A Simplified Explanation About The Cryptocurrency Saga In Nigeria.
It is no longer news that there is a recent dilemma about cryptocurrency in Nigeria. A circular sent to commercial banks and other financial institutions by the Central Bank of Nigeria (CBN) took over the internet in the mid-hours of the 5th of February, 2021. Nigerians have since then expressed their displeasure about the news and as expected, moved on as well.
What is a cryptocurrency, though?
A cryptocurrency is a form of payment that can be exchanged online for goods and services. It is otherwise known as digital or virtual currency. Today, many companies issue their currency, often called tokens, and these can be traded specifically for the good or service that the company provides. Cryptocurrencies work using a technology called the blockchain.
Now, what is blockchain, right?
Blockchain is a decentralized technology spread across many computers that manage and record transactions. To be decentralized means (it is controlled by several local offices or authorities rather than a single one). A defining feature of this technology is its security; it is theoretically immune to government interference or manipulation, which is such a significant advantage.
Types of Cryptocurrencies
There are a lot of cryptocurrencies traded publicly. Here are the five common ones.
- Bitcoin
- Litecoin
- Ethereum
- Ripple
- Dogecoin
With the emergence of bitcoin (the most sought-after cryptocurrency), there has been an ongoing awareness of Nigeria’s crypto space. This popularity dates back to 2017 when the value of a bitcoin skyrocketed from $900 to $20,000 (Such growth! Why won’t it be the talk of the town?)
Why is cryptocurrency now popular?
Yea, cryptocurrencies are virtual currencies, but they have a lot of worth, which explains the level of awareness and interest drawn to them, especially in countries with weak official currencies. Here are a few points to explain the demand for cryptocurrency.
1. Very affordable money transfers:
One of the most well-known uses of cryptocurrency is sending and receiving payments at low rates and fast speed irrespective of location. Across-border transactions only take a few minutes and a few fees compared to transactions through financial institutions, which costs more and takes time.
2. A reliable store of wealth:
(Yes, you read right) with cryptocurrency, people can store wealth without being poked by authorities. The system is well encrypted to the extent that an account can’t be frozen because no one can access a bitcoin wallet except the owner (Using bitcoin as an example). Blockchain technology enables this effect.
3. Wide options of investments:
The emergence of startups gives rise to many possibilities; digital token-based fundraising makes it easier for anyone with access to the internet to invest. Cryptocurrency provides opportunities to a larger spectrum of investors; this was quite impossible a few years ago.
4. For non-cash remittances:
Utility bill payments, mobile data top-ups, and so on are transactions that are much easier through cryptocurrency from anywhere in the world. Remember, global recognition and opportunities are the recent trends currently, and the crypto space provides that.
5. Payment through content creation:
You can check out Steemit; if you are in this category, it is a social media platform that enables publishers to receive financial rewards in the form of cryptocurrency for putting up content.
6. Security:
Many are into cryptocurrency because of its secured and untraceable capabilities. There is no interference; the only person that can access an account is the owner (amazing, yea?). In the crypto space, your money is your money. You own and manage it all.
7. Accessibility:
We have over two billion people in the world with access to the internet. One of the perks of cryptocurrency is the global connection. One can trade or access anyone from a different continent entirely. This vast availability of people also strengthens the crypto market because it widens the scope of trading.
The cons of cryptocurrency
There are two sides to a coin, the head and the tail. Cryptocurrency also has its opposing ends, just as it has the positive. A few of them are;
- Illegal transactions:
Since every transaction in the crypto space is private and highly secured, it is also hard to track down any user by his/her wallet address. This means illicit transactions are also safe from law enforcement because it is impossible to recognize and identify transactions.
2. Decentralized but operated by some organizations:
Though the crypto space is known for its decentralized feature, certain organizations still control its operation. These organizers can manipulate the coins for considerable swings in their price. It is a point that has to be put into consideration.
3. No refund policy:
If any user loses the private key to their wallet, there is no getting it back, and such wallet will remain locked along with the number of coins in it. (This should remind you of the IOS lock system) which results in a financial loss for the user. Also, funds sent to the wrong address cannot be retrieved by the sender. This is a pain no one wants to experience.
What is that straw that broke the camel’s back?
