Ethiopia: From Banning Crypto Activities to Compliance Regulation
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Ethiopia: From Banning Crypto Activities to Compliance Regulation
Ethiopia, with a population of 123 million, is the second most populous country in Africa, and its relationship with cryptocurrency has been continuously evolving.
Navigating Web3 tides with focused insightsAuthors: Shogo Ishida, Yosuke Yoshida
Translation: TaxDAO
Ethiopia, home to 123 million people, is the second most populous country in Africa, and its relationship with cryptocurrency has been evolving. Initially taking a cautious stance, the country has shifted from an outright ban to carefully exploring the potential benefits of cryptocurrencies and blockchain technology. This transformation reflects a global trend of governments grappling with the disruptive force of digital assets.
Key Points:
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Ethiopia has transitioned from banning cryptocurrency to regulating it
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Bitcoin mining is growing increasingly active, attracting miners to Addis Ababa
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Blockchain is helping Ethiopia combat fraud in education
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Fueled by a favorable fintech environment, Ethiopia's mobile payment industry continues to expand
Strategic Shift: Regulating Cryptocurrency
In June 2022, the National Bank of Ethiopia (NBE), the country’s central bank, issued a statement declaring cryptocurrency transactions illegal. The bank said it would take “legal measures” against anyone found using cryptocurrencies for transactions within the country. In a statement, the central bank warned: “The birr is the only legal tender in Ethiopia, and all financial transactions should be conducted through it.”
The central bank cited concerns over financial instability, money laundering, and the lack of regulatory oversight for crypto assets. This position echoed anxieties shared by many African central banks, which fear that cryptocurrencies could undermine national currencies and centralized financial control.
However, in August 2022, the Ethiopian government made a surprising move, signaling a shift in policy. The Information Network Security Agency (INSA) issued directives requiring all cryptocurrency operators to register with the agency. INSA stated: “Individuals and entities interested in providing crypto services including mining and transfers,” and warned that “unregistered crypto participants will face prosecution.” Ethiopia aims to regulate the cryptocurrency industry and protect citizens from potential risks—an indication of the country moving from an outright crypto ban toward a more nuanced regulatory approach.
This shift can be attributed to the sustained growth of global cryptocurrency markets and their apparent staying power. The Ethiopian government has also recognized the potential benefits of cryptocurrencies, such as facilitating cross-border payments and revolutionizing digital identity. Currently, INSA and other agencies are developing guidelines intended to comprehensively supervise the operations, economic impact, and environmental implications of the crypto industry.
Although Ethiopia has not yet enacted laws permitting the use of cryptocurrencies, adoption has clearly increased as individuals involved in crypto activities actively expand their domestic operations. Ethiopia now has over 1.8 million cryptocurrency users. Interest in initiatives aimed at establishing regulatory frameworks to ensure stability and consumer protection is rapidly growing among both private and public sectors. Developers, entrepreneurs, and government officials are becoming increasingly curious about the foundational technology behind Bitcoin and its potential applications beyond finance.
Ethiopia’s journey from banning cryptocurrency to cautiously exploring its potential use cases illustrates its efforts to navigate the complexities of rapid technological advancement. It highlights the need for a nuanced approach—one that balances innovation with the responsibility to protect citizens and maintain financial stability.
Ethiopia recognizes the potential of blockchain, the underlying technology. Blockchain offers a secure and transparent way to record transactions, with the potential to transform industries such as supply chain management and land registration. This awareness has sparked interest in exploring blockchain applications without necessarily embracing cryptocurrencies themselves.
Student Digital Identity Project: One of Africa’s Best Blockchain Use Cases
Educational fraud has long been a widespread issue in Ethiopia, undermining the integrity of academic credentials and eroding trust in the education system. Fake diplomas, forged transcripts, and fraudulent certifications have plagued the country’s educational landscape, posing significant challenges for employers, academic institutions, and students alike. To combat this trend, in 2021 the government signed a cooperation agreement with research and engineering firm Input Output Global (IOG) to implement a student digital identity program across more than 3,000 schools, powered by the Cardano blockchain.
The goal of the IOG-Ethiopian government partnership is to create a national database of student and teacher certificates using a decentralized digital identity solution. “Based on the Prime Minister’s comments on these issues, deploying this technology in education is highly appropriate,” said John O’Connor, IOG’s Director of Africa Operations. The project targets a large number of primary and secondary school students. By digitizing educational records and storing them on a blockchain-based platform, Ethiopia can eliminate the risk of tampering or forgery, ensuring the authenticity of academic credentials. This not only helps preserve the value of legitimate qualifications but also provides employers and academic institutions with a reliable means of verifying individuals’ educational backgrounds.
A key component of Ethiopia’s digital initiative is the development of a blockchain-based certification system that allows educational institutions to issue digital certificates directly to students. These digital credentials are cryptographically signed by the issuing authority, making them tamper-proof and easy to verify.
