How cryptocurrency can solve the challenges of cross-border payments for African traders

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September 6, 2024
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3 min read
cryptocurrency

The Need for a Better Payment Solution  

I met Nnamdi at an event and learnt that he’s an international trader, importing goods from China and Vietnam. During our discussion, I discovered his strong passion for cryptocurrency, which kept surfacing in our conversation. Curious, I asked why he was such a strong advocate for crypto, especially given the Nigerian government’s current stance on it.

He shared a story about a remarkable event where crypto saved his business trip in Vietnam when all other payment methods failed. Despite having cards that were supposed to work there, they were declined. Fortunately for him, the seller accepted payment in crypto, which allowed him to complete his transactions.

Nnamdi said since then, he has always considered crypto first for transacting large sums of money, especially when purchasing goods overseas. He also believes this scenario is common among many international traders in Nigeria, noting that even larger companies sometimes accept crypto payments, though they may not publicly disclose it.

For Nnamdi and many other African traders, particularly those in Nigeria, cross-border payments have always posed a significant challenge. Traditional payment methods often come with high costs, long delays, and security concerns that can hinder business growth. Cryptocurrency, with its innovative technology, offers a promising solution to these persistent issues. In this article, we’ll explore how cryptocurrency can transform the way African traders conduct international business by providing a more efficient, secure, and cost-effective payment method.

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What is cryptocurrency?

Cryptocurrency is a digital or virtual currency that uses cryptography for security. Unlike traditional currencies issued by governments, cryptocurrencies operate on a decentralised network based on blockchain technology. However, it's important to note that some governments have also issued their own forms of cryptocurrency, for example, the eNaira, issued by the Nigerian government. Blockchain technology records transactions on a public ledger, making them secure, transparent, and resistant to tampering.

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There are numerous cryptocurrencies, but based on popularity, market cap, and usage, Bitcoin (BTC)—the first cryptocurrency—leads the pack, followed by Ethereum and Tether (USDT), a popular stablecoin pegged on the US Dollar.

Advantages of using cryptocurrency for cross-border payments  

Lower Transaction Costs

One of the most significant advantages of using cryptocurrency for cross-border payments is the reduction in transaction costs. Traditional payment methods, such as wire or bank transfers, often involve high fees, especially when multiple intermediaries are involved. Cryptocurrency eliminates the need for these intermediaries, resulting in significantly lower fees. For instance, a trader in Nigeria can send Bitcoin to a supplier in China with minimal costs, compared to the high charges typically associated with international wire transfers.

Faster Transactions

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Traditional cross-border payments can take several days or even weeks to complete due to the involvement of multiple banks and clearinghouses. In contrast, cryptocurrency transactions, such as those made with Bitcoin, are processed almost instantly, regardless of the distance between the sender and the receiver.

Global Accessibility

Cryptocurrency is not bound by national borders or banking systems, making it accessible to anyone with an internet connection. This global reach is particularly beneficial for African traders, who often face restrictions or limitations when dealing with international banks. Cryptocurrency allows a trader in Nigeria to easily pay a supplier in India without worrying about exchange rates, currency conversion fees, or bank restrictions.

Security and Transparency

The blockchain technology underpinning cryptocurrency ensures that all transactions are secure, transparent, and immutable. Once a transaction is recorded on the blockchain, it cannot be altered or deleted, providing a high level of security against fraud and tampering.

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Addressing Common Concerns  

While the advantages of using cryptocurrency are clear, some traders may have concerns about its volatility, security, and legal status. Here’s how these concerns can be addressed:

Volatility of Cryptocurrencies

The value of cryptocurrencies can fluctuate widely, which is a concern for many traders. However, stablecoins like Tether (USDT) are designed to maintain a stable value, making them ideal for payments.

Security Concerns

Cryptocurrency transactions are secure by design, but users must take precautions, such as using trusted wallets and exchanges and enabling two-factor authentication, to further protect their funds.

Regulatory Environment

Cryptocurrency regulations vary by country, and traders should be aware of the legal requirements in their region. In Nigeria, for example, while cryptocurrency is not banned, the Central Bank has placed restrictions on banking transactions involving crypto. However, traders can still legally use crypto through peer-to-peer networks and decentralised exchanges.

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