Ethiopia, the second-largest country in Africa, is currently experiencing a surge in Bitcoin (BTC) mining activity thanks to power agreements with Chinese companies. Renowned Chinese cryptocurrency journalist Colin Wu revealed that Ethiopia, with a population of 115 million, has 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 enabled users to trade cryptocurrencies and stablecoins through platforms like Binance and Paxful.
The Shift in Ethiopia’s Crypto Standpoint
In June 2022, Ethiopia’s central bank, the National Bank of Ethiopia (NBE), outlawed cryptocurrency trading citing concerns about financial instability, money laundering, and the unregulated nature of crypto assets. This move mirrored the fears of many African central banks worried about cryptocurrencies undermining national currencies and centralized financial control.
However, in August 2022, the Ethiopian government hinted at a change in policy. The Information Network Security Agency (INSA) issued a directive mandating all cryptocurrency operators to register with them, warning of legal action against unregistered players. This shift indicated a move from a complete ban to a more regulated approach, aiming to harness the benefits of cryptocurrencies while managing potential risks.
Adoption of Crypto and Regulatory Framework
Despite the initial ban by NBE, the adoption of cryptocurrencies in Ethiopia has continued to rise. The government acknowledges the potential advantages of cryptocurrencies in facilitating cross-border payments and bolstering digital identity systems. INSA and other entities are developing 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 outside of finance.
One notable blockchain initiative in Ethiopia is the digital student identity program implemented by Input Output Global (IOG) under the Cardano blockchain across more than 3,000 schools. This collaboration 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 a favored destination for Bitcoin miners due to its abundant supply of affordable electricity and low operating costs. Ethiopia boasts around 5,200 MW of installed generation capacity, mainly from hydropower, which makes up about 90% of the total capacity. The nearing completion of the Grand Ethiopia Renaissance Dam (GERD) is expected to add 5,150 MW of installed capacity.
The Ethiopian Energy Authority has forged power agreements with 21 Bitcoin mining companies, with 19 of them being Chinese. This uptick in mining activity is partially due to China’s ban on crypto trading and mining in 2021, prompting Chinese miners to seek more favorable environments. Ethiopia allows Bitcoin mining as 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 large portion of the population. The introduction of mobile money is changing this narrative. 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 boosted 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 trade crypto on a familiar platform, reducing the learning curve and increasing comfort levels for those considering crypto.
Ethiopia’s journey from banning cryptocurrencies to cautiously exploring their potential serves as a lesson in navigating the complexities of a rapidly evolving technological landscape. The country’s regulatory approach aims to strike a balance between innovation and the duty to protect citizens and maintain financial stability.
The acknowledgment 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 steps in leveraging 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.
