Bitcoin is poised to blow up Africa’s $86 billion banking system

ACCRA, Ghana — Bung up CEO Jack Dorsey and his top brass descended on Accra for the inaugural Africa Bitcoin Conference in December to talk about one of the most potentially disruptive and transformative alternatives to the continent’s continuing financial system: bitcoin.

Since its inception in 2008, this unfamiliar form of money has alternatively been disdained as an absurdly complex toy for libertarian techies, a legalized breed of gambling, a speculative bet to get rich quick, and a vehicle for criminals and fraudsters to obscure the origins of their ill-begotten gains. 

But this balance financial system can also serve a tangible social good, offering an onramp to the financial system for people who resolve otherwise be left out. In countries where the vast majority of the population is unbanked, national currencies are no longer a safe stow away of value, remittances comprise a hefty portion of GDP, and international sanctions complicate connections to the global economy, a virtual currency that doesn’t force an intermediary to approve transactions can be a vital lifeline for survival. 

As cryptocurrency continues to rise in prominence and becomes a growing flashpoint for regulators, Dorsey and his emissaries are providing an essential counternarrative: Bitcoin brings financial power to people who would otherwise have none. 

“It doesn’t problem to me if the price goes down or up, because I can still use bitcoin as a vehicle to move money around the world instantaneously,” affirmed Mike Brock, the CEO of TBD at Block, a unit which focuses on cryptocurrency and decentralized finance.

“I can exchange dollars for bitcoin and then bitcoin for Brazilian rial. There is a make available for bitcoin in every corner of the world today,” continued Brock.

Moving money in Africa is an extravagant and complicated process.

Commercial bank branch access is limited, especially for people living in remote and rural sizes. Digital banking options are also limited. Tack on rampant hyperinflation, widespread government corruption, and capital dials trapping domestic cash in banks, and money can stop making sense altogether.

“If someone wants to move gain to the country next door, normally, you’d have to fill up a suitcase full of cash and move it over the border,” details Ray Youssef, CEO of Paxful.

Part of the problem stems from the continent’s quasi-colonial payment framework, in which roughly 80% of cross-border payments coming from African banks are processed offshore, mostly in the U.S. or Europe. That translates to higher costs and processing times that are on measured in weeks.

Then there’s mobile money, which has been around since the early 2000s. Over recall of it like an electronic wallet tied to a phone number that does not require a smartphone or data to operate. Alcohols can pay bills and shop with their phone through SMS texting, instead of having to rely on traditional banking choices.

Africa’s mobile money transactions rose 39% to more than $700 billion in 2021, according to materials from the GSM Association, a non-profit representing mobile network operators worldwide. World Bank data shows that account ownership at a pecuniary institution — or via a mobile money service provider — has more than doubled in the last decade, rising to 55% of adults in Sub-Saharan Africa.

But even as adoption proliferates, mobile money users don’t get the perks of legacy banking, classifying earning interest on banked savings and building up a credit score based on a history of spending. Interoperability on the continent also persists a major issue with this alternative way of banking.

“The entire banking system in Africa is completely and utterly licked, even amongst the mobile money providers, the telcos,” said Youssef from Paxful, a peer-to-peer crypto marketplace where buyers can directly buy and sell tokens with one another.

“Two thousand payment networks and only 2% of them talk to each other. That number continues to become. It’s not getting better, it’s actually getting worse,” continued Youssef.

Companies like Western Union and MoneyGram come forward an expansive physical network of storefronts around the world designed to move money for those who are unbanked. That money network was extraordinarily difficult and expensive to build, which is why there aren’t a lot of direct competitors. It is also why those money transfers often incur substantial fees.

Bitcoin could eliminate all these intermediaries, allowing citizens to send digital payments completely to one another, without relying on credit and without incurring multiple settlement fees along the way.

“We’re going to move to a mould where we can make payments without IOUs, or credit, or promises, or fiat,” said Alex Gladstein, chief master plan officer for the Human Rights Foundation, an organization that works with activists from authoritarian regimes hither the world. “It’s literally like sending a piece of gold or a $20 bill instantly somewhere else.”

“If you can get access to the internet, you can choose bitcoin payments,” said Brock. “And the government can’t do anything about it.”

Dorsey points to the example of what happened in Nigeria during the qualms against the brutality of the country’s Special Anti-Robbery Squad — a movement referred to as #EndSARS.

“The Nigerian government went to individual bank corps to stop protesters from receiving money — which bitcoin made up for,” Dorsey said in Accra. “So our unbroken reason for being as a company is solving the same problem that bitcoin will ultimately solve for everyone in the in the seventh heaven.”

Moving money on the bitcoin blockchain at its base layer has its own challenges. At times of peak demand, fees will ordinarily spike higher, and if a user is unwilling to pay a premium for the transaction, they may have to wait for more blocks of transactions to get strengthened before their transfer goes through.

