Africa

Foreign Crypto Exchanges Like Paxful, Binance to Pay 1.5% Tax Under Kenya’s New Regulations

16/10/2020 by Idelto Editor

The Kenya Revenue Authority (KRA) has clarified that its planned digital service tax (DST) will be applicable to cryptocurrencies at a rate of 1.5% on gross transaction value, local media reported.

In August, the agency announced new rules for the taxation of what it calls “digital marketplaces.”

However, with oblique definitions on such key terms, it has not been clear who exactly will be taxed under the new regulations that come into force on Jan 1, 2020.

Now, KRA tax expert Nixon Omondi has appeared to set the record straight.

“As the law is, any person who will be offering a digital service – crypto is digital, the platform is digital, the acquisition process is digital, the process of payment is digital – in that respect, DST will be applicable on cryptocurrencies,” he explained, in a report by Bitcoinke.

The clarification means that platforms dealing with virtual currencies will be required to pay the 1.5% tax to the Kenyan government. The situation is rather tricky for foreign peer-to-peer exchanges like Paxful and Binance P2P, which have operations in the East African country – they will have to remit the tax each month.

Kenyan crypto businesses will make similar payments, too. However, local firms “have the option of claiming back their digital service tax at the end of the year since they also pay other taxes within the Kenyan jurisdiction,” said the report.

In its original communication, the Kenya Revenue Authority stated that the digital service tax is to be paid “by a person who derives or accrues income from services through a digital marketplace.” But the term “digital marketplace” proved a source of much consternation because of it being legally and technically ambiguous.

Kenya’s Finance Act offered a rather broad definition of the phrase, describing digital marketplaces “as a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.” Kenya is Africa’s third-biggest bitcoin market after Nigeria and South Africa.

What do you think about Kenya’s digital service tax? Let us know in the comments section below.

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Fiat Devaluation Drives Retail Bitcoin Transfers in Africa 56% in a Year: Report

10/09/2020 by Idelto Editor

Fiat Devaluation Drives Retail Bitcoin Transfers in Africa 56% to $316 Million in a Year: Report

Monthly cryptocurrency transfers to and from Africa under $10,000 soared more than 56% from a year ago to reach $316 million in June, according to new research by U.S. crypto analytics firm Chainalysis. Altogether, $8 billion worth of crypto was received into the continent and $8.1 billion sent onchain in the last year.

The total value of retail-sized transfers slowed down somewhat between November 2019 and February 2020 – falling to as low as $147 million – but spiked sharply in the ensuing months, as the hype around Bitcoin’s third halving, which occurred on May 11, started to gather steam.

Chainalysis said the number of small transactions recorded each month climbed 31% to nearly 700,000 by June, with much of the activity concentrated in Nigeria, Africa’s biggest economy and most populous country, along with South Africa and Kenya.

“That relatively small amount of activity [in Africa] is creating life-changing value for users in the region facing economic instability, offering low-fee remittances and an alternative way to save,” observed Chainalysis, in an excerpt of its “2020 Geography of Cryptocurrency Report,” to be released later this September.

The funds are typically moved by individuals and small businesses, it noted. But the biggest drivers of growth inside Africa’s virtual currency economy are remittances and fiat currency devaluation.

Indeed, while some countries are clearing the turf for crypto through soft-touch regulation, others are unwittingly doing the same by failing to contain inflation and maintain liquidity, forcing citizens to take back their financial freedom through alternative currencies, primarily bitcoin (BTC).

For example, the South African rand has lost over 50% of its value against the U.S. dollar in the last decade, Chainalysis stated, “and is consistently one of the most volatile fiat currencies.”

Nigeria, Egypt, Algeria, Ethiopia, and Ghana all face similar issues with their own currencies, it added. In Zimbabwe, government policies have robbed citizens of their savings twice in two decades as the national currency has dramatically shed value.

According to the World Bank, fees for remittances below $200 in Sub-Saharan Africa average 9%, but could be as high 15% in more active economies. The global average is roughly 6.8%. All these factors have driven Africans toward cheaper and trusted alternatives in crypto.

