Africa’s second-largest country, Ethiopia, is currently experiencing a surge in Bitcoin (BTC) mining activities, thanks to power agreements established with Chinese companies. Colin Wu, a well-known Chinese cryptocurrency reporter, 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 made it possible for users to trade cryptocurrencies and stablecoins through platforms like Binance and Paxful.
The Shift in Ethiopia’s Cryptocurrency Stance
In June 2022, Ethiopia’s central bank, the National Bank of Ethiopia (NBE), banned cryptocurrency trading, citing concerns about financial instability, money laundering, and the lack of regulatory oversight over crypto assets. This move mirrored the worries of various African central banks regarding the potential threat of cryptocurrencies to national currencies and centralized financial systems.
However, in August 2022, the Ethiopian government showed a change in direction. The Information Network Security Agency (INSA) issued a directive mandating all cryptocurrency operators to register with them, warning of legal consequences for unregistered players. This marked a shift from a complete ban to a more controlled approach, aiming to harness the benefits of cryptocurrencies while managing associated risks.
Cryptocurrency Adoption and Regulatory Developments
Despite the initial ban by the NBE, cryptocurrency adoption in Ethiopia has continued to rise. The government acknowledges the advantages of cryptocurrencies in facilitating cross-border payments and enhancing digital identity systems. INSA and other entities are developing guidelines to oversee the economic and environmental impact of the crypto sector. Interest in foundational technologies like blockchain is also increasing, with stakeholders exploring its applications beyond finance.
A 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 legitimacy of academic qualifications.
Power Agreements and Bitcoin Mining
Addis Ababa, Ethiopia’s capital, has emerged as a favored destination for Bitcoin miners due to its abundant and affordable electricity supply. Ethiopia boasts around 5,200 MW of installed generation capacity, primarily from hydropower sources, which make up about 90% of the total supply. 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 sealed power agreements with 21 Bitcoin mining companies, with 19 being of Chinese origin. This increase in mining activity is partly due 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 reserves.
Impact on Financial Inclusion and Mobile Money
Ethiopia has long grappled with limited financial inclusion, with traditional banking services failing to reach a significant 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, expanding rapidly and now covering 33% of the population. The integration of M-Pesa with major crypto exchanges like Binance and Paxful has further fueled crypto adoption in the country.
Ethio Telecom’s Telebirr, with over 34 million subscribers, and M-Pesa’s innovative services are making it more convenient for Ethiopians to participate in cryptocurrencies. M-Pesa allows users to trade crypto on a familiar platform, reducing the learning curve and increasing comfort levels for those considering cryptocurrencies.
Ethiopia’s transition from banning cryptocurrencies to cautiously exploring their potential serves as a study in navigating the complexities of a rapidly evolving technological landscape. The country’s regulatory approach seeks to strike a balance between fostering innovation and safeguarding citizens while maintaining 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 demonstrate Ethiopia’s strategic efforts to leverage emerging technologies for economic progress. As Ethiopia continues to refine its regulatory framework and embrace technological advancements, it could emerge as a significant player in the global crypto and blockchain ecosystem.