Bitcoin’s Lightning Network helps alleviate both of those problems by flogging the cost of transactions to virtually zero and enabling nearly instantaneous cash payments around the planet – making bitcoin a more actual payment rail. This so-called “layer two” technology is built on top of bitcoin’s main chain, in part because bitcoiners are cautious about introducing changes to the base layer, for fear of opening it up to hacks or other mischief.

Yellow Card — Africa’s largest centralized cryptocurrency trade run by CEO Chris Maurice — is also looking to embed this layer two technology into the platform, in order to drive down the amount of transactions to virtually zero. Currently, the exchange doesn’t charge a commission for transactions, but network fees can be pretty perpendicular when a lot of trades are happening at once.

“It’ll have a pretty big impact to our customers, because a lot of them are very price irascible,” says Justin Poiroux, the co-founder and CTO of Yellow Card.

Yellow Card’s plan is still in its infancy, but Poiroux censures CNBC that he thinks the Lightning Network could ultimately provide a lot of value for its retail customers.

Because Lightning offers a universal monetary language, money can travel round the world between any Lightning-enabled bitcoin wallet. Someone who uses a platform like Block’s Cash App — a regulated, American economic product with 51 million monthly transacting users which integrated with the Lightning Network in Feb. 2022 — can pay any Lightning invoice in the dialect birth b deliver instantly.

“It’s a new way of doing business. It’s a different paradigm entirely,” said Gladstein.

The crypto product lead at Cash App, Miles Suter, confidence ins that a big part of bitcoin’s utility is how it gets around broken and convoluted payment systems that don’t talk to each other.

“At Moolah App in particular, we’ve always been really interested in taking bitcoin beyond just being seen an investment and put over a producing day-to-day utility to it,” Suter told CNBC on the sidelines of the Africa Bitcoin Conference.

“In many ways, the people on the African continent are already doing that with the cuts they have,” continued Suter.

Bernard Parah is a 30-year-old entrepreneur animate in Jos, Nigeria, about a five hour drive from the capital city of Abuja. He’s the CEO of Bitnob, an app that lets narcotic addicts across Africa buy, save, and invest in bitcoin. Bitnob is SMS-based and piggybacks on the mobile money system, making it easier for people to send paper money directly into bank accounts and mobile money wallets in African countries.

Parah recently teamed up with Punch, a Lightning Network payments platform, to launch a feature called “Send Globally” that allows Americans to convey money to people living in Nigeria, Ghana, and Kenya.

It uses local fiat cash on either side of the proceeding, but bitcoin is used under the hood as the pipeline to jump money over the border. The end user never touches the cryptocurrency themselves.

“We’re clever to settle into bank accounts or mobile money accounts, without the recipients having to interact with bitcoin themselves,” Parah mentions CNBC.

“Over time, we’ve seen that there are still people who really don’t understand how to use bitcoin; who don’t care relating to bitcoin. What they do care about is their problems getting solved,” continued Parah.

It determines like a wire transfer or a Venmo payment, according to Strike CEO Jack Mallers.

“It’s instant. There’s no debt. There’s no faithfulness. There’s no delays,” explains Mallers.

The model works because Parah and Mallers are willing to take on the liability associated with the bring by holding cash in escrow on either end of the exchange. 

Once the money is received in Nigeria, Bitnob — which is a regulated quiddity with connections to the local banks — will take that bitcoin and turn it into their local currency.

“It’s principled two regulated entities communicating over the language of bitcoin and cutting out excess fees,” said Suter. “I think that’s innovative.”

Mallers says that they offer more competitive foreign exchange rates by using bitcoin as a price-setting arbiter, a sort of new world reserve currency.

“The rate that we got was actually 60% better than the traditional forex store rate,” said Mallers. “The way to actually think about how we’re achieving forex if we clear through bitcoin is, ‘I have dollars. How numerous bitcoin can I get for my dollars? And then how many naira can I get for my bitcoin?'” said Mallers.

“It’s acting as the most liquid, attainable, global instrument for us to clear and settle value amongst each other,” he said.

The arrangement also offers a few big ancillary gains, including interoperability with payment apps around the world that have tens of millions of users.

Design’s Suter explained that Cash App could theoretically interoperate with Bitnob.

“We’re only live in the U.S. right now, but that doesn’t base we can’t speak to Bitnob in Nigeria and transfer value instantly and for free across these borders,” Suter said of Exchange App.

South African developer Kgothatso Ngako, who make an entrance approaches by KG, has integrated the Lightning Network into the GSM network, combining the best of a few worlds, in a larger effort to meet customers where they are.

“My fuzzy is giving people without an internet connection the ability to send or receive bitcoin,” Ngako said.

KG calls his custodial Lightning pocketbook “Machankura” — South African slang for money. Whereas most Lightning transactions today require a smartphone and details, Ngako’s service integrates lightning via