Although cryptocurrency dealing has been going on for more than a decade already, it has been very slow to penetrate African markets. This is largely due to a lack of awareness on the part of the public generally and also to high rates of poverty, and low levels of internet connectivity and practise.
Some African countries have tried to take active steps to ban the use of cryptocurrencies, also known as Bitcoin – but legislation is difficult. For example, the Bank of Zambia (BoZ) tried last year to shut down the developing cryptocurrency market in that nation – but it proved impossible for the central bank to claim any authority over cryptocurrency investments or trading. Experts said that the banking act had no jurisdiction over Bitcoin as it transcended national boundaries. It appears that even the parliament of Zambia cannot enact legislation over something that is outside of its domain.
Bitcoin was developed and released by a group of unknown independent programmers in 2008. It has no centralised server for its transactions and storage – but uses a distributed network public database. This technology is known as blockchain, and requires an electronic signature. The developers have used a proof-of-work protocol to provide Bitcoin with the same security and legitimacy enjoyed by money transactions. The issuing of Bitcoin is limited to 21 million coins. Buying and selling these coins is done through special exchange platforms or ATMs.
The Zambian central bank has warned people that trading in cryptocurrency is risky, and that they have no recourse to any regulatory authority in the case of theft or fraud. These currencies are not considered to be legal tender in the country and therefore any citizen dealing in them has to do so at their own risk. It also said people should be wary of dealing with self-proclaimed cryptocurrency agents, advisors and trainers. The bank has refused to classify virtual currency as a security or a commodity.
There are very few Zambians dealing in cryptocurrencies, as many deem the risk is simply too high for their hard-earned cash. However, some are prepared to take the risk for the incredibly high gains said to be possible. Bitcoin is the most popular digital currency and itsmarket cap is valued at more than US $138 billion.
Most Zambians buy their digital coins from online exchanges that are domiciled somewhere else in the world, using international bank cards.
Economists in the southern African country highlighted a sense of desperation resulting from the worsening economic conditions. They warned that such desperation, and the absence of any other avenue to take, could push people to look for perceived safe havens like cryptocurrency. There are simply no other profitable investment opportunities available to investors because of the lack of liquidity on the local stock market.
Another factor driving investors to consider cryptocurrencies is the desire for a high interest or a high-yielding investment opportunity. This is because interest rates on savings from commercial banks are below the inflation rate.
Among those seeking such opportunities are civil servants and retirees who are looking for a good return on investing their pensions – which represent the proceeds of a lifetime of hard work.