Blockchain venture funding and cryptocurrency adoption have both seen explosive growth in Africa. Africa is emerging as one of the world’s fastest-growing cryptocurrency markets, driven by strong funding activity, favourable market conditions, and booming trading volumes, according to a new report by Swiss blockchain-focused investment firm CV VC.
Blockchain Cryptocurrency allows the African population to hold assets that aren’t affected by rising inflation and depreciating domestic currencies. Cryptocurrencies are also quicker, cheaper and easier to use than conventional methods. That’s because the technology facilitates peer-to-peer transactions rather than relying on intermediaries.
Noteworthy fundraising reports are being recorded: MARA, a Kenyan startup building a pan-African crypto exchange, raised US$23 million; Jambo, a Congolese Web3 startup, closed a US$30 million Series A funding round; and Afriex, a Nigerian money transfer startup, raised US$10 million in a Series A. Added to Q1 2022’s figure, these deals bring the year’s total funding for the sector so far to US$154 million, surpassing 2021’s blockchain funding total of US$127 million.
Blockchain development on fertile ground
Africa’s dynamic blockchain funding landscape is reflective of investors’ confidence in the prospect of the technology on the continent.
Africa is the second most populous continent in the world and has one of the youngest populations globally. Additionally, a report says that many Africans cannot rely on centralised and regulated infrastructure systems, which are often riddled with inefficiencies and red tape.
With 370 million people still unbanked across the region, cryptocurrencies and blockchain have the potential to allow Africans in cash-based and informal economies to access alternative infrastructures to obtain credit, access payment capabilities, save and invest, and more.
Developments on the regulatory front have also been another driver of the growth of blockchain in Africa.
In Nigeria, new regulations for digital assets were introduced in May, offering more clarity on trading in cryptocurrencies. The move followed the launch of the eNaira, a retail central bank digital currency (CBDC), in October 2021.
In South Africa, formal guidelines on crypto are expected to be introduced in 2023, and experiments on CBDCs are being carried out.
Last year, the Virtual Asset and Initial Token Offering Services Act 2021 was passed into law in the island nation of Mauritius. This act provides a comprehensive legislative framework to regulate the emerging industry of cryptocurrencies.
A pioneer in the field of cryptocurrency regulation, Mauritius initiated the process of regulating the industry in 2020 when it issued guidance for security token offerings. In addition, it introduced a regulatory regime that new security token trading systems needed to comply with to be eligible for a Financial Services Commission (FSC) license. Mauritius is considered a frontrunner in cryptocurrency regulation.
The research indicates that venture capital (VC) funding in the blockchain industry is experiencing a meteoric rise in 2018, with blockchain startups raising a total of $91 million in just the first quarter of 2022 alone.
This number represents a year-on-year increase of 1,668% from the previous year’s first quarter.
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Cryptocurrency usage is on the rise
Over the past couple of years, there has been a meteoric rise in the number of people in Africa using cryptocurrency. According to the blockchain data platform Chainalysis, the value of transactions conducted in cryptocurrencies on the African continent’s market increased by more than 1,200% between the years 2020 and 2021, placing it as the third-fastest growing crypto economy in the world.
The company believes multiple trends are responsible for the rise in the use of cryptocurrencies throughout the region.
The publication of CV VC’s African Blockchain 2021 took place at the same time as the company’s launch of its African Blockchain Early Stage Fund and the announcement of its forthcoming accelerator programme focusing on blockchain technology.
Evidence suggests that Africans are increasingly using cryptocurrencies for remittances. Africans are turning to digital currencies to avoid capital control measures and traditional money transfer services that are more expensive.
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The use of cryptocurrencies as a hedge against inflation and geopolitical risks is another potential use case that Chainalysis identifies as a use for cryptocurrencies. For example, data from Kenya and Nigeria show that trading volumes on peer-to-peer cryptocurrency platforms increase when there is a decline in the value of the naira and the shilling in terms of US dollars.
Understanding blockchain technology
A system of recording information in a way that makes it difficult or impossible to change, hack or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain.
Blockchain is a record-keeping technology that is designed to make it impossible to hack the system or forge the data stored on it, thereby making it secure and immutable. It is a type of distributed ledger technology (DLT), a digital system for recording transactions and related data in multiple places at the same time.
Blockchain aims to allow digital information to be recorded and distributed but not edited. In this way, a blockchain is a foundation for immutable ledgers or records of transactions that cannot be altered, deleted, or destroyed.
Blockchain is the technology that enables the existence of cryptocurrency (among other things). Bitcoin is the name of the best-known cryptocurrency for which blockchain technology was invented.