- Digital currencies have a habit of instantly dropping, causing shockwaves throughout the market
- The UNCATD, United Nations Conference on Trade and Development, recently published a report vividly displaying the disadvantages of overreliance on digital currencies
- Crypto mining and trading have become the new form of evading the bitter moral duty of paying taxes
Africa’s crypto adoption rate is at an all-time high, reaching a record high of 1200% in one year. Many crypto traders and exchange platforms have taken this as a sign to move forward. Granted, blockchain technology has significantly boosted data security in African countries. Many new African startups owe a lot to the efforts made in crypto mining and cross-border transaction.
The adoption rate is gradually rising, and some African countries have gone a step further by accepting digital currencies into their economy. El Salvador was the first to incorporate Bitcoin as a legal tender. Nigeria followed as it incorporated CBDCs into its system. The recent one is from South Africa has created new crypto regulations after SARB officially recognized crypto as a financial product.
Each country shines a positive light on crypto, but we only get one side of the whole picture. As much as digital currencies are considered the next generation of cash, there are reasons why most African governments are rejecting the incorporation of crypto in their economy. Here are the dangers that African countries will likely face if the trajectory of their crypto adoption does not change.
Understanding the rise and goal of cryptocurrency
Cryptocurrency is built on the blockchain foundation, and its central theme is decentralization. No single entity has authority over a given asset or privilege. The very concept of cryptocurrency defies the governmental hold fiat currencies have.
Crypto mining was the initial phase of cryptocurrency, where individuals would use their resources and get compensated via crypto coins. This first approach had various limitations and didn’t help much in Africa’s crypto adoption rate; however, it did usher in the fame and popularity Bitcoin now has.
By giving complete control of the digital currency to the user, they could avoid specific governmental tasks such as paying taxes, and in all honesty, no one likes paying that.
The promise of compensation with little to no effort was captivating. It requires you to use your machine and an attitude that doesn’t mind the exaggerated electrical bill, and you are good to go.
This, however, did not sit right in Africa’s crypto ecosystem since acquiring that device was not an easy feat. Years later, a new form of handling crypto came; the crypto trader who took advantage of the crypto volatility.
Crypto mining suddenly lost its touch, and numerous African crypto enthusiasts abandoned the idea. This is because the thought of spending thousands of fiat currency on machines and electricity became inconvenient. In addition, several eco-friendly organizations flagged the excessive power usage of digital currencies, and keeping up with the prices made a dent in most wallets.
By the time 2021 rolled in, almost two decades since the concept of crypto mining had emerged, Africa is now known as an upcoming powerhouse due to its crypto adoption rate. Various nations, such as El Salvador, had accepted Bitcoin as a legal tender. Crypto traders all over Africa were ecstatic.
Golden Age losing its colour
The UNCATD, United Nations Conference on Trade and Development, recently published a report vividly displaying the disadvantage of the overreliance on digital currencies. The raised crypto adoption rate in Africa is a point of concern also.
Digital currencies have a habit of instantly dropping, causing shockwaves throughout the market. Individual crypto traders are heavily affected by this problem, but once African central banks step in, that personal struggle becomes everyone’s problem.
Penelope Hawkins, an economist and senior economic affairs officer at UNCTAD, states that the report wasn’t there to disprove crypto.
Instead, it shed light on facts that crypto traders don’t want to acknowledge. A previous article discussing the various reasons why African Central Banks reject digital currency is the term; monetary sovereignty.
To put it in simple terms, this is the ability and power the central bank of an African country has over its country’s economy. This power allows it to steer the country to economic growth. If by unfortunate circumstances, digital currencies become the main form of transaction and payment, central banks lose the ability to steer the economy to the right path.
Most unlearned individuals might think it’ll represent some form of freedom, but the catastrophic results will not go unnoticed. A slight drop in the value of digital currencies will shift the prices, given its already fluctuating nature and economy.
Using stablecoins or CBDC might be the following predictable counterargument, but they are digital currencies whose value depends on the fiat currency. Crypto regulations are required if fiat currency retains its position in a country’s economy.
Crypto mining and trading have become the new form of evading the bitter moral duty of paying taxes. Most people don’t want to believe that your tax is why your government still exists. It’s the main reason various African countries are proud of their infrastructure.
Africa’s crypto adoption rate can potentially undermine this concept. While digital currencies can facilitate remittances, they enable tax evasion and avoidance through back-door financial flows. Many might think this is no different than the current tax avoiders African countries have, but the mechanisms used are slightly different.
This slight difference will allow crypto traders to avoid paying taxes altogether wholly. Even after placing defence mechanisms, the primary advantage and disadvantage of the digital world is its fluidity in innovations. A hacker can easily find a way to create a back door or, even worse, see a way to fool the system completely.
Public demerits out-shadows individual growth
Africa’s crypto adoption rate mainly owes its high rates to individual transactions. Crypto mining and trading did have their roots in Africa during its golden age, making Bitcoin millionaires.
This spurred a chain reaction for the next decade, and many crypto traders learned the trick of the trade. Eventually, crypto exchange platforms caught the ingenuity within Africa and decided to support these visions creating the prominent Fintech companies known today.
If you have already noticed, these are merely statements of success from individuals and organizations, but no country is yet to boast of the vast benefits crypto has. Most African countries are struggling to establish crypto regulations that govern the use of digital currencies.
This does not mean that crypto does not have its benefits for a country’s economy. Although for developing countries in Africa, being sucked in by the crypto adoption wave will have severe consequences. An already struggling economy does not need to further deepen its pockets by taking the risk of digital currencies. Only by establishing stern and well-thought crypto regulations can he meagerly usher in the use of crypto.
Africa’s crypto adoption rate is a positive mark on the world. It shows that Africa can be a powerhouse in its own right. However, simply focusing on the positive side of a concept creates tunnel vision. When the demerits finally kick in, the unexpected will happen.
There is a desperate need for crypto regulations to affirm digital currencies’ do’s and don’ts. Standard-setters are reviewing how conventional banks should interact with the world of crypto and are leaning toward imposing a cap on holdings of assets such as bitcoin. Other African governments have proposed extra curbs to shore up money-laundering rules, capital controls and tax collection.