The State of Crypto Adoption in Ethiopia
Source: Freepik
Ethiopia’s journey with cryptocurrency reflects a blend of caution, adaptation, and growing public interest.
Government Adoption
In June 2022, the National Bank of Ethiopia (NBE) officially prohibited crypto transactions. The bank cited risks to financial stability and concerns over money laundering.
“Ethiopia’s national currency is the Ethiopian Birr, with any financial transaction in Ethiopia to be paid in Birrs, according to the law,”
This directive, however, hasn’t quelled the public’s interest in digital assets.
Despite the ban from the NBE, the Information Network Security Agency (INSA) soon after acknowledged the interest of businesses aiming to provide crypto services.
“There is interest among individuals and entities in providing crypto services including mining and transfer,”
The Agency introduced a requirement for crypto businesses to register. They also warned that crypto players who fail to register would be prosecuted.
This move is a contradiction to the central bank prohibiting crypto transactions. It also suggests that rather than blocking crypto, Ethiopia may seek controlled oversight.
While the Ethiopian government has no official position on cryptocurrency, it has shown strong interest in blockchain's potential. This was evident in its 2017 partnership with Cardano, a major blockchain firm, aiming to create a blockchain-based educational records database.
Individual Adoption
Crypto trading has exploded in Ethiopia. Local estimates indicate an increase from a few hundred active traders in mid-2021 to over 1.8 million traders today.
The rise in smartphone usage, reaching over 34 million devices across Ethiopia, has significantly enabled this growth.
Trading platforms like Binance have opened global markets to Ethiopian users. But local smartphone-based “tap-tap” crypto apps—known for their daily engagement promises and high returns—have captured mainstream attention.
These apps attract many Ethiopians, especially youths, looking for financial opportunities outside the traditional banking system, which serves only about 20% of the population.
"For many people here, the ability to hold and trade money from your phone feels revolutionary. Up until very recently, access to the global economy was restricted for most. Now opportunities that weren't there before are opening up thanks to technology bringing finance to even remote areas”
With an estimated 1.8 million people trading in crypto, the country ranks seventh among nations with the highest holding capacity in Africa.
Crypto Mining in Ethiopia
Source: Freepik
Ethiopia’s abundant hydropower has positioned it as a promising location for crypto mining. Hydropower generates about 90% of Ethiopia's electricity, while the rest comes from wind and thermal sources. With 5,200 MW of installed capacity and the Grand Ethiopia Renaissance Dam adding 5,150 MW, Ethiopia’s energy sector is appealing to Bitcoin miners.
This low-cost energy supply has drawn diverse participants to Bitcoin mining, from small-scale hobbyists to major operations.
China banned crypto trading and mining in 2021 to reduce financial risks and energy use, prompting miners to look elsewhere. In response, Ethiopia signed power deals with 21 mining companies, including 19 from China.
In February, Ethiopian Electric Power reported that two local mining firms had generated over $2 million in foreign currency exports.
Currently, 25 international firms—mainly Chinese—are in various stages of setting up large-scale mining facilities in Ethiopia.
Crypto Law in Ethiopia
Source: Freepik
Crypto remains unrecognized under Ethiopia's current legal framework, with the country's regulatory stance actively discouraging its use. Key proclamations governing the financial sector clarify this position:
National Bank of Ethiopia (NBE) Establishment Proclamation No. 591/2008
The NBE has exclusive authority to coin, print, and circulate Ethiopia’s legal tender, the Birr. No provisions in this proclamation address or include cryptocurrencies. In 2022, the NBE further clarified that using Bitcoin or any digital currency for transactions is illegal, stating that only the Birr is recognized for financial transactions. The NBE also noted that no licensed cryptocurrency exchange exists in Ethiopia, and legal action will follow for those conducting transactions with cryptocurrencies.
Information Network Security Administration (INSA) Proclamation No. 808/2013
This authorizes INSA to regulate cryptographic products. In August 2022, INSA announced that all entities engaged in crypto operations must register within ten days. This notice came as INSA’s mandate was extended to regulate and control cryptographic activities, covering transactions and infrastructure.
National Payment System Proclamation No. 1282/2022
The Proclamation defines payment instruments as tangible or intangible tools tied to the Ethiopian Birr, like electronic money and cards. Cryptocurrencies fall outside this scope, as the law does not recognize digital currencies as valid payment instruments. Article 5 also states that the NBE alone may authorize or license payment instrument issuers or operators.
Ethiopia’s legal framework currently leaves little room for integrating Bitcoin or similar digital currencies into the formal economy.
Crypto Tax in Ethiopia
Source: Freepik
Ethiopia's approach to cryptocurrency taxation is evolving, without dedicated legislation. Instead, guidance comes through interpretations of existing tax laws by the Ethiopian Revenue & Customs Authority (ERCA), which categorizes cryptocurrencies as intangible assets. This classification places digital currencies on the same footing as stocks, bonds, and other investment assets for tax purposes.
Classification of Crypto Tax in Ethiopia
The tax treatment of cryptocurrency transactions in Ethiopia depends on the nature of the transaction.
Buying and Selling
Cryptocurrency sales trigger capital gains tax. The taxable gain is calculated as the difference between the acquisition cost and the selling price. The capital gains tax rate for individuals is 15%.
Mining
Income from cryptocurrency mining is treated as business income and taxed under Ethiopia’s income tax regulations. Rates range from 5% to 30%, depending on the business size.
Goods and Services
When used to buy goods or services, cryptocurrency transactions are taxed as barter exchanges, subject to a 15% value-added tax (VAT).
Legal Framework and Reporting
The taxation of cryptocurrencies in Ethiopia is governed by the following laws and regulations:
- Income Tax Proclamation No. 979/2016, covering income tax from activities like mining.