Per the report, around $562 million worth of bitcoin was transferred directly from overseas addresses to ones based in Africa in retail sized payments during the period under review. Chainalysis detailed:

Cryptocurrency can act as a more stable value store for people living under these conditions.

“African users aren’t just using cryptocurrency for overseas transfers between individuals…a significant share of transactions between Africa and other regions — particularly East Asia — are for business purposes,” it added.

In the last year, the continent’s professional market has sent and received more than $210 million worth of crypto, up from about $175 million at the end of July 2019.

In most countries throughout Africa, the virtues of bitcoin are becoming increasingly evident. Whereas alternative currencies are subject to geopolitical considerations and fiscal discipline, BTC investors have little reason to worry about central banks or sanction committees, who are powerless to control a decentralized cryptocurrency.

What do you think about the growing crypto economy in Africa? Share your thoughts in the comments section below.

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Zimbabwe’s Mobile Money on Life Support as Central Bank Tightens Screws: Restrictions to Affect P2P Bitcoin Trading

28/08/2020 by Idelto Editor

Zimbabwe’s Mobile Money Operators (MMO) say they will comply with the latest directive by the central bank to shutdown mobile money agents. In addition, the MMOs will also limit mobile money transactions to $50 (Zwl $5,000) per day while users are now restricted to one mobile money account per person. The directive went into effect right after the monetary policy review by the Reserve Bank of Zimbabwe (RBZ) on August 21.

In a sign that MNOs have lost an appetite to fight the RBZ, the mobile money market leader, Ecocash also said funds in “frozen agent accounts will only be liquidated into the affected agent’s formal bank account.” On top of that, the liquidation will “require RBZ approval on a case by case basis.”

Ecocash has previously sought relief against RBZ directives through national courts. However, following changes to the regulations that govern MNOs in July, the RBZ now has an upper hand in its long-running battle against Ecocash.

Nevertheless, while the RBZ appears to be winning, some believe the new restrictions to affect business activity. Others are even predicting that this will hasten re-dollarisation of the Zimbabwean economy. Zimbabwe abandoned dollarisation in late 2016 when it reintroduced local currency, the Zimbabwe dollar (Zwl).

However, after years of economic decline and cash shortages, Zimbabweans are increasingly resorting to the US dollar again as a means of settling domestic transactions. The shutting down of mobile money agents will likely see an increase in demand and usage of the greenback and alternatives like bitcoin.

Meanwhile, mobile money users are reacting to news of the directive by asking the MMOs how they will deal with cases of multiple accounts holders. Some mobile money users have more than one account registered in their name. The other accounts are usually given to minors or relatives who cannot have their own because they lack an identity document.

Frustrated with the RBZ decision, some users went on Twitter to vent their anger. One user named Pola Polite said of the decision:

“Its always the grass that suffers, so if my mother who stays in the countryside falls sick, it means I will need 5 days of sending money for her to survive!”

Another user, Shefu Tendai said: “So this means that if my grocery is Zwl $15000 per month I will need to go to the shop 3 times. Well, my bill is 10k that means I will need to make the payments in 3 days and then do not make any other payments. [Reserve Bank of Zimbabwe] please review payment to merchants amount.”

However, other users also blame Ecocash for inviting the RBZ’s latest directive. One user, Lee Ann Benard tells Ecocash: “was about time you stabilise the system and put a stop to unscrupulous dealing by greedy people. Mobile money should be linked to one’s bank account ridiculous buying your own currency at a percentage. Great move.”

Meanwhile, the latest directive by the RBZ and the apparent compliance by MMOs will likely affect bitcoin traders that still accept mobile money as payment. The set daily transaction limit is far below typical daily bitcoin trades.

Additionally, the dumping of mobile money as a payment method means informal bitcoin transactions will have to be conducted in person. However, with movement currently curtailed due to Covid-19 restrictions, many traders will find it hard to trade as well as they did before the new regulations.

In the meantime, peer to peer trading platforms that list Ecocash as a form of payment will now be forced to drop this as a payment option.

What does the latest RBZ directive mean for the future of mobile money? Tell us what you think in the comments section below.

