While other countries are still flirting with the concept of adopting Bitcoin, Zimbabwe included, the National Bank of Ethiopia (NBE) banned the use of cryptocurrencies for good after facing high risks of crime.  It is important to note that these crime alerts are being reported in a country that ranks as one of the least corrupt in Africa ranked 88 out of 180 countries by Transparency International in its 2021 corruption report.

 

In a notice released by NBE, bitcoins and cryptocurrencies have been totally banned and their use illegalised on confirmed risks of money laundering and smuggling and vowed to take bold action against perpetrators. Ethiopia was one of the countries which were also in a process of flirting with and vetting the cryptocurrency. Before Ethiopia, Russia’s central bank also called for a full ban on cryptocurrencies due to their liberty nature. 

 

A cryptocurrency is a decentralised digital currency based on blockchain technology. It is not regulated by any central bank. 

 

As African states grapple with inflation and deficiency in forex liquidity, some governments presented a soft spot on the use of crypto coins to conduct trade due to their easy way of conducting business. 

 

In countries where the domestic currency constantly fluctuates causing living conditions to plummet like Zimbabwe and other parts of Africa, a cryptocurrency can be used to circumvent these situations.

 

For citizens living in countries with currency instability, cryptocurrency allows them to trade freely across borders with citizens of better-off countries like between the poorly high informalised economy of Zimbabwe and a highly stable formalised economy of South Africa, creating a level of economic equality and bettering their lives. 

 

This also relates to countries like Nigeria where stability has become a nightmare. 

 

Since the inception of Bitcoin in 2009, the economic impact of cryptocurrency has been both overt and subtle. The digital money that takes the form of coins established itself as a viable currency and form of investment, and the economic impact of cryptocurrency has become one of the topical issues in people’s day-to-day lives. 

 

Digital currency facilitates the ease of doing business. Blockchain, which is the underlying technology behind cryptos, improved financial institutions’ cross-border transactions with the ability to access cloud computing which can use Blockchain to execute smart contracts and resist hacking. Government and public records can use Blockchain to reduce paperwork and fraud while increasing accountability, and for this, many governments flirted with the concept. 

 

Besides that, what attracted many people is crypto’s ability to enhance transactions at low cost has attracted credibility. In states where the ease of doing business is appalling like Congo and Zimbabwe, due to both economic and political factors, cryptos can be used without incurring huge costs.

 

 Aside from Bitcoin in its current state, transaction costs for most cryptocurrency users are minimal to none. Because cryptocurrencies and blockchain are decentralised and do not require investment into a physical property, there are no extra costs that users are expected to account for. This means, unlike a branch of a bank, there is no need to pay utility bills, rental property, or employee wages. 

 

The low transaction fees that come with cryptocurrency are one of the biggest reasons many establishments have opted to accept the digital currency. While traditional forms of currency, especially credit and debit cards, can cost businesses high processing fees, cryptocurrency takes away nearly everything. 

 

In addition to low transaction costs, crypto transactions can happen almost instantly. While debit and credit transactions may take a few days to process fully, a crypto transaction is fast and efficient. Furthermore, there is no need for a third party in crypto transactions meaning the transactions can happen quickly. 

 

Another great benefit is that cryptos can open small businesses to broader audiences. Due to crypto being a universal, international currency, it can be used by anyone, enabling small companies to serve global customers. Additionally, with crypto being popular among younger individuals, accepting cryptocurrency can allow a small business to appeal to a younger audience. Accepting crypto enables a business to reach a broader range of customers and demonstrate its ability to innovate and progress as a company.

 

Due to these abilities that cryptocurrency possesses, much time has been spent lauding blockchain and cryptocurrencies.  

 

However, cryptocurrencies suffer from several drawbacks that need to be corrected before either creating a courtship with them. Due to these shortfalls to be discussed below, one of the world’s billionaires Warren Buffet referred to them as the next “bubble”.

 

 As such, it is important to identify and understand the drawbacks and obstacles that may refrain wider adoption of these technologies.

 

Before adopting their use, like digital technology, cryptocurrencies are subject to cyber security breaches and may succumb to hackers. Research indicates that multiple ICOs got breached costing investors hundreds of millions of dollars this summer alone with one suffering a loss of US$473 million.

 

 For countries like Zimbabwe where corruption has already shot through the roof, mitigating these will be of best before conduction. However, mitigating such risks will require require continuous upkeep of security infrastructure that also costs millions of dollars. 

 

For five years, the world’s largest cryptocurrency exchange Binance served as a conduit for the laundering of at least US$2.35 billion in illicit funds, a Reuter’s investigation has found. In September 2020, a North Korean hacking group known as Lazarus broke into a small Slovakian crypto exchange and stole virtual currency worth some US$5.4 million. It was one of a string of cyber heists by Lazarus that Washington said was aimed at funding North Korea’s nuclear weapons programme.

 

Between 2017 and 2019, Binance was reported to have processed transactions totalling at least US$2.35 billion stemming from hacks, investment frauds, and illegal drug sales. This was testified through an examination of court records, statements by law enforcement, and blockchain data, compiled for the news agency by two blockchain analysis firms.

 

Due to this drawback, the sector was hit by a sharp correction in May and its overall value slumping by a quarter to US$1.3 trillion.

 

 Data from the US Department of Crimes shows that from 2017 to 2022, buyers and sellers on the world’s largest darknet drugs market, a Russian-language site called Hydra, used Binance to make and receive crypto payments worth US$780 million. In Germany, police said investigators began seeing criminals in Europe turn to Binance in 2020 to launder some of the proceeds from investment fraud schemes that caused victims, many of them pensioners, to lose a total of 750 million euros.

 

Despite that weakness, they can be used to circumvent price economic instability, cryptos succumb to price volatility, tied to a lack of inherent value and this is a major problem and one of the specifics that Buffet referred to when he characterised the cryptocurrency ecosystem as a bubble. It is an important concern.

 

Of more concern is its lack of regulation. This form of currency will be a hurricane, especially in highly informalised economies like Zimbabwe, Nigeria, Malawi and many parts of Africa where the illiteracy rate is high. Commenting on this weakness, Buffet said, “It doesn’t make sense. This thing is not regulated. It’s not under control. It’s not under the supervision of any United States Federal Reserve or any other Central bank. I don’t believe in this whole thing at all. I think it’s going to implode.”

 

Even if states perfect the technology and get rid of all the problems listed above, until the technology is adopted by federal governments and regulated, there will be an increased risk in investing in this technology.

 

Other concerns with the technology are mostly logistical. For example, changing protocols, which becomes necessary when the tech is being improved, can take quite a long time and interrupt the normal flow of operations.

 

Therefore, this technology seems susceptible to corrupt activities, especially in countries where corruption, informal economy, and instability already take a toll.

 

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