Most people have heard of cryptocurrencies. However, if you ask what these people know about cryptocurrencies, they probably won’t be able to say more than “it is some kind of internet money”. The honest truth is that most people still don’t understand how cryptocurrencies work and why they should care.
Cryptocurrencies have a reputation for being complicated but they are actually very straightforward. Just as with any other technology, once you understand why it was created and what it was created to do, you will be better positioned to understand what fuss is all about.
Understanding the basics
The idea of cryptocurrencies was first introduced by Satoshi Nakamoto in 2009. No one really knows if Satoshi Nakamoto is an individual or group of individuals operating under a pseudonym but that hasn’t stopped the idea becoming increasingly popular. Ultimately, no one really cares. People are more interested in the potential it carries.
Think of cryptocurrencies as digital money that you can use in the same way you would use the money in your bank account. Before you ask ‘is that it?’, there’s so much more to it than that. It’s easy to think of money solely in the context of how we use it today but money is constantly evolving. In the African context, cowries, beads and salt were used as a means of exchange at some point in the past but today, it’s all about cards and ‘paper money’. As the way we use money has changed, the way we think about money has also changed.
When we consider how consumer needs have changed over the last few decades, it is quite interesting that the financial system has not followed suit. For example, in today’s global digital world, the absence of a universal currency that can be used as a means of exchange means many consumers (mainly from emerging markets) somewhat penalised. Access to a more inclusive financial system will enable new and better ways of exchanging value and cryptocurrencies can play a major role here.
The current system is no longer fit for purpose
When you consider that the global economy is based on a financial system that was devised more than 75 years, the need for changes begins to make more sense. The current financial system was created at the 1944 Bretton Woods conference held in the USA. The conference achieved a wide range of things, including the creation of a new way of managing and exchanging value between individuals and organisation. As there were no Africans at the conference, the end result was a system that was primarily based on the needs and preferences of the countries that were represented, However, Africans have always been expected to play by these rules.
As Africans continue to push for a fairer deal from the global economy, it should come as no surprise that many are beginning to explore new ways of managing and exchanging value. Our recent Future of Money report revealed that in markets where people are more financially savvy because they have to be, not because it is a “nice to have”, they spend more time understanding money, managing it, preserving it and being creative with how they maximise the use of it. As a result, if cryptocurrencies can provide a cheaper and more secure means of exchanging value, better than the existing system, it will be used. Google Trends data also revealed that Africans are entering the highest number of searches for Bitcoin – Nigeria and South Africa occupy first and second place.
Driving the financial revolution
Every revolution needs its own platform – think about the shift from landlines to mobile phones. This transition was necessary to birth the current world of mobile apps. There is still a long way to go before cryptocurrencies are the default but cryptocurrencies are already changing the way we think of and use money. Paper money was good for a world where most transactions were all done in person. But now that the nature of transactions have fundamentally changed and an increasing amount of trade is not done in-person, it would make sense for the nature of money to reflect this.
The idea of a new, parallel financial system being built basically from scratch may sound a bit far-fetched but when we look at the data and momentum in the market, it’s clear that things are moving a lot faster than what most people believe.
Also Africans should not have to and should no longer need to pay extortionate exchange rates, accept national devaluation or lose out when they simply transfer money between individuals or organisations. A more inclusive financial system, created to address these challenges, will make it easier for people everywhere to create and share value. There’s definitely a bubble of interest across the continent. Hopefully, it’s not too long before the bubble becomes a full blown movement and we begin to see the benefits for individuals and businesses.
Owen Odia is Luno’s Country Manager for Nigeria