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High Fees Make BTC Less Appealing for Remittances in Africa: ‘Pray Blocks Happen Quickly’

13/08/2020 by Idelto Editor

Bitcoin trading volumes are on the rise on the African continent despite the ongoing concerns about the high network fees. Data shows peer to peer bitcoin trading platforms recorded spiked growth in volumes starting in April. This was the same time as many countries implemented lockdown measures.

Anecdotal evidence seems to suggest that Covid-19 related regulations are the reason for the volume growth. This “evidence” is observed in Nigeria, already one of the biggest cryptocurrency markets in the world. Some observers from the country say the struggling economy, as well as the volatile currency, are helping to build new momentum for bitcoin as well as altcoins.

To illustrate, they show how the corona virus-induced drop in oil revenues has put increased pressure on local currency. Increased pressure on local currency inevitably leads to capital flight and scarcity of foreign currency.

Available data shows that between March and August 2020, the Naira (the Nigerian currency) has depreciated by 33%, from about 360 to 480 units for every US dollar. The ensuing shortages of hard currency has resulted in some banks limiting the amount of US dollars Nigerians can withdraw each month.

This scenario, which has played out in many African countries similarly affected by the closure of economies, inevitably leads to growing interest in alternatives like cryptocurrencies as Nathaniel Luz, Lead for Dash in Nigeria explains.

Luz says the “increased instability of the Naira” has led to “more Nigerians keeping their money in crypto.”

The high transactions fees

Still, as Luz argues, the high transaction fees associated with a bull market, particularly on the Bitcoin network, are proving to be an unwelcome dynamic.

“Bull runs generate lots of excitement and optimism for the crypto space in general, serving as a good advert for newbies to get on board. With every bull run we see increased fees and slow confirmation times for bitcoin transactions due to the mempool being full,” explains Luz.

This makes the leading cryptocurrency less appealing as an alternative means of transacting or remitting funds.

Echoing Luz sentiments is Chris Maurice, CEO at Yellowcard Financial, the digital currency exchange that helps Nigerians in the Diaspora to send funds home using bitcoin.

According to Maurice, his organization is “seeing growth in volumes” although he admits that the “high transaction fees have definitely impacted us on the operational side, however.”

To try and mitigate the problem, Maurice shares a strategy his company has adopted to minimize the impact of the high fees.

“We move BTC constantly, and at this point, I only move bitcoin at around 2-3 am EST while everyone in the US is asleep and the chain is a little calmer. I’ll send with a ‘reasonable’ fee of $20+ and pray that blocks happen quickly and the coins don’t get caught for 24 hours or more.”

Using higher fees help get transactions confirmed faster, yet as one bitcoin trader from Zimbabwe, William Chui explains, the final transaction cost will be much higher.

The final cost renders moot the appeal of bitcoin for remittances adds Chui:

“The challenge we have is that we pay a premium already to get the BTC, then when we need to make a transfer, the fees are high, which further impacts us.”

Banks Barred from Cryptocurrency

In countries like Zimbabwe, banks are barred from interacting with cryptocurrency exchanges. That leaves traders with the informal crypto markets as the only source for getting bitcoin. For their effort, informal dealers charge a premium on top of the going bitcoin price.

The premium ranges between 5% and 10% and this is before adding the network transaction fee to the total cost.

“(At the moment) fees of about $8 help to get a transaction approved (confirmed) quickly, or else, people can play the lottery and pay a lower fee and possibly wait 3 days for it to clear,” explains Chui.

This, therefore means the sending party will have to incur a minimum cost of $13 just to send bitcoin worth $100. Such costs make remitting funds via bitcoin less appealing when compared to traditional remitting channels.

Newcomers to cryptocurrency

Meanwhile, as Grey Jabesi, a founder at Crypto University and Buy Bitcoin Malawi argues, the bull market has had both positive and negative aspects to it. He explains the positive part first:

“We are seeing increasing volumes from beginners that are in it for speculation but we also still see a steady growth of those that want cryptocurrency because it works for what they want to do.”

Still, Jabesi admits the same bull market is making bitcoin less cost-effective for border remittances, the common use case for cryptocurrencies on the African continent. He ties the growing interest in alternative coins to BTC’s high network fees, as BTC’s fees rose as much as 550% last month.

