Nigeria’s cryptocurrency market is very vibrant and complicated. Nigeria as a global leader in Bitcoin trading, has also reflected a lack of confidence in the established system and a need for alternate revenue streams and forms of money.
This was evident as the Nigerian government outlawed cryptocurrency trading and ordered banks to suspend any accounts that were thought to be involved in the activity. Many cryptocurrency lovers and investors in the nation now face difficulties and uncertainty as a result of this.
The following are a few of the elements that have influenced Nigeria’s high rate of cryptocurrency adoption:
– High inflation and currency devaluation: Since 1973, the naira has lost 10.6% of its value annually on average, and Nigeria’s economy has been beset by high inflation, which reached a 17-year high of 20.8% in 2020. Numerous Nigerians have seen their savings and purchasing power diminished as a result, and many have resorted to cryptocurrencies as a hedge against inflation and currency swings.
– Lack of access to formal financial services: In 2017, just 39.7% of Nigerian adults possessed an account with a financial institution or a mobile money provider, according to the World Bank. This implies that there are few opportunities for saving, investing, and money transfers for the large number of Nigerians who are shut out of the official financial system. Considering that all you need to utilise cryptocurrencies is a smartphone and an internet connection, they provide a more inclusive and accessible option.
– Remittances and cross-border payments: With $24.3 billion in remittances received in 2018, Nigeria is Africa’s top recipient. However, because traditional payment methods frequently apply stringent regulations and levy exorbitant fees, sending and receiving money across borders can be expensive and time-consuming. Because cryptocurrencies cut out middlemen and transaction fees, they make remittances easier and more affordable.
– Innovation and entrepreneurship: The tech sector in Nigeria is thriving and expanding, and the country is home to a large number of young, gifted entrepreneurs who are creating cutting-edge solutions with blockchain and cryptocurrencies. A few instances of Nigerian cryptocurrency businesses are Quidax, an exchange that lets users trade different cryptocurrencies with naira, Bundle, a social payments software that accepts both fiat and cryptocurrency, and BuyCoins, a platform that lets users purchase and sell cryptocurrencies using naira.
Chief executive officer of Arvofinance, Ayotunde Bally, speaking with the media during the festive season, expressed optimism about the lifting of the ban on cryptocurrency trading in Nigeria. He said the action has increased the potential of crypto to boost the economy and offer financial opportunities.
Bally said, “This reversal aligns with my belief that embracing such technologies can benefit Nigerians. “The new policy has the potential to provide economic growth, offering citizens more financial opportunities.”
Read also: The Explosive Growth of Blockchain Funding and Cryptocurrency in Africa
Challenges of Cryptocurrency Adoption in Nigeria
Nigeria has a high rate of adoption of cryptocurrencies. However, there are still hazards and obstacles in the market, including:
– Uncertainty and animosity surrounding regulations: In February 2021, the Central Bank of Nigeria (CBN) published a circular that forbade banks and other financial institutions from assisting cryptocurrency transactions and mandated that they terminate the accounts of cryptocurrency users. The CBN justified the prohibition by citing worries about consumer protection, terrorism financing, and money laundering. Many crypto users and experts, however, criticised the ban, claiming it would hinder innovation, force crypto activities underground, and deny the nation the benefits of the burgeoning technology. They called it arbitrary, ignorant, and unhelpful.
– Insufficient knowledge and education: Although cryptocurrencies are becoming more and more popular, many Nigerians still do not have a sufficient grasp of the technology or its ramifications. They may become targets of frauds, scams, and cyberattacks in addition to tax and legal problems as a result. To empower and educate Nigerians on the advantages and disadvantages of cryptocurrency, as well as the best practices and security precautions to take, there is a need for more awareness and education efforts.
– Infrastructure and connectivity problems: Nigeria continues to have problems with stable power supplies, internet access, and internet quality. The World Bank estimates that in 2019, 42.9% of people had internet connection and that in terms of average internet speed, the country ranked 176th out of 207 with 1.56 Mbps. Furthermore, Nigeria frequently has blackouts and power outages, which can interfere with cryptocurrency operations and transactions. These problems may restrict cryptocurrency’s potential and uptake in the nation.
The crypto community in Nigeria is also strong and adaptable; they manage to get around the prohibition and carry on with their operations. Among the tactics that cryptocurrency users have used are:
– Making use of peer-to-peer (P2P) systems: P2P networks let users trade cryptocurrency with one another directly, bypassing banks and other middlemen. In Nigeria, a few well-known P2P systems are Binance P2P, LocalBitcoins, and Paxful. Users can trade cryptocurrency with naira or other fiat currencies on these platforms, along with alternative payment options, including gift cards, mobile money, and bank transfers.
– Making use of decentralised exchanges (DEXs): DEXs are online marketplaces where users can transact in cryptocurrencies without going through a middleman or centralised organisation. Smart contracts and blockchain technology are employed by DEXs to enable user-executed transactions. A few of the DEXs that are well-liked in Nigeria are 1 inch, SushiSwap, and Uniswap. Through these platforms, users can trade cryptocurrency with other cryptocurrencies without the use of banks or fiat money.
