*Migrated from Medium* Original Date - 11/12/20

Why Africa? The question I hear either directly or indirectly when I present my vision for the future of crypto. “It cannot be Africa”, most people snap back — too many conflicts, not wealthy enough, lacks the technology and financial infrastructure, it’s not Silicon Valley… the list goes on. However, if you take a step back and digest all of these factors, while there may seem to be some merit on the face of it, the reality is they are actually in favor of crypto. Given its unique environment and current charted path, Africa has the potential to be a cradle for mass crypto usage and innovation, here is why:

Demographics, Geography, and Technology

Many comment that Africa doesn’t have the solid technology infrastructure or knowledgeable human capital, but that argument is a generalization and not a fair one. The current generation of Africans is actually really tech savvy as well as really young. In fact, “60% of the nearly 1.3 billion-strong population is under the age of 25” (Business Daily). According to the Financial Times:

“18-to-24-year-olds across the continent are entrepreneurial, optimistic and tech savvy. Nearly four in five of 4,200 young people interviewed in 14 sub-Saharan countries by PSB Research, a US-based polling firm, believe that WiFi is a human right, while two-thirds say they are witnessing the start of the ‘African Century’.”

Furthermore, according to PwC:

“From the demographic dividend of a young and rapidly expanding population to an increasingly affluent and aspirational middle class, Africa has the potential to become a new powerhouse of production and consumption in the 21st century, just as Asia was able to do in the late 20th .”

It is clear that the dynamite combination of tech savviness and youth can propel Africa forward through the adoption of innovative strategies and technologies.

Additionally, the friction between African countries is beginning to be reduced, which could lead to easier access to knowledge, cross-border value creation, and the reduction in transaction barriers. It is crucial to note that within Africa, several inequalities persist between nations and, therefore, lower barriers to knowledge and value transfer can drive further equality. Given the impact of the 2019 African Continental Free Trade agreement going into effect, “a free-trade zone could help in collaborative initiatives, such as the benchmarking described here, to close the gaps and transfer knowledge across countries to enable the delayed promise of growth in Africa and helping make the growth inclusive — thereby accomplishing that rare phenomenon of getting lions to leapfrog” (HBR).

Technology-wise, Africans have operated off mobile technology and mobile payments to a greater extent than Americans and Europeans. They were the first ones really experimenting with mobile money, as we saw in Kenya with M-Pesa. Moreover, the evidence piles up when looking at the most popular majors at African universities, the pace of development, and the national initiatives to boost African tech (seen especially in Nigeria and Uganda). Africans aren’t lagging completely behind, rather, they are dealing with a different set of circumstances in their own way, which gives their tech profile a unique spin that complements crypto: African tech is young (meaning flexible and not routed in the old VC paradigms of Silicon Valley), mobile, and financial (fintech is second nature to the African youth at this point).

The last point I will make is that Africa does have tech infrastructure, but again, it is different to the west. The pillars of African tech infrastructure are in mobile (skipped landlines all together) and eCommerce (think Jumia and DTC through social media). If you look at the rates of mobile adoption, they have been growing the fastest in the last decade or so. While African nations are not up to the same penetration rates as Western countries, they are building a trajectory and path to get there.

Economic and Financial Issues

There are several consequences of Africa’s lesser developed financial infrastructure and mounting economic issues, but one positive consequence is the drive to push Africans to look for innovative solutions. It must be stated that African entrepreneurs and citizens face non-Western problems. PayPal cannot really help with cross border payments when dealing with issues like hyperinflation, FOREX controls, massive ACH and trans-border fees — these simply aren’t Western problems. Thus, Africans cannot just adopt PayPal, Visa, and JP Morgan Chase and be good to go, they require a different solution, and crypto is emerging as the possible winning horse. Going back to the above, African financial infrastructure/ currency problems can be summarized as inflationary issues, government mistrust, trans-border barriers, lack of financial transparency, lack of hardware besides phones, and an economy that necessitates a fast-moving substitute to cash (checks won’t do). What does crypto offer? It offers several deflationary or stable assets/ currencies; is based on P2P networks and code, not third parties and leaders who can rig the system to their financial benefit; it fixes several of the FOREX and border transaction issues (dramatically reducing the fees and barriers); it can be interoperable with phone wallets and networks; and, it moves just as fast as cash! The juxtaposition of the African issues with the characteristics of crypto makes a very compelling case. Now, I don’t want to generalize and over assume here, but even taking it all with a grain of salt, one has to admit that there is a chance for crypto to be a solution.

