Ethiopia, the second-largest country in Africa, is currently experiencing a surge in Bitcoin (BTC) mining activities, driven by power agreements with Chinese companies. Renowned Chinese cryptocurrency journalist, Colin Wu, revealed that Ethiopia, with a population of 115 million, now boasts over 1.8 million cryptocurrency users. The Ethiopian Energy Authority has inked deals with 21 Bitcoin mining firms, with 19 of them hailing from China. Local mobile money platforms have already facilitated the buying and selling of cryptocurrencies and stablecoins through platforms like Binance and Paxful.
The Evolution of Ethiopia’s Crypto Policies
In June 2022, the National Bank of Ethiopia (NBE) declared cryptocurrency trading illegal, citing concerns about financial instability, money laundering, and the lack of regulations surrounding digital assets. This move reflected the worries of many African central banks regarding cryptocurrencies potentially undermining national currencies and centralized financial control. However, in August 2022, the Ethiopian government signaled a change in direction. The Information Network Security Agency (INSA) issued a directive mandating all cryptocurrency operators to register with them, warning of prosecution for unregistered players. This marked a shift from an outright ban to a more regulated approach, aiming to harness the benefits of cryptocurrencies while mitigating risks.
Crypto Adoption and Regulatory Framework
Despite the initial ban by the NBE, crypto adoption has continued to rise in Ethiopia. The government acknowledges the potential advantages of cryptocurrencies in facilitating cross-border payments and enhancing digital identity systems. INSA and other entities are working on guidelines to oversee the economic and environmental impacts of the crypto sector. Interest in foundational technologies like blockchain is also growing, with developers, entrepreneurs, and government officials exploring its applications beyond finance.
One of the significant blockchain initiatives in Ethiopia is the digital student identity program implemented by Input Output Global (IOG) under the Cardano blockchain, covering over 3,000 schools. This partnership aims to establish a national database of student and teacher credentials using a decentralized digital identity solution. By digitizing educational records and storing them on a blockchain platform, Ethiopia aims to prevent tampering or falsification, ensuring the authenticity of academic qualifications.
Power Agreements and Bitcoin Mining
Addis Ababa, Ethiopia’s capital, has become an attractive hub for Bitcoin miners due to its abundant supply of inexpensive electricity and low operating costs. Ethiopia has around 5,200 MW of installed generation capacity, primarily from hydropower, which makes up about 90% of the total. The Grand Ethiopia Renaissance Dam (GERD), nearing completion, is expected to add 5,150 MW of installed capacity.
The Ethiopian Energy Authority has sealed power agreements with 21 Bitcoin mining companies, with 19 of them being Chinese. This surge in mining activity is partly attributed to China’s ban on crypto trading and mining in 2021, prompting Chinese miners to seek more favorable environments. Ethiopia permits Bitcoin mining as these companies pay for electricity in foreign currency, bolstering the country’s foreign exchange reserves.
Impact on Financial Inclusion and Mobile Money
Ethiopia has long grappled with limited financial inclusion, with traditional banking services failing to reach a majority of the population. The introduction of mobile money is reshaping this landscape. The Kenyan mobile money platform M-Pesa entered the Ethiopian market in 2023, rapidly expanding and now covering 33% of the population. M-Pesa’s integration with major crypto exchanges like Binance and Paxful has further spurred crypto adoption in the country.
Ethio Telecom’s Telebirr, with over 34 million subscribers, and M-Pesa’s innovative services are making it easier for Ethiopians to engage with cryptocurrencies. M-Pesa allows users to buy and sell crypto on a familiar platform, reducing the learning curve and increasing comfort levels for those considering crypto.
Ethiopia’s transition from banning cryptocurrencies to cautiously exploring their potential serves as a case study in navigating the complexities of a rapidly evolving technological landscape. The country’s regulatory approach aims to balance innovation with the responsibility to protect citizens and maintain financial stability.
The recognition of blockchain’s potential for secure and transparent transaction recording has sparked interest in exploring its applications beyond cryptocurrencies. Initiatives like the digital identity project and power agreements for Bitcoin mining showcase Ethiopia’s strategic moves to leverage emerging technologies for economic growth and development. As the country continues to refine its regulatory framework and embrace technological innovation, Ethiopia has the potential to become a significant player in the global crypto and blockchain ecosystem.