Africa has immense potential and could serve as the global crypto mining hub if stakeholders maximize its resource wealth.
- Africa already has an abundance of mobile technology that can connect users to the digital economy.
- Crypto mining is the process of creating, transmitting, and validating the transactions of digital assets.
- With crypto becoming ubiquitous and coexisting with traditional financial systems, many progressive states are fortifying the regulatory framework for cryptocurrencies to maximize the potential economic benefits.
The expansion of the crypto industry has transformed people’s perceptions of the durability of digital assets. The digital economy has progressively transitioned into the conventional economy, creating a game-changing chance for cryptocurrencies to dominate the economic and financial landscape in the coming years.
The benefits of cryptocurrencies to national economies cannot be overstated. Numerous individuals have proposed cryptocurrencies to increase financial inclusion, reduce transaction costs, and enable transparency and accountability.
These advantages have proved indispensable for African nations with disparate financial inclusion rates among their populations, with far-reaching consequences for their economies. Financial exclusion exacerbates rural poverty and erodes individuals’ and families’ resilience to economic shocks.
Linking crypto adoption in Africa and financial inclusion
Between 2017 and 2021, financial inclusion increased from 63 percent to 71 percent in Africa and other developing economies. Many have attributed this growth to the rapid expansion of digital financial services, such as crypto and mobile money. Despite regulatory storms, Africa has experienced stratospheric crypto growth rates over the past few years.
Chainalysis’2022 Global Crypto Adoption Index reveals that Africa has some of the most established crypto markets in the region. Moreover, crypto is profoundly integrated and prominent in the daily financial activities of numerous African users. Nigeria and Kenya, ranked 11th and 19th on the adoption index, respectively, provide sufficient evidence of how far crypto has come in Africa.
According to industry experts, peer-to-peer (P2P) exchanges are crucial to the region’s crypto economy. Both Kenya and Nigeria exhibit robust adoption when weighing purchasing power and population. South Africa, the region’s leader in actual transaction volume, ranks 30th on the index.
With crypto becoming ubiquitous and coexisting with traditional financial systems, many progressive states are fortifying the regulatory framework for cryptocurrencies to maximize the potential economic benefits. One of the most effective ways for Africa to eventually capitalize on these benefits and have a global stake in the expanding digital assets market is to bolster its standing as a crypto mining hub.
READ MORE: Africa is cryptocurrency-friendlier than you think
A brief on crypto mining
Crypto mining is the process of creating, transmitting, and validating the transactions of digital assets. The blockchain system rewards miners with certain amounts of newly-minted cryptocurrencies in exchange. The reward is an economic incentive for miners to fulfill technical and resource-intensive obligations.
As a result, crypto mining has simplified traditional banking by establishing a decentralized peer-to-peer (P2P) network. Individual network miners track and validate currency-generated transactions, transforming the payment system.
Cryptocurrency mining consumes a substantial amount of energy. The decentralized nature of cryptocurrencies is a primary factor in their enormous energy consumption. Mining uses computers and cryptographic procedures to solve complex mathematical problems. The “proof-of-work” (PoW) system requires significantly more energy than centralized network transaction verification.
Continuously solving mathematical challenges prevents system deception. In the case of Bitcoin, miners vie with one another to solve complex mathematical equations as quickly as possible. They validate the transactions, and the system compensates them in Bitcoin for their efforts.
As more miners join the network, more specialized processors and hardware devices are used to solve these transactions. Such a procedure necessitates vast quantities of computational and electrical energy within the ecosystem.
In a world confronting climate change and environmental catastrophes due to the continued use of fossil fuels, this has elicited numerous unfavorable reactions towards cryptocurrencies, with critics calling the system unsustainable. Nonetheless, Africa has immense potential and could serve as the global crypto mining hub if stakeholders maximize its resource wealth.
Making Africa a crypto mining hub
Africa has progressively adopted a favorable stance towards adopting and using cryptocurrencies and is on its way to becoming a global fintech hub. The continent has an exceptional opportunity to profit from the crypto evolution. The growing number of young people and the elevated unemployment rate have increased the desire to earn money outside traditional white-collar occupations.
Countries like Nigeria, South Africa, and Kenya can increase economic growth by utilizing the advantages of crypto mining as Africa continues to advance in adopting cryptocurrencies. Africa must foster a thriving ecosystem for the development of digital assets to become a crypto mining hub and capitalize on this opportunity,
Policy and regulatory concerns
Due to its extreme volatility, use in illegal transactions, and the exorbitant amount of electricity required to mine it, the legal status of digital currency varies significantly between nations. However, as an increasing number of Africans adopted cryptocurrencies, the criticisms manifested in various usage restrictions. Initially, some governments prohibited cryptocurrencies, while others restricted their adoption and use.
As digital currencies prove to be as crucial as fiat currencies, African governments should establish regulatory environments and policy frameworks that encourage crypto mining investments. This necessitates giving up the highly restrictive and protectionist policies that prohibit or hamper the free flow of the crypto market. Understandably, most crypto miners will set up camp in jurisdictions with favorable domestic laws. Africa can accomplish this through low tax incentives, inexpensive renewable energy sources, and an investment-friendly environment.
Technological advancements and internet access
Crypto mining involves vast networks of devices, including desktop computers and sophisticated mining hardware equipment. Thus, Africa should increase its technology and internet access investments to flourish as a crypto mining hub.
Africa already has an abundance of mobile technology that can connect users to the digital economy. Assuming that the digital economy in Africa thrives- it will attract crypto mining and all other associated investments. This will necessitate concerted efforts by the government and telecommunications corporations across Africa to create rapid and economical Internet access. If implemented, African nations will attract foreign investors and expand opportunities for the success of local miners, paving the way for a robust digital economy.
Renewable energy investments
Many countries and companies have raised concerns about the environmental impact of crypto mining. Consequently, there is a growing demand for inexpensive and environmentally favorable energy sources, such as renewable energy.
Renewable energy sources, such as solar, wind/water, and geothermal, are highly concentrated in Africa. Due to its elevated radiation levels, the continent has the world’s most abundant solar energy resources. In addition, North and East Africa possess strong wind potential and hydrocarbons. Consequently, Africa has the resources necessary to provide inexpensive and environmentally favorable energy for crypto mining. Investing in the renewable energy sector will attract crypto mining and related activities to Africa.
Conclusion
An efficient crypto mining industry can generate more job opportunities in Africa as the demand for miners, blockchain specialists, and technology specialists increases, . This encourages nations to enhance their energy and technological capacities to support crypto operations. These enhancements can considerably benefit other industries and the economy as a whole.
African nations must embrace the chance to become a crypto mining hub. This can aid in the digital economy’s growth, citizens’ financial standing, and the infrastructure for energy production. Consequently, African governments can invest in cryptocurrencies to acquire alternative funding sources for developing renewable and alternative energy sources.
El Salvador is an excellent example of a country capitalizing on this opportunity by recognizing Bitcoin as a legal tender and establishing sustainable mining devices. The nation’s state-owned geothermal energy utility plans to mine bitcoin using electricity generated by Volcanoes.
Moreover, a leading nation in cryptocurrency mining – Kazakhstan – is projected to generate over $1.5 billion in economic output over five years and over $300 million in tax revenues from the crypto mining industry. This indicates the substantial national revenue that could be generated by capitalizing on the industry’s potential boom.
READ MORE: Africa’s emerging crypto economy