Opportunity for BCH

“We are seeing a shift, by those that want to use cryptocurrency for legitimate reasons, from bitcoin to mainly bitcoin cash (BCH). In some cases, we also see interest in XRP.”

According to Jabesi, BCH seems to be the preferred alternative because it is “not only cheaper and faster, but also because it is accepted as payment on many online retail market places.”

Meanwhile, Maurice who insists that bitcoin remains king despite the high network fees, admits they are also looking to add BCH on the Yellowcard platform.

Maurice explains:

We get requests pretty often for BCH, and we’re actively working on listing it. BTC is still king, however, especially in Africa. I think even with the high fees right now it would take a large educational push around BCH to get people switching.

Dash is also seeing growing interest by users that want faster and cheaper fees. According to the Dash leader in Nigeria, one platform Coinprofile.co has already added Dash to the list of supported coins.

It would seem BCH, Dash and XRP are all poised to diminish BTC’s dominance in Africa, but as Maurice suggested, an educational campaign has to accompany any marketing push.

Success on this front will help these cheaper and faster alternatives to get more from this growing market.

Will the high network fees help the cause of alternatives to BTC? Share your thoughts in the comments section below.

The post High Fees Make BTC Less Appealing for Remittances in Africa: ‘Pray Blocks Happen Quickly’ appeared first on Bitcoin News.

Crypto Use-Cases in Africa on the Rise, According to Luno

03/07/2020 by Idelto Editor

Twitter and Square CEO, Jack Dorsey recently said “Africa will define the future (especially the Bitcoin one!)” But was he right?

Crypto in Africa on the Rise

Sad to be leaving the continent…for now. Africa will define the future (especially the bitcoin one!). Not sure where yet, but I’ll be living here for 3-6 months mid 2020. Grateful I was able to experience a small part. 🌍 pic.twitter.com/9VqgbhCXWd

— jack (@jack) November 27, 2019

Earlier this year, Luno published The State of Crypto in Africa report in collaboration with Arcane Research. This was an attempt to understand where the future for crypto in Africa is headed. In this summary, we’ll highlight some of the key aspects of the research, including the catalysts for crypto adoption in Africa, obstacles to be overcome, and the latest trends.

Crypto in Africa

Despite being an incredibly diverse continent, African nations often share key similarities, ranging from socio-economic issues to a significant lack of infrastructure. The use of cryptocurrencies around the world has, to date, largely centred on investment, speculation and trading. This is not true of Africa, where applications for crypto and the scope of challenges it could help overcome vary far more.

This makes it a fertile breeding ground for crypto. As the report notes that “Africa is one of, if not the most promising region for the adoption of cryptocurrencies. This is due to its unique combination of economic and demographic trends. While the overall adoption is relatively low, the potential is enormous, the growth is rapid, and the development is likely to become defining for the cryptocurrency industry going forward.”

However, there’s currently a polarity to crypto adoption in Africa. On the one hand, researchers have identified high ownership rates in certain countries. Google Trend data indicates Uganda, Nigeria, South Africa, Kenya and Ghana all rank in the top 10 on the topic of cryptocurrency, which demonstrates the growing interest therein. South Africa actually ranked third-highest worldwide at 13% with Nigeria ranking 5th (11%) in a survey about crypto ownership. In terms of crypto infrastructure, though, it’s lagging behind. There’s still a distinct lack of nodes, mining operations and supporting merchants. Of the 10,267 Bitcoin nodes worldwide, just 20 (0.2%) are located in Africa. Furthermore, research from CoinShares indicates there’s almost no meaningful Bitcoin mining activity across Africa.

Trading trends

Trading volumes across non-P2P (peer to peer) exchanges indicate there is generally less than $10 million in daily trading volume across African currency pairs. Luno contributes to the majority of this volume.

On the other hand, Africa accounts for a comparatively much larger share of the P2P trading market. Trading across Africa now accounts for more than 14% of LocalBitcoins’ and Paxful’s global weekly trading volumes, with activity focused in Nigeria, Kenya and South Africa. These volumes have seen a significant boost in 2020, surpassing $10 million in weekly volume across the two platforms.

