How bitcoin met the real world in Africa

LAGOS / LONDON (Reuters) – Four months ago, Abolaji Odunjo made a fundamental change to his mobile phone business in a bustling street market in Lagos: he started paying his suppliers in bitcoin.

Odunjo buys phones and accessories from China and the United Arab Emirates. Its Chinese suppliers have asked to be paid in cryptocurrency, he said, for speed and convenience.

The change has increased his profits, as he no longer has to buy dollars using Nigerian naira or pay out fees to money transfer companies. It’s also an example of how, in Africa, bitcoin – the original and largest cryptocurrency – is finding practical use that has largely failed elsewhere.

“Bitcoin helped protect my business from devaluing the currency and allowed me to grow at the same time,” Odunjo told Reuters from his two-by-eight-meter store.

“You don’t have to pay taxes, you don’t have to buy dollars,” the 30-year-old said, raising his voice above the sound of loud haggling and the horns of scooters.

Odunjo is one of many people at the center of a quiet bitcoin boom in Africa, driven by small business payments and remittances sent home by migrant workers, according to data shared exclusively with Reuters and interviews with around 20 bitcoin users and five cryptocurrencies. exchanges.

Monthly cryptocurrency transfers to and from Africa of under $ 10,000, typically made by individuals and small businesses, increased by more than 55% in a year to reach $ 316 million in June, the company data. US blockchain research Chainalysis show.

The number of monthly transfers has also increased by nearly half, topping 600,700, according to Chainalysis, which says the research is the most comprehensive effort to date to map the global use of cryptocurrencies. Much of the activity took place in Nigeria, the continent’s largest economy, along with South Africa and Kenya.

This represents a turnaround for bitcoin which, despite originating as a payment tool over a decade ago, was primarily used for speculation by financial traders rather than for trade.

Why a boom in Africa? Young, tech-savvy populations who quickly adapted to bitcoin; weaker local currencies that make it more difficult to obtain dollars, the de facto currency of global trade; and complex bureaucracy that complicates money transfers.

Bitcoin users surveyed by Reuters, based in five countries from Nigeria to Botswana, said cryptocurrency helps people make their businesses more agile and profitable and helps those who work in places like Europe and the North. America to keep most of the earnings they send. home.

Yet the risks abound.

Bitcoin and other cryptocurrencies are unregulated in many countries and their legal status is unclear, meaning there is no safety net and little recourse in the event of a loss of funds.

For many, the conversion of local currencies to and from bitcoin relies on informal brokers. Prices are volatile and buying and selling is a complex process that requires technical knowledge.

In 2018, the Nigerian central bank warned that cryptocurrencies were not legal tender and investors were not protected.

(Chart: Cryptocurrency Transfers Soar in Africa -)

IN SHANGHAI WITH CRYPTO

A steady stream of customers come and go from Odunjo’s shop, one of dozen units along a dark aisle in a covered section of the market known as Computer Village.

Odunjo makes two or three transfers a month of approximately 0.5-0.7 bitcoins ($ 5,900- $ 8,300) each, to suppliers in Shanghai and Zhangzhou. East Asia, Chainalysis found, is a major partner for bitcoin trading with Africa.

Odunjo’s activities offer a microcosm of the broader trends at play both in Nigeria and across the continent.

In Nigeria, small cryptocurrency transfers totaled nearly $ 56 million in June, nearly 50% more than a year earlier. The number of transactions jumped over 55% to 120,000.

However, evaluating how cryptocurrencies are used in particular places is difficult. Digital coins offer a high degree of anonymity, and although the value of transactions can be tracked on the blockchain, a user’s identity or location cannot.

Chainalysis, which tracks crypto flows for US financial firms and law enforcement agencies, collected the data by analyzing web traffic and trading patterns, although locations can be obscured by virtual private networks. It separated transfers of less than $ 10,000 from larger amounts common among professional traders.

(Image: Africa’s Crypto Hotspots -)

LOSS OF NAIRA, GAIN OF BITCOIN

With Nigeria’s oil-dependent economy rocked by low crude oil prices and COVID-19, the central bank devalued the naira twice this year. As a result, Odunjo and other importers have to pay more to buy scarcer dollars.

The fall of the naira has pushed many Nigerians towards bitcoin, interviews showed, as they look for ways to buy assets from abroad without having to buy dollars.

Sylvester Kalu, who runs a clothing starch producer in Uyo, eastern Nigeria, uses bitcoin to buy supplies from Istanbul and Shenzhen.

“Everything is oil. When the price of oil went down, forex got scary, “he said.” It became a big deal. “

The 30-year-old said his transactions amount to about 2 bitcoins ($ 20,000) at a time, adding, “I don’t need anyone in the banks, I don’t need a person to use the back door to get dollars.”

Timi Ajiboye, who runs Lagos-based exchange BuyCoins, said its monthly cryptocurrency volumes tripled to $ 21 million in June after the naira was devalued in March.

Trade across Africa spoke of a similar boom.

Yellow Card, which operates in five countries, said its monthly cryptocurrency volumes increased fivefold in 2020 to $ 25 million in August. A big driver has been workers using bitcoin for remittances, he added.

Luno said that the combined monthly bitcoin trading volumes of all market participants in South Africa and Nigeria increased by half this year to over $ 536 million in August.

(Image: Cryptocurrency boom in Nigeria -)

IT’S A RISKY BUSINESS

For some people who work overseas, on other continents or in other African countries, sending money home via bitcoin can be faster and cheaper.

A Nigerian worker in London sending 100 pounds ($ 132) in cash to Lagos via a large traditional money transfer company, for example, would pay commissions of around 5%. The costs are lower when sending larger amounts or using a debit card, but the exchange rates offered are typically several percentage points less favorable than the market rate.

Bitcoin fees vary by exchange or broker, but typically amount to around 2% -2.5% for sending £ 100.

However, both exchanges and over-the-counter (OTC) brokers carry risks, from hacks to scams.

And bitcoin, while useful for transfers, isn’t very useful in the field – shops and owners rarely accept it, for example. This means that friends or family sent in by workers have to convert them back to traditional currency, often via a broker at their end, introducing additional risk.

However, bitcoin users surveyed said that many OTC brokers, who rely on word of mouth reviews, performed reliably in an increasingly competitive market and were reluctant to jeopardize the reputation they needed to stay in business. .

And for a growing number of people, the potential rewards outweigh the pitfalls.

“People are adopting a lot of any technology that will make their life easier,” said Frankline Kihiu, a cryptocurrency broker in the Kenyan capital, Nairobi.

“In most African countries, there are a lot of government restrictions that bitcoin takes away.”

($ 1 = 0.7585 pounds)

(1 bitcoin = $ 10,065)