Satoshi Nakamoto, the pseudonymous founder of Bitcoin, once famously said, “Bitcoin would be convenient for people who don’t have a credit card.”
According to the World Bank, that’s at least 1.4 billion people. Most of those folks reside in emerging countries like Nigeria and El Salvador. Are these unbanked individuals at the forefront of “hyperbitcoinization” – the point where Bitcoin becomes the world’s dominant monetary system?
Whether “hyperbitcoinization” will become truly global is unclear, but it is a phenomenon that Ray Youssef, CEO and co-founder of Paxful,a peer-to-peer bitcoin exchange that’s popular in Africa, sees taking place in the Global South.
“The amazing thing about Nigeria, from a bitcoin perspective, is that it's probably the only place in the world where the narrative of bitcoin is not speculative. The vast majority of the use cases of bitcoin in Nigeria are peer-to-peer transactions,” Youssef said in an interview with CoinDesk.
According to a report published earlier this year by KuCoin, a global cryptocurrency exchange, more than 33 million Nigerians (roughly 35% of the adult population) own bitcoin or other cryptocurrencies. More than half of those individuals use bitcoin and crypto for payments, the report suggests.
The payments use case is supported by another report published last month by blockchain data firm Chainalysis. That report states that sub-Saharan Africa has the world’s highest proportion of small crypto retail payments (80% of crypto payments are under $1,000).
In Kenya, another key market for Paxful, locals use bitcoin at restaurants, spas and retail electronics stores. According to Chainalysis, for Paxful, crypto remittances have soared 140% year over year in the country.
The role of nation states
Some have suggested that an erosion of trust in a country’s fiat currency is a prerequisite for hyperbitcoinization. If that’s the case, emerging countries plagued with economic mismanagement may end up leading the Bitcoin revolution. Of course, users from such countries would first need exposure to the Bitcoin ecosystem.
In El Salvador, that exposure came, at least in part, when the government officially made bitcoin legal tender in September of last year under President Nayib Bukele.
“Some people accused the president of vanity … and pushing the people into something that didn't make sense,” Youssef said. “I think the rollout could have been a lot smoother. But for a first time effort on a national scale, I think the government and the small young team … did an amazing job.”
Despite making headlines and capturing the hearts of diehard bitcoiners, Bukele’s strategy seems to be an outlier. The only other country to follow El Salvador’s lead has been the Central African Republic, which adopted bitcoin as legal tender this past April. But again, that may be the exception rather than the rule.
“We’ve spoken to a lot of government leaders about this. In all the situations, there's clearly interest. What there is not, is a young president, like a Bukele, that can almost act unilaterally,” Youssef said.
Even when regimes are hostile toward bitcoin and even with infrastructural hurdles such as limited internet connectivity, it seems bitcoin still manages to thrive. Case in point is when Nigeria’s central bank restricted cryptocurrency usage in the country last year (a country where just over half of the population has internet access), Paxful’s volumes increased, according to Youssef.
“They forbade any of their banks from having any accounts [linked to] cryptocurrency exchanges. What happened? Paxful’s volumes went up by 20% at least, and continue to grow, because everyone went peer-to-peer,” Youssef said.
Bitcoin’s beach day
Historically, Bitcoin adoption has been an organic phenomenon. Even in El Salvador, grassroots efforts like Bitcoin Beach were in place long before Bukele’s initiative. Bitcoin Beach, which started in 2019, is a project that seeks to use bitcoin as a medium of exchange in El Salvador’s small coastal villages like El Zonte and Punta Mango.
“There was no compulsion in those early days in Bitcoin Beach. That was the magic of the whole thing. And because the compulsion came afterwards, when the government level [got involved], it did sour the pot and caused a lot of distrust,” Youssef said.
The organic approach seems to be the most successful route to hyperbitcoinization thus far. Bitcoin Beach is the poster child of “circular” bitcoin economies where individuals receive and make payments in bitcoin. Similar communities have since cropped up all over the world:
Bitcoin Lake is a project in Panajachel, Guatemala, that helps locals mine bitcoin with equipment powered by secondhand cooking oil. The project was started by Patrick Melder and not only promotes bitcoin adoption, but also helps clean up pollution in the adjacent Lake Atitlán.
Bitcoin Island, which is officially Boracay Island, is a tourist hot spot in the Philippines. Lightning Network wallet provider Pouch started a bitcoin education campaign on the island and encourages tourists to “live off bitcoin at 200+ locations including resorts, fine dining, water sports and more.”
Bitcoin Ekasi is a nonprofit organization that has established a bitcoin economy in Mossel Bay, South Africa. Paxful and Built with Bitcoin, Paxful’s nonprofit arm, recently donated money to build an educational center for Bitcoin Ekasi.
“Built with Bitcoin is a 501(c)(3) non-for-profit I started several years ago, and Built with Bitcoin is the one that builds all the schools, builds all the wells, and Paxful is one of the main sponsors of Built with Bitcoin,” Youssef said.
The Global South
Built with Bitcoin has also built two schools in Nigeria, demonstrating Youssef’s commitment to not only Africa, but also the entire Global South (Africa, Asia, Oceania, Latin America and the Caribbean).
“The Global South is very interesting, particularly places like Africa, because the people there don't need anything,” Youssef remarked. “They are under such restrictive financial regimes, that honestly, it's a miracle they're not extinct. They're ingenuity and resourcefulness will create amazing wealth.”
It seems a winning formula for hyperbitcoinization is beginning to take shape – organic growth in the Global South, facilitated by nonprofits. Youssef believes the Global South demographic, which numbers in the billions, is more receptive to bitcoin’s original use case and will therefore act as the torchbearer of hyperbitcoinization and ultimately reap the benefits.
“People there are enormously talented and very well educated. They're very ambitious, and all they need is just to have an equal shake at being able to transact,” Youssef said. “Once that happens, they'll create their own wealth.”
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