One of the most effective ways for Africa to ultimately tap into the prevailing economic benefits and have a global stake in the growing digital assets market is raising its stake as a crypto mining hub.
- Many have mooted cryptocurrencies to raise financial inclusion, lower transaction costs, and allow transparency and accountability.
- Crypto has gone mainstream and is co-existing with traditional financial systems.
- Financial inclusion in Africa and other developing economies grew from 63 percent to 71 percent between 2017 and 2021.
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The crypto industry’s growth has changed people’s opinions about the longevity of digital assets. Similarly, the digital economy has gradually evolved into the traditional economy. This evolution presents a game-changing opportunity for cryptocurrencies to dominate the financial and economic scene in the future.
The benefits of cryptocurrency to the economy of nations cannot be overemphasized. Many have mooted cryptocurrencies to raise financial inclusion, lower transaction costs, and allow transparency and accountability.
These benefits have proven too essential for African countries with disparaging numbers of financial inclusion within their population, with far-reaching effects on their economies. Notably, financial exclusion exacerbates rural poverty and erodes the capacity of individuals and households to withstand economic shocks.
Financial Inclusion and the Adoption of Crypto in Africa
Financial inclusion in Africa and other developing economies grew from 63 percent to 71 percent between 2017 and 2021. Many have attributed this growth to the significant increase in digital financial services, including cryptocurrencies and mobile money. Despite the regulatory whirlwinds, the last few years have seen astronomical crypto growth rates in Africa.
The 2022 Global Crypto Adoption Index by Chainalysis reveals that Africa has some of the region’s most well-established crypto markets. Moreover, Africa boasts deep integration and penetration of crypto into daily financial activity for many users. Nigeria and Kenya, ranked 11th and 19th on the adoption index, respectively, offer the proper evidence for how far crypto has come in Africa.
Both countries see strong adoption when weighted for purchasing power and population, especially on P2P exchanges, which expert interviews confirm are crucial to the region’s crypto economy. Moreover, South Africa, which leads the region in raw transaction volume, also ranks high on the index at 30th.
Crypto has gone mainstream and is co-existing with traditional financial systems. Thus, many progressive-minded states are strengthening the policy framework for regulating cryptocurrency to maximize the potential benefits to their economies. One of the most effective ways for Africa to ultimately tap into the prevailing economic benefits and have a global stake in the growing digital assets market is raising its stake as a crypto mining hub.
Understanding crypto mining
Crypto mining is creating, transmitting, and validating digital assets’ transactions. In return, the blockchain system compensates miners with specific amounts of newly minted crypto coins. The reward represents miners’ economic incentive to complete complex and resource-intensive tasks.
Consequently, crypto mining has solved traditional banking complexities by creating a decentralized peer-to-peer (P2P) system. Individual miners in the network monitor and validate transactions, which generate currency, thus revolutionizing the payment system.
Crypto mining requires a considerable amount of energy. The decentralized nature of crypto is a primary reason for its vast energy demand. Mining involves using computers and cryptographic processes to solve complex mathematical functions. Crypto’s “proof-of-work” (PoW) system is drastically more energy intensive than verifying transactions on centralized networks.
Continuous solving of mathematical puzzles prevents fraud in the system. In the case of Bitcoin, miners compete to solve complex mathematical puzzles with the fastest competitor. They certify the transaction and get Bitcoin payment as a reward for their efforts. More specialized computers and hardware machines are used as more miners join the network to solve these transactions. Such a process requires enormous amounts of computational and electrical energy into the ecosystem.
The huge energy demand has raised many negative responses toward cryptocurrencies. Thus, critics term the system unsustainable, especially in a world facing climate change and environmental catastrophes due to the continuous usage of fossil fuels. Nevertheless, Africa has great potential and could become a central crypto mining hub if stakeholders maximize its resource wealth.
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Africa’s Path to becoming a crypto mining hub
Crypto mining has become the new ‘gold rush,’ as multinational corporations, investors, and countries aim to capitalize on the benefits of the growing industry to foster economic growth. Crypto investors have trooped in their numbers to favorable jurisdictions that will accommodate and host their activities. While many cryptocurrency analysts have suggested America, Latin America, and Europe as possible destinations, Africa could be the next big crypto mining hub if the atmosphere is set right.
Africa has gradually taken a good posture towards crypto adoption and usage and is warming its way into becoming a global fintech hotbed. The continent has a golden chance to capitalize on the cryptocurrency boom. The increasingly young population and the high unemployment rate have increased the taste of making money outside the traditional means of white-collar jobs.
With African states becoming continually progressive in the use of cryptocurrency, then Nigeria, South Africa, and Kenya can utilize the benefits of crypto mining to increase economic growth. The best way to become a crypto mining hub and capitalize on this opportunity is to create a healthy environment for related activities to thrive.
Addressing policy and regulatory issues
African governments should create enabling regulatory environments and policy frameworks to attract crypto mining investors. This means abandoning the highly restrictive and protectionist approaches outlawing or hindering the free flow of the crypto market. Understandably, crypto miners will most likely pitch tents in jurisdictions with favorable domestic laws. Africa can achieve this through low tax incentives, cheaper renewable energy sources, and an enabling environment for investments to thrive.
Enhanced technology and internet access
There are entire networks of devices, such as desktop computers and specialized mining hardware machinery, involved in crypto mining. Africa should invest more in technology and internet access to thrive as a crypto mining hub.
There is already a proliferation of smartphones on the continent that can connect their owners to the digital economy. Suppose the digital economy in Africa booms. Crypto mining and all other associated investments will be attracted to Africa. In that case, this will mean deliberate efforts by the government in conjunction with telecommunication companies across Africa to create fast and affordable access to the Internet. If implemented, African states will attract foreign investors and widen opportunities for local miners to thrive, thereby creating a pathway for a firm digital economy.
Renewable energy investments crucial a crypto mining hub
With many nations and businesses wary of the environmental concerns of mining cryptocurrency, the search for cheaper and environmentally friendly energy sources such as renewable energy is on the rise.
Renewable energy, such as solar resources, wind/water resources, and geothermal power, is heavily concentrated in Africa. The continent has the world’s richest solar resources due to its high radiation. There is also heavy wind potential and hydrocarbons in North and East Africa. This invariably means Africa has what it takes to provide cheap and environmentally friendly energy for crypto mining.
African nations should look towards investing in the renewable energy sector as this will attract crypto mining and associated activities within the continent.
In a nutshell
An efficient crypto mining industry can generate more employment opportunities in Africa as demand for miners, blockchain experts, and technology specialists increases. This incentivizes countries to improve their energy and technological infrastructure to accommodate crypto operations. Such improvements can significantly benefit other industries and economic well-being.
African countries must seize the opportunity to become a crypto mining hub. This can help develop the digital economy, the financial standing of the citizens, and the energy production infrastructure. Accordingly, African governments can invest in cryptocurrencies and get alternative funding to develop renewable and alternative energy sources.