Security

Currently, several African nations face problems related to security; specifically, these problems can be grouped into financial and physical. How can crypto help both of these? Well, concerning the former, crypto is very applicable here. Blockchain ledger technologies stand as a great tool to increase transparency and scare off potential criminals from fraud or robbery. Stealing cash is one thing, however, stealing certain crypto currencies where a public ledger allows traceability is another. Imagine organizations and governments operating off of crypto — the barrier to corruption, syphoning off state resources, and criminal actions is much higher. I understand that this argument is a lot more futuristic than others, but it definitely deserves to be mentioned. Now, going to the latter security issue, crypto can also ameliorate certain physical security problems such as carrying wads of cash and having to keep your money in potentially fragile or hazardous institutions (e.g. VSB Bank in South Africa).

Significance of Improvement

So, we have a proposed solution, but is it good enough? Well let’s look at the golden investor rule in venture: does it make something 10x better? Yes, it does:

• Is it faster? ACH in the US is 3–5 days; moving money between African countries and bank accounts takes longer in many cases and leaves you exposed to inflation. How long does crypto take? Well seconds to minutes at best, and a little longer if there is some centralization at play.

• Is it cheaper?

Note numbers from 2018, but still very pertinent. Versus bases points using crypto, we have more than 10x here for sure.

• Is it safer? This one is hard to measure quantitatively, but if you look at issues ranging from security, government manipulation and mishandling of the treasury, and available monetary storage and investing opportunities, it is fair to say there is a significant improvement.

Conclusion

So, we can conclude that crypto is good enough to fit the missing puzzle piece for African financial infrastructure — it is cheaper, faster, and safer by a combined 10x+. The question then is where do we go from here? Well, first things first, it is important to internalize African potential and withhold yourself from judging the book by its cover. Second, take some time to look into projects such as Celo and Bundle. Third, and most importantly, we need to assess what are the barriers to crypto as a solution, and right now I can come up with four:

• Fiat onramp: this proves to be the trickiest barrier as regulation and fraudulent sites restrict the ability for Africans to get their fiat into crypto. We need better onramps, looser regulation, and a clampdown on fake crypto schemes to build a better gateway to crypto. One very interesting solution — national digital currencies or the Libra project.

• Merchant adoption: having all the youngsters on it is one thing but moving a whole economy to crypto is very hard. A big barrier is the adoption by merchants of crypto. If startups can come up with clean fintech and hardware solutions to onboarding merchants that don’t really understand crypto, then we can really get the full circle of the economy on crypto.

• Breaking down the stigma: crypto is still very small and most people still see it as a scheme, a way to launder money, or a construct that can only work on paper. Blockchain and crypto education is paramount to growing acceptance and trust in the system that can take Africa to the next level.

• One size doesn’t fit all: Africa has a wealth of diversity with regards to culture, customs, law, politics, economies among other factors. Generalizing one set of solutions for all countries is not the way to go about this; however, the intention of this piece was to highlight that the general issues faced across the continent piece together well with crypto. All things considered, I do see a future where cryptocurrencies and assets flow freely between African countries forming somewhat of a tech ramped up version of the Euro Zone.

I still have a long way to go before I can really begin to add value to this thesis — I look forward to keeping you updated on my journey!

Disclosure:* This blog series is strictly personal/ educational and is not investment advice nor a solicitation to buy or sell any assets. It does not represent any views from where the author is working — all views, opinions, and arguments are the author’s. Please always do your own research.*