Catalysts for adoption

Africa’s underdeveloped crypto infrastructure aside, there are a number of major catalysts that could be conducive to widespread adoption over the next decade. Many of these are unique to the African continent, showcasing a remarkable opportunity for projects that are able to leverage the potential.

Economic landscape: high inflation and financial instability

The majority of African nations suffer from high inflation rates – historically much higher than the global average. This drastically undermines purchasing power and the potential for wealth-gain. Bitcoin’s inherently disinflationary monetary model and decentralised governance therefore poses an attractive alternative.

In the same vein, many African countries suffer from depreciating and often volatile national currencies. For example, the South African Rand (ZAR) has lost over 50% of its value against the US Dollar, while also being one of the most volatile FX currencies.

Political instability and capital control

Most African nations suffer from vast political instability which exacerbates inflation and currency volatility. Data from the World Bank gives just nine of the 53 African nations with a positive score on the political instability index. Furthermore, 2019 registered the highest amount of civil conflicts since 1946. This type of vulnerability has an adverse knock-on effect on issues like forced migration, GDP collapse, and wealth confiscation.

Bitcoin and other cryptocurrencies are unique in that they combine the wealth preservation properties of hard assets, like gold and land, with the portability of digital currency, combined with an unparalleled degree of censorship resistance. These properties, in combination, make cryptocurrencies the ideal antidote to political chaos.

Financial infrastructure

The majority of Africa is underserved by traditional financial services. The number of commercial banks per 100,000 adults is 61% lower across Sub-Saharan Africa than the global average. As of 2018, 66% of those living in Sub-Saharan Africa had no access to a traditional bank account.

Inadequate banking services and limited access inhibit entrepreneurship, business growth, lending and saving. These all work to drastically undermine economic development. Cryptocurrencies and decentralised finance (DeFi) are poised to take on the challenge of providing individuals with a safe place to store and interact with their money.

Costly remittances and cross-border payments

Cryptocurrencies offer a much easier and often cheaper alternative to remittance payments. Remittances below $200 to Sub-Saharan countries cost an average of about 9% compared to the global average of 6.8%. These exorbitant costs are a combination of an inefficient uncompetitive banking market and a reliance on legacy financial communications systems, such as SWIFT.

Remittances are extremely important in Sub-Saharan Africa and make up a key component of economic income. It’s estimated that over 25 million people are expats from Sub-Saharan Africa as of 2017. This group remitted more than $48 billion in 2019.

Digital and mobile trends

Despite improvements to traditional finance infrastructure, more exponential growth would require significant investments. With almost 60% of the Sub-Saharan population living in rural areas, mobile and digital solutions are far more equipped to tackle issues to access. Unlike other regions, many African nations have leapfrogged traditional finance entirely, going straight to mobile banking. This trend is ideally suited to cryptocurrency adoption.

Mobile payments

M-Pesa’s success serves as one of the best examples of the growing dominance of mobile finance. Having debuted in 2007, it now has over 37 million active users, processing 11 billion transactions per year.

21% of Sub-Saharan Africans now use a mobile money service, with more users of mobile accounts than traditional bank accounts. A huge downside to mobile money services, though, is the hefty price tag with an average of 2% of a transaction’s total value. Crypto, on the other hand, offers far more competitive fees.

Unlike mobile money solutions, which are generally operable on basic devices, most cryptocurrency wallets only work on smartphones. Even though Sub-Saharan Africa lags behind the global average in terms of smartphone usage, the adoption rate is rapidly growing. While there were 250 million smartphone connections in 2017, accounting for 34% of total phone connections, this is projected to increase to 690 million in 2025, with smartphones accounting for 67% of phone connections

Obstacles to overcome

Along with the powerful catalysts expected to drive crypto adoption, there are a number of major challenges to be overcome. Some of the most prevalent are inadequate internet coverage, competition from mobile money services and hostility from governments.

