High inflation, devaluation in Nigeria, Africa, aiding cryptocurrency transactions —Report

High inflation and currency devaluation is pushing Africans into the cryptocurrency market, as they avoid losing the value of their savings, a 2021 industry report by cryptocurrency exchange, KuCoin, reveals.

In Nigeria, the Central Bank has devalued the naira three times in the last two years, while inflation is down from 16.47% in January 2021 to 15.7% as of February 2022 – but the figure is said not to reflect market realities.

The naira is becoming weaker in response to the aforementioned, and with some African countries sharing similar fate, Nigerians and citizens of the continent are turning to bitcoin and other crypto assets to maintain their purchasing power.

This fuelled the number of cryptocurrency users in Africa by 2,467.2% year-on-year, according to KuCoin report for last year, and this drove growth of crypto transactions by over 2,500% in 2021, while monthly transactions grew 1,386.7%.

Explaining the impact of inflation and devaluation in the adoption of the digital currency, KuCoin wrote, “the adoption of crypto technologies in Africa were preceded by the availability of the technology and the presence of several motivating factors.

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“These include the desire of the population to react quickly to any changes in the exchange rate of national currencies in countries with high rates of inflation and devaluation.” the report reads.

The cryptocurrency exchange further stated that, “The possibility of quickly transferring investments across assets mitigates the chance of savings depreciation.”, although the report acknowledged that not all countries are as inflationary.

However, it said, “the desire to preserve the purchasing power, even under 6.4% inflation (Tunisia), is natural for those seeking to preserve the value of their savings.”

Aside from trying to mitigate inflation and devaluation in the continent, Africans also embraced cryptocurrency to evade high cross-border transfer fee, with many crypto cross-border transactions hovering around 0.01%.

The low transaction fee serves as an incentive, hence cross-border transfers accounting for 88.5% of cryptocurrency transactions in Africa, “In many cases, users pay less than 0.01% of the overall amount of the transaction transferred in cryptocurrencies.

“This simultaneously solves several issues associated with crypto transaction restrictions that are in place in countries like Nigeria and Kenya. End-users of services can conduct transactions in a matter of milliseconds without fear of temporary freezes of transferred funds, as is often the case with conventional payment systems.”

So as cryptocurrency adoption continues to grow in Africa, the continent accounts for 2.8% of crypto transactions in global volumes, and it is believed that adequate legislative attention and authorities acceptance of cryptocurrency could improve the contribution of the decentralised market to Africa’s gross domestic product (GDP).

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