Will Africa become a potential paradise for cryptocurrencies?

'Mining bitcoin is like pouring water on flat ground. No matter how hard you try, the end result is still bad,' technology entrepreneur Erik Hersman in Kenya's capital Nairobi explains about creating, or 'mining' digital currency, a very demanding process. a lot of energy so it is often concentrated in locations with low energy costs.

'Mining' a cryptocurrency simply means providing a service to that cryptocurrency's network and receiving a reward - usually cryptocurrency. Most commonly, it is the verification of a set of transactions on that cryptocurrency's blockchain.

Until 2021, China was home to a strong concentration of bitcoin mining and the negative environmental impacts it caused, before being banned by the government. Bitcoin "mining" activities have moved to the US, where there is an abundant source of cheap energy and a developed and extensive financial market. Profits have skyrocketed. In just a few months, the US has accounted for one-third of global bitcoin production.

* Efforts to find cheap, green energy sources

Cryptocurrency "miners" are looking for new opportunities before the "halving" event takes place. This is the process of reducing the difficulty of cryptocurrency mining in half, occurring approximately every four years. When the "halving" occurs, the reward for miners will also be halved. This makes mining less profitable and could lead to all but the most efficient miners closing their businesses.

Regulators are also becoming increasingly vigilant. In 2022, New York state became the first US state to ban all new mining activities that do not rely entirely on renewable energy sources. Less regulated countries such as Kazakhstan and Iran, which recently welcomed the industry positively, have now also turned negative.

Many governments fear that the energy-hungry computers of bitcoin miners will increase social discontent as they compete with local households and businesses for access to electricity. 'The global search for cheap energy sources is on. If you don't get cheap energy, you won't survive the halving,' bitcoin expert Troy Cross at Reed College in Oregon warned.

* Ethiopia and Kenya, new centers

Now is the time for Africa to step into the game, with the participation of countries that are struggling financially, but have vast renewable energy resources, even though they remain largely untapped. The continent has 60% of the world's best locations for solar power (and five of the 10 cheapest countries for electricity).

Last year, cryptocurrency miners, mainly Chinese and Russian, went to Ethiopia to access electricity from the newly built Grand Renaissance Dam project, the largest in Africa. This month, the Ethiopian national fund signed an agreement with a company from Hong Kong (China) to build a data center worth 250 million USD for the purpose of data mining and technology deployment. artificial intelligence technology.

Neighboring Kenya also wants to participate in this activity. Mr. Hersman said his cryptocurrency mining company Gridless began operations in three African countries last year. Although the continent's total output contribution to global bitcoin production is negligible, some investors believe that Ethiopia could match the capacity of Texas, the epicenter of the cryptocurrency's mining activity. electronics at the present time.

According to expert Adam Swick of Marathon Digital, America's largest publicly traded cryptocurrency mining company, Africa is 'definitely' the next destination for the industry.

* Driving force for renewable energy

Africa is offering bitcoin promoters a chance to radically change an image whose reputation has been tarnished over the years, due to a series of scams, collapses and concerns about its influence. for climate change. Cryptocurrency miners claim that the new model emerging in Africa is the exact opposite of simply burning fossil fuels. This seems to contradict the serious electricity shortage in many countries in the region.

At the same time, many renewable energy projects in Africa are stalling because not enough local consumers can buy electricity, making them financially unviable. By offering to be the buyer of last resort for electricity from suppliers even in cases where there are no other buyers, cryptocurrency miners can help stabilize electricity demand and insure suppliers. energy gains. In the process, they could also encourage the investments needed to provide electricity to some 600 million people in Africa, or about half the population, who do not have access to the grid.

The use and ownership of cryptocurrencies is also attracting growing interest in some parts of Africa. This may have less to do with the intrinsic advantages of cryptocurrencies and more to do with the fact that national currencies such as the Nigerian naira are going through economic and financial problems, being the weakest currency in the world. two in the world this year.

However, there is nothing to suggest that cryptocurrencies offer poor countries a shortcut to wealth. In 2022, the Central African Republic became the second country in the world to recognize bitcoin as a valid means of payment. But the measure failed to stimulate investment in a country ravaged by armed conflict.

The cryptocurrency mining aspect is perhaps more promising. However, in the absence of global rules forcing the industry to use renewable energy, expansion in Africa risks unscrupulous miners operating beyond their means. government regulation, explains expert Ben Kincaid of Bridger Solutions, a company specializing in green cryptocurrencies.

Kazakhstan's attempt to become a powerhouse in the cryptocurrency sector is a warning. Miners in the country were quickly kicked out after being accused of consuming too much energy and causing blackouts. The short-term boom may also have slowed the country's transition to renewable energy because it contributed to making operating fossil fuel power plants more profitable.

* A solution to Africa's problems?

The idea that the use of cryptocurrencies can help African countries 'overcome' the major structural problems they face is very appealing. The Ethiopian government sees cryptocurrency mining as a quick solution to the severe foreign currency shortage. But the reality is not nearly as simple as it seems. Bitcoin can fuel corruption, organized crime and terrorism.

A recent study in Texas has shown that cryptocurrency mining, while it can enhance renewable energy production, also leads to an overall increase in carbon emissions. ''In short, there is no environmentally friendly Bitcoin (green Bitcoin)'', declared Peter Howson, author of Let Them Eat Crypto: The Blockchain Scam That's Ruining the World.

Faced with such uncertainties, African governments may want to double-check before going further./.