Two things that we can all agree on in 2022 are that we have to learn to live with Covid-19 and that those who ignore digital assets risk being left behind. Crypto is a burgeoning asset class that requires research to understand its ins and outs.
According to the 2022 Global state of the crypto report by Gemini, 63% of Nigerians believe that cryptocurrency is the future of money followed by 57% of South Africans and 54% of Kenyans. Nigeria was also the first country in Africa to launch a Central Bank Digital Currency (CBDC) while the Central Bank of Kenya has issued a discussion paper on CBDC. Despite such progress and Kenya topping the world in peer-to-peer (p2p) crypto transactions, Africans and the world at large are still falling for crypto scams.
Although crypto is dogged by negativity and can be used as an avenue for illegal financial transactions, if well used it can better the welfare of individuals and corporations. The benefits of crypto outweigh the risks as we shall discuss in this article.
A brief background
For beginners, cryptocurrencies are digital assets or currencies that are not easy to counterfeit or double-spend. Cryptocurrencies are hard to double-spend because they are secured by cryptography: a secure method of encryption that secures transactions controls the creation of additional crypto units and verifies the transfer of crypto assets.
Blockchain is the underlying technology behind cryptocurrencies. At its core, a blockchain is a distributed database of immutable time-stamped series of record data managed by a cluster of nodes (computers). A distributed or decentralized database is more secure than traditional ones. Crypto coins, such as Bitcoin use their blockchain while crypto tokens operate on other blockchains. For example, the ADB token operates on the Ethereum blockchain.
Innovations are always happening in the crypto and blockchain space to provide a solution. Covid-19 has dawned on many people that having an online social media presence, working from home, and promoting your products and services on social media is an idea whose time has come. Adbank, for example, has created a blockchain solution that helps individuals to launch microtasks and grow social media fast, cost-effectively, and track results in real-time.
So, what should be the starting point for those who would be interested in joining the crypto space? Anyone interested in crypto should take the time to understand how crypto works. There is information flying left, right, and center about crypto. Many people claim to be experts in the subject as well. However, you should rely on credible sources such as programs offered by the Blockchain Association of Kenya, among others. It is also important to do your research.
Cryptocurrencies are virtual currencies that work like regular money and can serve as a means of exchange. More and more organizations including Visa are adopting and incorporating crypto as a means of payment. Some people opt to receive their salary in crypto. For example, Miami mayor Francis Suarez receives his salary in Bitcoin. These examples show there is growing adoption and demand for crypto.
Crypto provides an opportunity to diversify one’s investment portfolio. You can grow your crypto portfolio through trading. Besides, you can stake and hold digital assets in a crypto savings account. Crypto savings accounts can yield up to 12.3% per annum, a rate higher than traditional bank accounts. It is important to note that due to the risky and volatile nature of crypto, crypto investments are not considered “investments” but a journey of taking a speculative adventure and having fun while at it.
Recent developments
Financial institutions also want a piece of the crypto pie. Commerzbank, a major bank in Germany with over 18 million clients has applied for a crypto license to offer exchange services along with custody and protection of crypto-assets. Either way, individuals can withdraw their money and hold it or trade with it outside the banking system. To avoid losing clients and their money, banks should seize the opportunity to add crypto trading and crypto exchanges as part of their offering.
Crypto is facilitating financial inclusion by providing a platform where the marginalized and the unbanked can participate. Crypto brings convenience to storing, sending, and receiving digital assets. In addition, unlike the traditional banks, which require multi-level approvals, crypto transactions do not require approvals by third parties.
Another benefit of using crypto is the convenience of transactions. Since crypto does not involve intermediaries and has lower costs of transaction compared to banks making it a trade enabler. In addition, crypto transactions are not capped or limited to certain amounts such as those imposed by mobile money service providers.
Mpesa, the world’s first mobile money service system paved the way for digital payments. However, crypto should not be seen as a replacement, or a competitor for banks and mobile money providers but should be embraced as a viable and complementary alternative. African governments and central banks should encourage the evolution and integration of crypto similar to the way Mpesa has been integrated into banking systems in Kenya instead of discouraging or banning it. Countries like El-Salvador have led the way and use bitcoin as legal tender.
Besides, non-fungible tokens (NFTs) have also become a global phenomenon. NFTs are units of value that represent digital ownership of items such as art, collectibles, music, and videos. NFTs can contribute to the economy and improve the financial well-being of creators. Creatives can share and get paid for their work. In addition, NFTs purchases can be traced on the public ledger(blockchain) bringing a solution to piracy and copyright challenges.
A practical case
Governments are free to develop Central Bank Digital Currencies (CBDCs). However, the pursuit of CBDCs, which are digital versions of fiat or regular currency, cannot be a replacement for cryptocurrencies. CBDCs are centralized whereas cryptocurrencies are decentralized and cannot be controlled by a central authority.
There is also a need for proper research to understand the crypto space and avoid falling for scams. Promises to get quick returns or being asked to send some crypto to receive more crypto are red flags that the project in question is a scam. Growing a crypto portfolio takes time. Because crypto is a risky product, experts propose allocating 2-5% of your net worth to crypto and no more than 10%. If you ignore the recommendation and invest all your finances in crypto and things go south, stress may catch up with you and your hair might develop more than fifty shades of gray!
For a start, you can consider performing simple tasks to earn free crypto as you learn how crypto apps, wallets, and exchanges work. Blade, for example, is a free app where users perform tasks and get rewarded with crypto. The crypto market capitalization is over 2 trillion dollars! It provides immense opportunities including employment and people as well as companies should consider plugging in.
In conclusion, some countries like El Salvador saw opportunities presented by crypto and adopted Bitcoin, the original cryptocurrency, as legal tender. Crypto assets are not a threat to the banking and financial sector. Crypto promotes financial inclusion, is a means of exchange, and is a trade enabler. Kenya topped the world in p2p crypto transactions in 2021. Nigeria is on the list of the top 10 countries leading global crypto adoption.
Yet, legislators in the Central African Republic (CAR), last week, overwhelmingly passed a bill allowing Bitcoin alongside the CFA franc, making it the second country after El Salvador to adopt the cryptocurrency as legal tender even though many Central Africans are unaware of the Bitcoin phenomenon. This move has also garnered a lot of suspicions from some financial analysts and attention from those who believe this move by CAR is likely not to succeed based on the gloomy outlook in El Salvador.
