2017 was a tremendous year for cryptocurrencies and their underlying blockchain technology. Bitcoin, the most well-known cryptocurrency, grew over 1000% in value during the year and enjoyed increased merchant acceptance worldwide, potentially signalling the global mainstreaming of the sector.

And across Africa, although digital currencies and blockchain technology are still generally in their infancy, the sector experienced healthy traction in 2017.

Strong consumer interest

Three African countries were among those most interested in ‘bitcoin’ worldwide in 2017, as measured by the in-country share of Google searches for the term. In fact, South Africa led all countries in this measure of bitcoin interest, while Nigeria (#7) and Ghana (#10) rounded out the top ten:

In addition, across all countries, global interest in ‘blockchain’ was highest in Ghana in 2017, with Nigeria next in line at #2:

Moreover, bitcoin trading volumes grew strongly during the year (e.g., see LocalBitcoins volume in Nigeria, South Africa, & Kenya) and, anecdotally, both formal cryptocurrency & blockchain conferences and informal meetups & Whatsapp/Telegram groups from Lagos to Lusaka experienced a surge in interest.

Notable investor interest

As African consumers exhibited strong interest in the sector, especially in South Africa, Nigeria, Ghana, and Kenya, investors from around the world also displayed an interest in cryptocurrency & blockchain-related companies operating in Africa:

Luno (formerly BitX), Africa’s largest bitcoin exchange (with operations in South Africa and Nigeria, as well as southeast Asia and Europe), raised a $9 million Series B round led by London-based Balderton Capital (whose exits include Betfair, MySQL, and Bebo). Other investors in the round include Johannesburg’s AlphaCode (a fintech-focused investment group & entrepreneur network backed by Rand Merchant Bank) and New York’s Digital Currency Group (one of the premier cryptocurrency & blockchain-focused investors in the US).

Bitpesa, a business-focused, cross-border payment platform leveraging the bitcoin blockchain for settlement (& operating in Kenya, Nigeria, Tanzania, and Uganda), raised $6.8 million across two Series A funding rounds in 2017. The rounds were led by New York’s Greycroft Partners (whose exits include Maker Studios, Braintree/Venmo, and Buddy Media). Other investors in the rounds include New York’s aforementioned Digital Currency Group, Menlo Park’s Pantera Capital (an investment firm focused exclusively on digital currency & blockchain companies), and San Francisco’s Blockchain Capital (one of the pioneer investors in the blockchain/cryptocurrency ecosystem).

And Cape Town-based The Sun Exchange, a crowdfunding marketplace leveraging blockchain technology for the cross-border commercialization of solar energy, raised a $1.6 million seed round from Johannesburg’s Kalon Venture Partners, New York’s Network Society Ventures, and three leading startup accelerators: San Francisco’s BoostVC, Oakland’s clean energy-focused Powerhouse, and Boulder’s TechStars.

Robust entrepreneurial activity

2017 also saw a surge of activity among innovators, both local and foreign, seeking to tap into opportunities in the sector across the continent.

Foreign players, CoinBR, a Brazilian full-service cryptocurrency service provider (with products including mining services, wallet & exchange services, and bitcoin ATMs & POS software), Bitspark, a Hong-Kong based remittance platform leveraging the blockchain, and Belfrics Global, a Malaysia-based bitcoin technology provider, planted flags in Africa in 2017.

CoinBR, launched its SmartWallet service in South Africa with CEO Rocelo Lopes seeing the move as “a point of entry point into…the rest of Africa.” Bitspark expanded its predominantly Asia-focused remittance service into Nigeria as “the first of many upcoming destinations in Africa.” And Belfrics Global launched a bitcoin exchange in Kenya with plans to open additional exchanges in Nigeria, Ghana, & Botswana and offer bitcoin payment gateways & point of sale systems in the near future. (Belfrics also raised ~$2.3 million in an initial coin offering in 2017.) In addition, publicly-traded fertilizer firm, African Potash, announced a joint venture with FinComEco, an agricultural exchange, to deploy a blockchain-driven agricultural trading platform for Africa.

At the same time, local entrepreneurs across the continent also moved to take advantage of apparent opportunities in the sector during the year.

For example, in Nigeria, Bitcoin exchanges Bitkoin.Africa, Tanjalo, & Bitpaya came to market, utilizing slightly different models with the ultimate goal of making it easier to convert between local and crypto currencies. And Shopnow.ng, a cryptocurrency-only e-commerce store (perhaps the first in Africa) also began operations. In addition, Cryptogene, a blockchain hub and community launched in December 2016/January 2017.

And elsewhere, existing startups operating in the sector, from Zimbabwe’s Golix to South Africa’s Wala to Kenya’s Land Layby and many more, also experienced noteworthy traction during the year.

Tailwinds for blockchain technology in Africa

For another perspective on challenges in African markets, see African Innovators Should Look East, Not West, For Business Model Inspiration.

Compared to counterparts in the developed world, many countries in Africa generally lack extensive financial infrastructure, stable currencies, and effective state institutions. Seen through traditional lenses, these characteristics tend to constrain opportunities for growth and scale across the continent.