- VAT Proclamation No. 955/2016, requires VAT on goods and services, including cryptocurrency transactions.
- Directive No. 1/2019, which offers ERCA-specific guidance on taxing cryptocurrencies.
Taxpayers must include cryptocurrency transactions in their tax filings. They must also provide details like transaction dates, types, and amounts.
This framework is a first step to taxing crypto in Ethiopia. Yet further clarification could bring more consistent practices for those involved in cryptocurrency activities in Ethiopia.
Crypto Regulations in Ethiopia
Source: Freepik
Ethiopia’s approach to crypto regulation remains restrictive, with no official legalization of cryptocurrency as a means of exchange. Ethiopia only recognizes the Ethiopian Birr as a legal tender.
The National Bank of Ethiopia (NBE) explicitly prohibits Bitcoin and other digital currencies for transactions and warns of strict penalties for violations. No licensed crypto exchanges are allowed to operate in the country.
The Information Network Security Administration (INSA) on the other hand, oversees activities involving cryptographic products. In 2022, INSA expanded its mandate to regulate crypto and their transactions. INSA required individuals and entities involved in crypto to register for compliance.
Additionally, the National Payment System Proclamation defines payment instruments in traditional terms tied to the Ethiopian Birr, excluding cryptocurrencies from recognized payment options.
These regulations limit cryptocurrency use in Ethiopia and emphasize strict oversight.
Cryptocurrency Usage in Ethiopia
Source: Freepik
Despite the regulatory uncertainty, a growing number of Ethiopians are exploring cryptocurrency for various purposes. They include:
Remittances
A significant portion of the Ethiopian diaspora sends remittances back home. Crypto offers a faster, cheaper, and more secure alternative for them compared to traditional methods.
Peer-to-Peer Transactions
Young Ethiopians use Cryptocurrencies to facilitate peer-to-peer transactions. Thereby bypassing traditional financial institutions and reducing transaction fees.
Investment
Some Ethiopian investors view crypto as an alternative to traditional investments, given their local financial limitations. These individuals are investing in cryptocurrencies as a hedge against inflation and economic instability.
Online purchases
Although minimal, some Ethiopians use crypto for online transactions, especially where traditional banking options are unavailable.
Challenges of Crypto Adoption in Ethiopia
Source: Freepik
Crypto adoption in Ethiopia faces many challenges. Some of these challenges include:
Regulatory Uncertainty
The absence of crypto-specific laws leaves users and businesses in a gray area, with little guidance on what activities are allowed. This has created a challenging environment for businesses and individuals involved in crypto activities.
Lack of Awareness
Most of the population in Ethiopia is unfamiliar with cryptocurrencies. Misconceptions about cryptocurrencies also persist, with many associating them with scams or criminal activity. The lack of awareness and understanding about cryptocurrencies has hindered widespread adoption in Ethiopia.
Infrastructure
Mobile internet costs remain high in Ethiopia and rural areas have minimal digital infrastructure. This makes crypto transactions expensive for everyday users and limits how individuals and businesses can adopt crypto.
Security Concerns
The absence of regulatory protections heightens security risks for Crypto users in Ethiopia. These users may face issues like hacking, scams, and fraud due to limited legal protection. Without any legal recourse or reliable options for fund recovery, Ethiopians may hesitate to adopt crypto.
Exchange Barriers
The lack of local exchanges in Ethiopia means users must navigate complex processes to use international platforms. Many Ethiopians lack the financial knowledge to navigate international platforms. This makes crypto adoption challenging for the average Ethiopian user.
Benefits of the Adoption of Crypto in Ethiopia
Source: Freepik
Crypto adoption offers significant benefits for Ethiopia. Here are some of the benefits that Ethiopia could gain from adopting crypto:
Financial Inclusion
Roughly 65% of Ethiopians are unbanked. Crypto provides an alternative financial system without traditional banking infrastructure. This opens access to financial services for those in rural and underserved areas, enabling more people to participate in the economy.
Faster and Cheaper Remittance
Ethiopia relies heavily on remittances, which contribute significantly to its GDP. Crypto presents a viable alternative for remittances Crypto can lower transaction fees and processing times, making remittance flows more efficient and affordable.
Reduced Inflation Risks
Ethiopia has seen periods of high inflation, which erodes purchasing power. Cryptocurrencies with a capped supply, like Bitcoin, can act as a hedge against inflation, preserving wealth over time.
Economic Growth
Ethiopia has a young population eager to engage in the digital economy. Crypto-friendly policies could foster innovation and attract foreign investors interested in developing infrastructure. This could create new jobs and increase economic opportunities.
Potential Trends in Ethiopia's Crypto Industry
Looking ahead, Ethiopia has several opportunities to expand its role in the crypto sector. Key developments may include regulated local exchanges, KYC-compliant platforms, and crypto payment options for merchants.
The National Bank of Ethiopia (NBE) is also exploring the implementation of a central bank digital currency (CBDC). This project started in June 2024 and it is led by a macroeconomic team involving NBE regulators and officials from the Ministries of Finance, Planning, and Development. This initiative aligns with Ethiopia’s Homegrown Economic Reform Agenda and will span three years.
Conclusion
Ethiopia stands at a critical juncture in its approach to cryptocurrency. While the government has imposed restrictions, the surge in public interest and participation indicates a demand for more accessible financial solutions.
The potential benefits of crypto—such as improved financial inclusion, streamlined remittances, and economic growth—highlight the need for a balanced regulatory framework.
By acknowledging the realities of digital currency and fostering innovation, Ethiopia can harness the power of cryptocurrency to create a more inclusive and resilient economy.
The ongoing exploration of a central bank digital currency (CBDC) could further reshape the financial landscape, positioning the country for future growth in the digital economy.
