Bitcoin is disrupting the banking system in Africa
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The increasing prominence of cryptocurrencies might disrupt the banking system in Africa. Cryptocurrencies are gaining popularity in Africa because moving money on the continent is expensive and complicated.
Bitcoin is disrupting the banking system
Access to commercial bank branches in remote and rural areas in Africa is limited. Additionally, most countries in the region deal with high inflation, widespread government corruption, and capital controls that trap domestic cash in banks.
One of the problems facing the banking sector in Africa is the quasi-colonial payment framework. Around 80% of cross-border payments from African banks are processed offshore, mainly in Europe and the US. This results in increased costs and processing times.
Africa also has many users relying on mobile money services that have existed for most of the 21st century. Mobile money function like an electronic wallet linked to a phone number. These services do not require a smartphone or data to operate. Mobile money services can be used to pay bills and shop without relying on the banking system.
In 2021, mobile money transactions in Africa increased by 39%. Data from the World Bank also shows people with accounts at financial institutions or mobile money service providers in the region increased to 55% of adults in Sub-Saharan Africa.
However, those relying on mobile money do not enjoy similar benefits as legacy banking. One of the main issues facing the continent is interoperability, where people can barely trade amongst themselves.
However, cryptocurrencies offer an ideal solution because of peer-to-peer crypto marketplaces that allow users to buy and sell tokens amongst each other. Paxful is one of the most popular crypto trading platforms used in the region.
Cryptocurrencies present a solution
Bitcoin also eliminates the need for intermediaries, such as Western Union and MoneyGram, which are expensive to use as they charge high fees. Bitcoin and other cryptocurrencies allow people to send digital payments directly to each other without using credit and not incurring multiple settlement fees.
Cryptocurrency peer-to-peer payments also resist censorship, making them superior to IOUs, credit, promises, and fiat. The features of cryptocurrencies have also made them gain popularity in countries under authoritarian regimes because they allow people to transact with each other from any part of the world without using an intermediary.
The only thing needed to settle Bitcoin payments is the internet, and there is nothing that the government can do to ban such transactions. Dorsey also addressed the situation in Nigeria amid protests on police brutality.
During the protests, the Nigerian government cracked down on commercial banks to ensure that the protestors did not receive any money. Therefore, the protestor turned towards Bitcoin to receive funding to support the protests.
Recently, the Nigerian government imposed a limit on bank transactions, which saw increased demand for cryptocurrencies. The demand saw Bitcoin trading at a discount in Nigeria, with the price being significantly higher compared to other countries.
