The rapid growth of blockchain technology in Africa has raised concerns over a heavy-handed regulatory response that would hinder local innovation.
Chainalysis reported booming crypto adoption in Africa as the continent ranked second in P2P trading. Two African countries also emerged in the top 8 of the crypto adoption index. Nigeria leads the growth, recording weekly peer-to-peer volumes of between $5m to $10m. Kenya and South Africa tie at second place with an average $1m to $2m per week.
Crypto payments have become a common feature in many parts of the continent, allowing businesses and individuals to make fast, cost-efficient transactions, increasing productivity in some of the most underbanked communities.
It can be very easy for regulators to want to regulate the entire industry from the onset but it could stifle innovation"
This increasing popularity of crypto has also brought greater regulatory scrutiny — with African lawmakers analysts appearing divided on how to best respond to the crypto phenomenon.
In April, South Africa took its first steps towards creating cryptocurrency laws by publishing a framework proposal and, more recently, Nigeria laid out plans to regulate cryptocurrencies through its Securities and Exchange Commission. This is a marked turnaround from two years ago when the Nigerian lawmakers asked the central bank to "investigate" bitcoin.
Marius Reitz, Luno's general manager for Africa, told business publication Quartz that hasty, heavy-handed regulation could crush innovation within the sector.
"What we'd like to see is a phased approach. It can be very easy for regulators to want to regulate the entire industry from the onset but it could stifle innovation. Once governments regulate better, there's more chance of opening up integration with traditional financial infrastructure and there would be more mass adoption as well," he said.
The rapid rise in adoption of digital currencies in Africa has seen the number of scammers targeting traders shoot up as well. However, the number of traders falling for such scams has remained relatively small in the region according to a report by blockchain analytics firm Chainalysis.