November 17, 2017
As most of the world focuses on the political impact of Zimbabwe’s coup, a select group of analysts and technology watchers are scrutinizing the effects of the government upset on cryptocurrencies in developing nations. Directly after the Zimbabwean military took control of Harare and placed President Robert Mugabe under house arrest, the price of bitcoin on Zimbabwe’s sole exchange surged as demand for the currency spiked. The dynamic shows the value of cryptocurrencies in times of extreme political instability and portends a change in how Africa’s elites protect and move their assets, which could have myriad implications for the region’s economy.
After Mugabe and his wife, Grace, were placed under house arrest, several media outlets reported that the country’s sole cryptocurrency exchange, Golix, was experiencing higher-than-normal traffic and that bitcoins on the exchange were trading at nearly twice the rate to the dollar as in the rest of the world. Golix manages a miniscule portion of the total bitcoin traded through global exchanges and peer-to-peer exchanges. Morevover, as Quartz reported, Golix has low liquidity, which helped spike prices, and Zimbabwe’s peer-to-peer bitcoin prices have remained comparable to those on global trading markets. The value of buying cryptocurrencies through Golix rather than by other methods is that Golix accepts cash-to-bitcoin transactions in Zimbabwe while other methods are useful only for purely digital transaction. These facts, however, are but a small part of the much bigger story of how bitcoin and other cryptocurrencies will fundamentally change how unstable markets operate in times of turmoil.
Africa is poised to become an important cryptocurrency market, though that market will lack much of the regulation and legitimacy that markets in more developed regions are gradually gaining. Convincing the central banks of African nations to adopt bitcoin or other cryptocurrencies will be an involved and lengthy process. Meanwhile, for unstable governments and people living under them, cryptocurrencies are an important and increasingly common way to move money across borders discreetly at no cost and with virtually no risk. Zimbabwe differs from other African countries in how dependent it is on the U.S. dollar, but other African countries will increasingly take advantage of the technology in the future.
A few African countries with unstable governments and volatile traditional currencies are particularly primed for the use of cryptocurrencies, which provide a way to maintain value and cross-border liquidity. Peer-to-peer transactions that can be easily conducted on mobile devices will become particularly widespread in the region despite the persistence of severe infrastructural constraints. Smartphone adoption in Eastern Africa is just 25 percent, and internet penetration in sub-Saharan Africa is only 19 percent, according to research by the trade association GSMA. There are anomalies, however. Nearly 50 percent of the populations of Kenya and Nigeria have internet access. Mobile accessibility on the continent, meanwhile, is rapidly expanding. Consulting firm Ovum predicts that African mobile connectivity will more than double, from 419 million to 1.07 billion by 2022.
The global elite have always worked to shield their wealth in various ways. Cryptocurrencies provide them a method of doing so without oversight and risk, particularly appealing qualities for those living in Africa’s more unstable economies. The size of Africa’s cryptocurrency market will remain relatively small (trade on the Golix exchange in the last 30 days was just over $1 million). But the market will still provide valuable clues to how the cryptocurrencies will be used in developing nations, and how the use of cryptocurrencies will, in turn, shape those nations.