In every silver lining, a dark cloud is always present. As business owners jump on this virtual currency, definitely individuals with ulterior motives will do the same. (That is normal, isn’t it?)
CBN stated that their action was only a reiteration of the letter put out in 2017, which expressed their concerns about cryptocurrency and how risky it is for citizens. The sudden expansion of the crypto market indeed surprised CBN, as large corporations began to buy bitcoins and invest in crypto-related startups. This reaction instigated the harsh instructions given by the Central bank.
Without prior notice, CBN’s current directive states that, henceforth, dealing in cryptocurrency, is prohibited. All commercial banks and financial institutions are to identify and close accounts of anyone involved in cryptocurrency exchange.
The Central Bank of Nigeria claims cryptocurrency is a means to launder money and fund terrorism (Don’t you wonder how this news came to be, since currencies are not trackable).
When this article is being written, a bitcoin’s current rate is 47,000 US dollars, and this currency was worth 3 cents in 2009. (You can imagine!)
What does this directive mean?
It simply means:
- Individuals and exchanges will no longer engage in transactions using a Nigeria bank account.
- Exchanges have to find alternative means to store money.
- Startups and their investors are now in a tight spot.
What are the implications of this ban?
The Central bank of Nigeria has caused chaos amongst its citizens. No prior notice, no concern about the loss of people’s money, no regard for human feelings.
The ban’s short-term effect is the immediate desperation unleashed on crypto dealers and traders in the country. This is so because people will indeed find other means to continue their trade. Many people have invested in cryptocurrency, a lot of startups have built a name for themselves through cryptocurrency, so there would be a rushing need to get their money or keep earning money.
A long-term implication is the effect of this directive on the economy. A platform that was easily accessed by all is now one where people scurry in corners to access (somewhat like the black market). This would later have a ripple effect on final consumers (general masses) who need to get goods and services in the local market because the price of goods and services will increase as money becomes scarce.
Why did CBN react this way?
You should know that as more people buy crypto-assets, more US dollars leave the country, and CBN doesn’t want this.
The fact that the crypto space is also a hard one to control and regulate also aided this reaction from the Central Bank of Nigeria. They cannot impose a tax, nor can funds be accessed. (It is a tough nut to crack).
What CBN should have done
The truth is that cryptocurrency is not an easy market to understand. One needs to clarify many things, understand some basic things, and ask many questions before venturing into it; else, the outcome can be drastic. The actions of the Central Bank of Nigeria displayed a lack of information or misinformation about cryptocurrency.
Instead of outrightly placing a ban, CBN should have adopted this new space intelligently; they could have invested significant resources and time to understand the numerous opportunities and the cons present in cryptocurrency.
Another thing is to create monitoring regulations or introduce policies to manage and curtail the excesses present in cryptocurrency. Placing a ban is equal to saying, “we don’t want this at all, leave our country!” and technology is advancing daily. Nigeria ought to do better; the government ought to do better.
(They should have been proactive, not reactive).
What Nigerians are saying
In a country where technology and the citizens have advanced more than what the monetary, fiscal policies are offering, you can only imagine the effects of such an announcement in society.
The response gotten are categorized into three:
The first set of people are happy about the news (which makes their ignorance obvious, they don’t understand anything about cryptocurrency). They see it as a scam and are so grateful that CBN banned it.
The other category of people most affected by this are the crypto dealers and traders, the business owners and investors; they are frustrated and depressed. To them, Nigeria does not want to progress. Her government keeps cutting short every innovation that helps solve problems. It is more like the government doesn’t want anything good for its citizens.
The last set of responses lean towards the End-Sars protest. Many say the government did this to avoid repeating what transpired when people donated funds through bitcoins to aid the protest.
Nigerians are tough, it is expected that they would wriggle their way out of this, but that doesn’t change things. Cryptocurrency isn’t a hoax; one just needs to be open-minded to enjoy its benefits. Many have become independently wealthy from this, not in Nigeria alone but across the globe. The likes of Elon Musk have also invested heavily into it. However, we have countries like India, Nepal that placed a ban on it too.
We still have a bulk of countries trading and exploring the crypto space. It hasn’t been accepted as a legal tender globally, but many believe it is the future of financial transactions.
What is your own thought about this?
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