Inadequate internet coverage

Unlike mobile money services, most cryptocurrency wallets require internet connectivity to send and receive transactions. Only 39.9% of the African population have some form of internet access, compared to 62.9% across the rest of the globe. Seven African countries have internet penetration rates below 10%. A UN report recently estimated that a staggering $100 billion of further investment over the next 10 years to increase coverage to a reasonable standard.

The lack of coverage can be attributed to a lack of infrastructure and resulting high costs. Sub-standard electricity supplies are additional contributing factors. Many African countries have dispersed populations, often with low average incomes, which means there’s less financial incentive for companies to invest in infrastructure development. This results in a vicious cycle of poor connectivity and economic underdevelopment. As a result, telecoms operators monopolise and collude on pricing, undermining African citizens. Across the continent, 1GB of data on average costs 7.12% of a person’s monthly salary, reaching as high as 20% in some nations.

Satellites as a solution

Over the past few years, the satellite industry has grown tremendously. Companies like SpaceX, Amazon, Viasat and OneWeb are building low-orbit satellite mega-constellations that aim to provide high-speed internet across the globe. These will be particularly handy in rural and remote regions.

Sending BTC without internet

There’s also an increasing focus on the transmission of crypto payments without internet connectivity. To date, Blockstream has been the pioneer in this area, creating a satellite network with global coverage that broadcasts the Bitcoin network for free.

Blockstream joined forces with another decentralised communications company, goTenna, which allows users to transmit transactions without internet via its mesh network. It’s expected that satellite internet could compete with more traditional methods in the coming years.

Poor electricity coverage

Beyond internet connectivity issues, poor electricity coverage presents another roadblock. A jaw-dropping 57% of the population across the Sub-Saharan region still lacks access to electricity.

Competition from mobile money providers

The success mobile money services have enjoyed in Africa is a double-edged sword to crypto adoption. Adoption may struggle in the face of such dominance due to the business moats and network effects that have developed. However, these services have made users more comfortable with and accustomed to digital and mobile payment solutions, which could pave the way for alternative and more cost-effective solutions like cryptocurrency wallets.

While mobile money services rely on a centralised business model to operate, extracting fees and revenue from customers, cryptocurrencies can compete with increased functionality minus the negligible costs.

Although Bitcoin and Ethereum blockchains may not be as competitive, other options like Ripple, Bitcoin Cash and Stellar can offer on-chain transactions for far less. Second-layer solutions like the Lightning Network also have the potential to offer almost-free transactions.

Mobile money solutions have an advantage in the breadth of services they offer (yield on deposits, insurance and loans) but developments in the DeFI space should allow crypto services some market share.

Resistance from regulators

The largest short-term hindrance for cryptocurrencies is unfavourable action from lawmakers and regulators. The legality of Bitcoin and other crypto varies significantly across Africa, with over 60% of African governments yet to clarify their position.

North African countries have taken the most hostile positions, with Alergia, Libya and Morocco having all issued bans against the use of cryptocurrencies. The most common position, though, is one of caution. Countries like Kenya, Ghana and Zambia have advised discretion without actively banning them.

Luno’s exchange

Luno appears to be the most popular centralised exchange platform with over 4 million customers. Launched in 2013, Luno has regional African hubs in Cape Town, Johannesburg and Lagos and processes approximately $4.5 million per day on average in 2020, mostly in the South African market. This is reflected in the overview of Luno’s fiat-to-crypto volume, where 75% of the trading volume has been in South African Rand (ZAR) so far this year.

Not only are the African countries dominating on Luno’s platform, a large portion of the users are also based in these countries (75%).

Looking to the future

By looking at cryptocurrencies not as an investment vehicle but as a global means of payment, it’s clear Africa is poised to embrace crypto as a solution to many of the persistent issues the continent faces. Most, if not all, obstacles to mass adoption can and will be overcome following investment in infrastructure and the creation of tangible applications that address issues unique to the African continent.

Education is an incredibly important aspect of the cryptocurrency space. If any new technology is to be adopted, users need to be empowered with the knowledge to make sound financial decisions for themselves. While the technological and economic benefits are there, without direct action and a firm grasp on the potentials, regulators and citizens alike won’t be equipped to adopt crypto in any meaningful way.

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