Unpacking Cryptocurrency and Blockchain Technology in Africa
The world of cryptocurrency, and blockchain technology, is growing fast. Many see it as the future of money, with some even predicting that it will replace traditional fiat currencies such as the dollar and euro.
Africa is no different when it comes to this global interest in cryptocurrencies and blockchain technology. However, there are many who remain unaware of what exactly cryptocurrency is, how it works, and why it’s so revolutionary.
In this blog post we will explore what exactly cryptocurrency and blockchain technology are, their potential benefits for Africa, and the risks they pose to Africans.
What is cryptocurrency?
Cryptocurrency refers to digital currencies that use encryption to control the creation of additional units, and verify the transfer of funds. These digital currencies are created and held electronically which makes them easy to transfer, trade and store.
The most common examples of cryptocurrencies are Bitcoin, Ethereum, and Litecoin. These are all ‘decentralized’ currencies, meaning that they do not exist in physical form. There is no such thing as a “Bitcoin note” when you exchange money for Bitcoin, you are simply inputting a code into the system and receiving a code in return.
Decentralized currencies are not issued or controlled by any single authority. Moreover, individuals can transact with one another without a third-party intermediary, such as a central bank.
How does cryptocurrency work?
In order to understand how cryptocurrencies work, we must first cover two key topics: mining and distributed ledgers. Mining is the process by which transactions are verified and new units are created. Mining also allows for the decentralized verification of transactions that take place across a blockchain. A distributed ledger is a digital record that is shared across a network of computers.
When someone makes a transaction, the network verifies and records this transaction on a ledger. This decentralized ledger is distributed across a large network of computers that all have a copy of the ledger. The distributed ledger ensures that everyone on the network has the same version of the ledger and that no one individual can tamper with or hack the ledger. This is the foundation of blockchain technology.
What is blockchain technology?
Blockchain is a type of distributed ledger technology (DLT) that enables a network of computers to store and verify transactions via a consensus mechanism. This distributed network of computers all have a copy of the ledger and verify each transaction and update the ledger accordingly. The blockchain network consists of validators and proposers. Validators verify transactions and add them to the blockchain. Proposers create and add new blocks to the existing chain. Thus, blockchain is referred to as a “chain of blocks.” The ledger is distributed across a computer network, and each computer will have a copy of the ledger.
Blockchain benefits for Africa
Increased transparency and lower corruption — One of the key benefits of blockchain technology is the fact that transactions are immutable, which means they cannot be altered or deleted. This means that transactions are transparent, traceable and non-reversible, which will reduce the likelihood of corruption as there will be no place to hide. This is especially important in Africa where corruption is a major issue.
Reduced intermediary costs — Currently, Africans are paying very high transaction fees when they send money across borders. This is because there are many intermediaries involved in the transaction process, such as financial institutions and government agencies. Blockchain technology can help to reduce these transaction costs by creating a decentralized system where there is no need for intermediaries.
Increased financial inclusion for unbanked populations — The World Bank estimates that about 70% of Africans are either unbanked or underbanked. This means that they do not have a bank account and also do not use other financial services such as microfinance. With blockchain technology it will be easier to provide financial services in a decentralized manner that does not require a centralized bank account.
Blockchain risks for Africa
Lack of regulation — While blockchain technology is decentralized and secure, cryptocurrencies are not. This is a major concern when it comes to the adoption of cryptocurrencies in Africa because it means that Africans will be exposed to greater crypto scams.
Lack of education and understanding — Another major risk is that the general public does not understand blockchain technology. This is especially true in Africa where the majority of the population is not tech-savvy. A lack of general knowledge about blockchain technology and cryptocurrencies will make it harder to adopt this new technology.
The threat of government crackdown — As blockchain technology grows, more countries will try to introduce regulation. This already seems to be the case with China, who recently banned cryptocurrency trading and Initial Coin Offerings (ICO). It is also likely that other governments will try to regulate or even ban cryptocurrencies. This could potentially limit blockchain technology in Africa.
Key takeaway
Cryptocurrencies and blockchain technology are two words that are becoming more and more common in the world today. However, many people still do not understand the basics of what they are or how they work. In this blog post, we explored what they are, how they work, their benefits and risks.