– Making use of VPNs and proxies: These are technologies that let users browse the internet safely and anonymously by encrypting their data and masking their IP address and location. To access cryptocurrency platforms and services that are barred or limited by the government or ISPs, some Nigerian cryptocurrency users make use of VPNs and proxies. Nevertheless, there are certain hazards associated with this strategy, including the potential for users to be exposed to malware, phishing, and hacking, as well as potential violations of platform and service terms and conditions.
Nigeria’s current cryptocurrency situation reflects both the hopes and potentials of the nation as well as its economic and social reality. Nigerians can now take advantage of the potential and challenges of the twenty-first century by using cryptocurrencies to engage in the global digital economy. But there are risks and difficulties associated with cryptocurrencies as well, which call for increased awareness, instruction, and regulation.
Benefits and uses of Cryptocurrency
To fully understand the risks involved, there is a need to ask ‘What is cryptocurrency and its possible uses?”
Cryptocurrency provides security using cryptography. Bitcoin is decentralised, unlike central bank-issued currencies. The secure and transparent blockchain public ledger records transactions.
Cryptocurrency transactions are fast and cheap, frequently with lower rates than bank transfers. The method has no intermediaries.
Higher accessibility: Anyone with an internet connection can utilise cryptocurrencies, regardless of geography or financial position. People in countries without typical financial services may benefit from this.
Security: Cryptocurrency transactions using cryptography are very resistant to fraud and counterfeiting. The blockchain records all transactions transparently, preventing money laundering and other crimes.
Portability: Individuals and businesses worldwide can transfer cryptocurrency. It makes international money transfers easy.
Protection against inflation: Some cryptocurrencies, in contrast to traditional currencies, have a limited supply, which may help to maintain their value over time. Traditional currencies are susceptible to inflation.
Cryptocurrency Uses
Payments: Cryptocurrency can be used to pay for goods and services from a growing number of merchants worldwide.
Investments: Although cryptocurrency has the potential to yield significant returns, it can also be a volatile investment.
Store of value: Some people believe that cryptocurrency can be a good store of value, similar to gold or other precious metals.
Cross-border payments: Cryptocurrency allows fast, cheap international money transfers without banks.
Donations: You can use cryptocurrency to make donations to nonprofits and other organisations.
What Nigerians think about crypto
While trading crypto was banned in Nigeria, a Facebook user named ‘Tosin Adeoti’ in 2021 shared a report that confirms that traders found alternatives to trading, such as:
– Utilising peer-to-peer crypto marketplaces, which enables users to purchase BTC from other people online using cash.
– Hopping the border (e.g. with a VPN) and purchasing in a country where it’s legal.
– Some major crypto exchanges, like Binance, allow users to exchange local currency for cryptocurrency, but not vice versa.
Now that the ban has been lifted, dedicated traders can now confidently utilise this freedom.
Reacting to the Federal Government’s intention to convert funds in domiciliary accounts to naira, a user on X who goes by FAGalileo fears Nigeria might become another Lebanon or Venezuela. These two countries are known to have gross devaluation in their currency, causing poverty to skyrocket.
He tweeted: “If you have FX in your domiciliary account in Nigeria, now is a good time to pull it out and save it in crypto. These mad people in Abuja are intent on turning Nigeria into Lebanon and Venezuela. They want to sink everyone deliberately into crippling poverty. Pull your money out.”
On Saturday, February 3, 2024, a foreign investor on X, who goes by LynAldenContact, remarked on Nigerians’ excellence, resilience and competitiveness in the trading space.
She tweeted: “Nigeria has one of the highest bitcoin/crypto adoption rates in the world. They’ve adopted it vastly faster than their centralised devaluing CBDC.”
This is following the fitting of the ban and in a period when the Nigerian Naira is not performing well. The latter is likely the push which caused the adoption in Nigeria.
The Future of Crypto in Nigeria
The future of cryptocurrency in Nigeria and Africa cannot be overemphasised as there are endless possibilities. Crypto expert John Gospel highlighted that crypto would expand in leaps and bounds in the near future.
According to Gospel, “The crypto market size could grow by 10X by 2026, as individuals and institutions embrace these particular use cases, especially in emerging markets. With the internet and mobile access spreading across Nigeria, Ghana, Kenya and South Africa, these nations are poised to lead Africa’s crypto explosion.”
He added that decentralised finance presents a massive potential for financial inclusion of the unbanked rights, with major banks and even central banks across Africa investing in crypto innovations like stable coins and Cbdcs.
He explained that “the inevitable next wave of finance, thoughtful regulations and investments now can actually help Nigeria and Africa right the momentum to drive economic growth and empower more people through the use of cryptocurrency.
Contributors:
Hauwa Ali, Olalere modupe, Felicia Akindurodoye, Ibukun Bankole
