Block CEO, Jack Dorsey travelled with his team to Accra for the inaugural Africa Bitcoin conference last December.
He was invited to speak about one of the most disruptive and transformative alternatives to the continent’s existing financial system: bitcoin.
Since its creation in 2008, this unknown form of money has alternatively been scorned as an absurd game, a legalized form of gambling, a speculative bet for those looking to get rich quick, a means for criminals to launder their ill-gotten gains.
Its value has not experienced sharp fluctuations. But the world’s leading cryptocurrency, however much it has buckled, is not dead. It is still here and – in the midst of a new type of banking crisis – is recovering.
Some even believe that in the world of cryptocurrencies, this parallel financial system can also serve a social good, offering an access to people who would otherwise be left out, as CNBC explains in an in-depth report.
The Challenges of Traditional Banking in Africa
In countries where the vast majority of the population does not have a bank account, remittances make up a large portion of GDP, and international sanctions complicate connections to the global economy, a virtual currency like Bitcoin, which does not require an intermediary to authorize transactions, may prove vital.
As cryptocurrency is identified as a source of concern by regulators around the globe, Dorsey is trying to convince the world otherwise: that Bitcoin brings economic power to people who would otherwise have none.
“It doesn’t matter if the price goes down or up, because I can still use bitcoin as a vehicle to transfer money around the world instantly,” said Mike Brock, a Block executive.
“I can exchange dollars for bitcoin and then bitcoin for Brazilian real. There is a market for bitcoin in every corner of the world today,” Brock continued.
Transferring money to Africa is a costly and complicated process. Access to commercial bank branches is limited, especially for people living in remote and rural areas.
Digital banking options are also limited. Dealing with rampant hyperinflation, widespread government corruption and capital controls that trap domestic cash in banks make the situation explosive.
“If someone wants to transfer money to the next country, normally, they would have to fill a suitcase full of cash and carry it across the border,” Ray Yusef, CEO of Paxful, explains to CNBC.
Part of the problem stems from the continent’s quasi-colonial payments framework, in which about 80% of cross-border payments originating from African banks are processed offshore, mostly in the US or Europe.
This translates into higher costs and processing time sometimes measured in weeks.
Then there is the so-called mobile money from the early 2000s. It’s like an electronic wallet connected to a phone number that doesn’t require a smartphone or data to work.
Users can pay bills and shop with their phone via SMS text messages, rather than having to rely on traditional banking options.
Mobile Money
Mobile transactions across Africa grew 39% to more than $700 billion in 2021, according to data from the GSM Association, a non-profit organisation representing mobile network operators worldwide.
However, as much as they proliferate, mobile users are not getting the perks of old-style banking, including earning interest on bank savings and building a credit score based on spending history.
Interoperability Challenges
Interoperability on the continent also remains a significant issue with this alternative mode of banking.
“The entire banking system in Africa is completely and utterly broken,” says Yusef of Paxful, a peer-to-peer cryptocurrency marketplace where users can buy and sell directly.
“Two thousand payment networks and only 2% of them are talking to each other. That number continues to grow. It is not improving, in fact it is getting worse,” Yusef adds.
Bitcoin vs. Traditional Cash Transfer Options
Companies like Western Union and MoneyGram offer an extensive physical network of branches around the world designed to transfer money for those who don’t bank.
This cash network has been extremely difficult and expensive to build, so there aren’t many direct competitors. This is also why these cash transfers often involve significant fees.
Bitcoin could eliminate all of these middlemen, allowing people to send digital payments directly to each other without relying on credit and without incurring multiple settlement fees along the way.
“We will move to a model where we can make payments without IOUs, or credit or pledges or fiat currencies,” says Alex Gladstein, chief strategist at the Human Rights Foundation, an organization that works with activists from authoritarian regimes around the world.
“It’s literally like sending a piece of gold or a $20 bill somewhere else immediately.”
“If you can access the Internet, you can settle payments with bitcoin,” Brock says. “And there’s nothing the government can do about it.”
Bitcoin’s Role in Political and Social Movements
Dorsi points to the example of what happened in Nigeria during the protests against the brutality of the country’s Special Repression Task Force – a movement referred to as #EndSARS.
“The Nigerian government went to various banks to prevent the protesters from receiving money – which bitcoin replaced,” Dorsi told Accra.
“So the whole reason we exist as a company is to solve the same problem that bitcoin will eventually solve for everyone in the world.”
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