In many ways however, in the context of cryptocurrencies and other blockchain technology, these factors are either mitigated or provide a conducive environment:

  • Lack of financial infrastructure. Generally speaking, African consumers are highly underserved with respect to financial services. Banks and traditional financial institutions on the continent tend to have poor densities of ATMs and bank branches, access to local capital is limited in many cases, and high levels of fragmentation make cross-border payments & remittances challenging and/or costly. (According to the World Bank, Sub-Saharan African is “the highest-cost region” for remittances.) Moreover, in recent years, studies have suggested that up to 80% of Africa’s adult population is unbanked.

    For more on fragmentation across Africa, see Africa’s Fragmented Markets: Innovators Can Win By Developing Platforms.For these consumers who have never been integrated into formal banking systems, there is a real, though as of yet underdeveloped, opportunity for blockchain-based digital currencies & financial platforms to serve as textbook leapfrog technology. Moreover, consumer-side technical requirements to use cryptocurrencies are minimal. For example, USSD-based wallets which allow users to transact bitcoin on feature phones have been introduced on the continent in the past.

    To me the most interesting mass market for Bitcoin are the 2.5 billion unbanked, and the up to 6 billion under banked in the world, who have not been accustomed to surrendering their control to a bank [and] consider both their banks & their governments to be organized crime syndicates (because in most cases they are). —Andreas Antonopoulos, Bitcoin evangelist
    While the potential of blockchain and cryptocurrency technologies for financial inclusion in Africa is being explored, their promise for cross-border payments and access to capital is increasingly being realized.

    Relative to cross-border payments, Bitpesa, for example, provides businesses with a fast and cost-efficient way to send payments to and collect payments from Africa using bitcoin as a ‘payments rail.’ It receives one fiat currency, buys bitcoin, then sells it to a licensed partner in the customer’s desired region who ensures that local fiat currency is deposited in the recipient’s bank account — the entire process happening often times within minutes and at less cost than traditional alternatives. With the arrival of Bitspark and with decreased barriers to entry, one can expect more players in Africa’s bitcoin-enabled cross-border payments & remittance sector in years to come.

    Discussions over a pan-African currency have been happening for years, but with bitcoin, it already exists. Remittances, wages, the purchasing of goods, the paying of suppliers can all be done between industry and consumers quickly, easily, and securely. I expect bitcoin to become Africa’s most used currency within the next five years.” —Abraham Cambridge, Founder & CEO, The Sun Exchange
    And relative to access to capital, African companies are beginning to experience success with initial coin offerings (ICOs), a type of startup crowdfunding. In recent months, South Africa’s Wala, a financial platform built on blockchain technology, raised ~$1.2 million and Nigeria’s SureRemit, a voucher-based remittance platform, raised $7 million in utility token sales. The implications of accessible, non-equity capital for credible blockchain projects are large, and more & more innovators across the continent are sure to explore the opportunity in earnest in the months and years ahead.
  • Currency instability. Many African economies are under-diversified and heavily dependent on commodities. As such, currency strength across the region tends to be correlated with the global commodity market. Over the last five years, concurrent with the slump in global commodity prices, currencies across the continent have experienced significant devaluation. For example, the Kenyan Shilling has fallen roughly 15%, the South African Rand around 25%, the Angolan Kwanza and the Mozambican Metical around ~50%, and the Nigerian Naira and the Ghanaian Cedi approximately ~60%.

    In such an environment, the utility of bitcoin and other cryptocurrencies as a hedge and store of value is high. And taking into account increasingly common foreign exchange controls and the difficulty of accessing global markets with local currency in many areas, the utility of digital currencies for transactional purposes is high as well across Africa.

  • Political & state inefficiency. While a new era of democracy is arguably sweeping the continent, strongmen and authoritarian regimes have long held significant influence in Africa. Although the threats of coups, military conflicts, & political upheaval may be diminished, there remains the potential for mismanagement (and outright graft) by central authorities.

    Unlike traditional currencies however, the value of blockchain-based cryptocurrencies are not dependent on the wisdom of local state actors, nor are they directly affected by the effects of local crises, bolstering their utility as a store of value.

    Moreover, blockchain technology can offer new approaches for combating corruption through the creation of immutable & transparent public ledgers and can also help accelerate the digitization & modernization of Africa’s public sector, fostering efficiency. Various blockchain-based public sector initiatives are being or have been launched across the continent (e.g., Kenya’s National Transport and Safety Authority recently announced a new blockchain-powered vehicle identification service), and more are sure to follow.

Looking ahead

Given the trends and factors above, coupled with increasing interest from consumers, investors, & entrepreneurs, it’s evident that cryptocurrency & blockchain-based technology is on a strong growth trajectory across Africa.

The technology clearly holds great promise across many industries, from financial services to the public sector to real estate, intellectual property, identity services, and more.

And while a bevy of innovators have begun to explore a range of applications, it’s worthwhile to resist any urges to view the technology as a panacea for the continent. Indeed, for all of blockchain technology’s potential in Africa, a range of market-specific obstacles to widespread adoption remain prominent in the near-term. That said, Africa appears to be a ripe market in the medium- and long-term.

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By Emeka Ajene

Based in Lagos, Nigeria, Emeka is the Founder & Publisher of Afridigest and leads Africreate, a strategic advisory firm that helps global senior executives, corporates, and investors take advantage of opportunities in African markets. He also connects global capital to promising Africa Tech investment opportunities via investment firm Africapital. Follow him on Linkedin and Twitter.