Moreover, the use of blockchain technology ensures that educational records are securely stored and accessible only to authorized parties, protecting student data privacy. This addresses common problems in traditional paper-based systems, such as data breaches and identity theft.
The implementation of Ethiopia’s digital project has already yielded significant results in curbing educational fraud. By digitizing academic records and making them easily verifiable, the country has greatly reduced the proliferation of fake diplomas and forged transcripts. This has enhanced the credibility of Ethiopia’s education system and increased the value of qualifications earned within the country.
Additionally, Ethiopia’s digital initiative enables employers to make more informed hiring decisions by providing up-to-date and accurate information about job seekers’ educational backgrounds. This contributes to improving the overall quality of the workforce and promotes national economic growth.
These efforts prompted the World Bank to approve a $350 million financing package in December to support Ethiopia’s digital identification program for 90 million Ethiopians.
A Surge of Bitcoin Miners Flocking to Addis Ababa
Addis Ababa, Ethiopia’s capital, with its abundant supply of cheap electricity and relatively low operating costs, has become an attractive destination for Bitcoin miners seeking to leverage the city’s favorable conditions.
Ethiopia has an installed power generation capacity of approximately 5,200 megawatts, primarily from hydropower (accounting for about 90% of total generation). The remaining 10% comes from wind and thermal sources. Moreover, Ethiopia is in the final stages of constructing the Grand Ethiopian Renaissance Dam (GERD), expected to add 5,150 megawatts of capacity. The abundance of renewable energy makes electricity inexpensive and plentiful, creating an ideal environment for energy-intensive activities like Bitcoin mining.
The appeal of Bitcoin mining lies in its potentially lucrative rewards. Miners who successfully solve complex mathematical problems and validate transactions are rewarded with newly minted bitcoins, providing them with a substantial income stream.
This economic incentive has attracted a diverse range of participants, from individual enthusiasts to large-scale mining enterprises. Bitcoin mining consumes vast amounts of electricity, making access to cheap power a crucial competitive advantage. This trend has surged in the past two years, with established mining companies setting up facilities in Addis Ababa and some individual miners viewing Ethiopia as a more profitable alternative to traditional mining hubs such as China, Kazakhstan, Canada, and Russia.
The surge in Bitcoin miners in Addis Ababa—particularly those from China—has been influenced by China’s 2021 ban on cryptocurrency trading and mining, introduced to control financial risks and reduce energy consumption. Bloomberg reported that Ethiopia’s Energy Authority has reached power agreements with 21 Bitcoin mining companies, 19 of which are Chinese firms.
Since 2022, Ethiopia has allowed Bitcoin mining, largely because these companies pay for their electricity in foreign currency. Over the past decade, the country has strengthened its ties with China. Notably, many Chinese companies were involved in building the $4.8 billion dam, from which the Bitcoin miners now draw their power.
In February this year, Ethiopia Investment Holdings (EIH), the government’s investment arm, signed a $250 million agreement with Center Service PLC, a subsidiary of Hong Kong-based West Data Group, to launch a Bitcoin mining operation. The deal also includes plans to build a large data center to manage cryptocurrency mining and AI training activities.
M-Pesa Achieves Significant Growth in Ethiopia
For decades, Ethiopia has struggled with limited financial inclusion, a problem that has hindered economic progress and stifled opportunities for millions. The country’s banking infrastructure, characterized by physical branches concentrated in urban areas, has failed to reach the majority of the population, particularly those living in rural and remote regions. However, the emergence of mobile payments is reshaping this landscape, bridging the gap between traditional banking services and the unbanked population.
Last August, thanks to a favorable fintech environment and a regulatory framework established by the Ethiopian government to promote innovation and technological advancement, Kenya’s mobile money platform M-Pesa successfully entered the Ethiopian market, receiving a license from the National Bank of Ethiopia.
Eager to tap into Ethiopia’s untapped market potential, M-Pesa has been rapidly expanding its reach. Its network currently covers 33% of the population, serving 3.1 million active M-PESA customers, supported by 26,000 M-PESA cash withdrawal points and 43,000 merchants. As of December 2023, M-Pesa had added 9 million customers and 4.3 million 90-day active users, and integrated its services with nine banks.
While local telecom operator Ethio Telecom runs its own mobile payment service, Telebirr, which boasts over 34 million users, M-Pesa’s innovations are further promoting cryptocurrency adoption in the country. M-Pesa already allows online merchants to buy and sell cryptocurrencies and stablecoins on major exchanges such as Binance and Paxful.
Ethiopians already familiar with using M-Pesa for daily transactions can easily adapt to using similar platforms for buying and selling cryptocurrencies. This reduces the learning curve and increases comfort levels among those considering entering the crypto space. M-Pesa enables fast and convenient mobile transfers. Integrating cryptocurrency buying and selling directly into the Ethiopian M-Pesa platform could create a seamless and user-friendly experience for Ethiopians entering the world of digital assets.
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