Bitcoin
While Bitcoin is gaining in traction in Africa and across the world, it is nonetheless still in its infancy, and remains a novel concept which stands some way off widespread adoption among local populations.Benke argues Bitcoin will not be able to fulfill its potential unless uptake is made easier through a number of measures, ranging from community education to the creation of a favourable regulatory regime.“Bitcoin has the potential to make an impact in Africa under certain circumstances: adoption of the masses which requires education and accessibility through feature phones as well as a friendly regulatory environment,” he says.



AppsAfrica.com is a leading pan-African technology news portal and advisory service, dedicated to delivering the latest insight on mobile, tech and innovation in Africa.
AppsAfrica Advisory provides strategic, tactical and operational Africa advisory services for mobile and tech ventures planning to launch or expand in Sub-Saharan Africa with a team of experienced advisors. Our events celebrate and connect the best in mobile and tech from across the African tech ecosystem with global players.



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