Cryptocurrency is a digital payment system that does not depend on banks for transaction verification. It’s a peer-to-peer system that allows anyone, anywhere, to send and receive payments. Rather than being physical money that’s carried and exchanged in the real world, cryptocurrency payments are merely digital entries in an online database that detail specific transactions. When transferring cryptocurrency funds, the transactions are documented in a public ledger. Cryptocurrencies are kept in digital wallets.
Cryptocurrency received its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and public ledgers. Encryption aims to provide security and safety.
The first cryptocurrency was Bitcoin, founded in 2009, and is the best-known today. Many people are interested in cryptocurrencies to trade for profit, with speculators sometimes driving prices skyward.
Nigeria is embracing cryptocurrency, with increasing adoption fueled by economic instability and limited access to traditional banking. The Central Bank’s restrictions on crypto transactions have not deterred Nigerians, who turn to Bitcoin and other digital currencies for remittances, savings, and investment opportunities, signalling a shift towards decentralised finance.
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Nigeria, in particular, stands out with a staggering 66.78% share in crypto interest, followed by South Africa (8.36%), Morocco (5.43%), and Ghana (5.24%).
In fact, according to ChainAnalysis Global Crypto Adoption Index 2023, Nigeria ranks second across the globe in crypto adoption.
This top position is driven by the widespread use of digital currencies for remittances, savings, and investments, fueled by economic challenges and limited access to traditional banking. Despite the Central Bank of Nigeria‘s restrictions, Nigerians continue to embrace cryptocurrencies, leveraging peer-to-peer platforms to bypass banking barriers. The country’s high adoption rate reflects a growing trust in decentralised finance solutions and a proactive youth population eager to explore new financial technologies, solidifying Nigeria’s status as a key player in Africa’s evolving crypto landscape.
The primary reasons for the Nigerian government’s crackdown on cryptocurrencies are diverse, stemming from a need to reduce the risks linked to the growing digital asset sector.
The government has raised concerns over the potential misuse of cryptocurrencies in illegal activities, such as money laundering and terrorism financing. The anonymous and transnational characteristics of cryptocurrency transactions pose significant challenges for regulatory monitoring and control.
With a history of battling cybercrime, the Nigerian authorities worry that the cryptocurrency environment may facilitate fraudulent operations and other illegal acts. The swift expansion of the cryptocurrency market has intensified these worries, leading to a more proactive approach by the government.
The government has also accused the crypto industry of contributing to the depreciation of the Nigerian Naira, the country’s national currency. The volatility and speculative nature of digital assets have been perceived as a threat to the stability of the country’s financial system.
Why Is Nigeria’s Approach to Crypto Regulation Unclear?
The Nigerian government’s approach to the need for cryptocurrency regulation has been inconsistent and unclear. In 2021, the Central Bank of Nigeria (CBN) issued a directive prohibiting banks and other financial institutions from facilitating crypto transactions, only to later lift the restriction and engage in discussions about potential cryptocurrency licenses.
This back-and-forth has created uncertainty, leaving both businesses and consumers in limbo.
The Central Bank of Nigeria (CBN) clampdown has intensified regulatory scrutiny of the cryptocurrency industry. In response to the directive, financial institutions are now mandated to actively identify and report customers involved in cryptocurrency activities.
This heightened surveillance has increased the compliance burden on banks and raised concerns among crypto investors and enthusiasts about the privacy and security of their financial transactions. The move has deepened the divide between regulators seeking to curb perceived risks associated with cryptocurrencies and stakeholders advocating for a more balanced and inclusive approach to digital asset regulation in Nigeria.
The Impact on Financial Inclusion and Innovation
Proponents of the crypto industry argue that the government’s actions could undermine the country’s efforts to promote financial inclusion and technological advancement. Cryptocurrencies have emerged as a viable alternative for the unbanked and underserved populations, providing them with access to financial services and opportunities for wealth creation.
Moreover, the crypto ecosystem has fostered a vibrant community of entrepreneurs and innovators who have been exploring the potential of blockchain technology to address various challenges, from cross-border payments to supply chain management. They argue that the crackdown could stifle this burgeoning ecosystem and hinder Nigeria’s aspirations to become a hub for technological innovation.
As the debate over the future of cryptocurrencies in Nigeria continues, there is a growing call for a more nuanced and collaborative approach to regulation. The government should engage with the crypto industry to understand its complexities and develop a regulatory framework that addresses legitimate concerns while fostering an environment conducive to innovation.
The appointment of Mairiga Aliyu Katuka, the new Chairman of the Securities and Exchange Commission, who has a pro-crypto history, has been seen as a positive step in this direction. However, Nigerians expect the government to demonstrate a clear and consistent commitment to balancing financial stability and technological progress, ensuring that Nigeria’s digital future is not sacrificed in the name of short-term control.
Federal Government’s Concern on the Legitimacy of Cryptocurrency in Nigeria
The federal government of Nigeria is worried about cryptocurrencies because of problems with security, regulatory compliance, and financial stability. Because they are decentralised, cryptocurrencies function outside the established financial system, making regulation difficult. This prompt worries about their possible application in illegal operations, including tax evasion, money laundering, and terrorism financing. Moreover, investors face dangers due to the extreme volatility of cryptocurrencies, which have the potential to destabilise the economy if large quantities of capital move in and out at unpredictable times.
The Impact of Crypto Clamp Down on Average Nigerian
A crackdown on cryptocurrency trade might greatly impact the typical Nigerian since many have turned to virtual currencies as a safety net against inflation and unstable economies. Since the value of the Naira has declined, cryptocurrencies have provided a means of preserving money and doing international business. Limiting access to these digital assets may result in fewer economic prospects and worsen financial difficulties for individuals who depend on them for savings and income.
The Effect Of Speculation On Naira’s Strength
Currency speculation impacts the Naira’s value since it inflates supply and demand. Large-scale foreign exchange purchases by speculators increase the demand for foreign currency and decrease the demand for the Naira, devaluing the latter. This might lead to increased import prices and inflation, which would further reduce the Naira’s buying power and affect the economy as a whole.
How the Nigerian Government Can Handle Cryptocurrency
The Nigerian government can manage cryptocurrency through:
Regulating: Put in place transparent standards and laws for the buying, selling, and investing of cryptocurrencies.
Licences: Make it mandatory for cryptocurrency businesses to secure licences to conduct business in Nigeria.
The government ought to impose taxes on Bitcoin sales and profits. Additionally, it is crucial to enhance public knowledge about cryptocurrency by highlighting both its benefits and drawbacks.
Money-laundering prevention and know-your-customer rules: Enact anti-money-laundering and know-your-customer policies to forestall illegal actions.
Working with international organisations: Stay informed about best practices and tackle cross-border issues by collaborating with global bodies.
Supporting innovation centres dedicated to blockchain technology and cryptocurrencies can boost economic growth. The creation of a national cryptocurrency, like a central bank digital currency (CBDC), could promote financial inclusion and stability. Regular monitoring and strict enforcement of regulations are crucial to prevent fraud and illegal activities in cryptocurrency transactions.
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Promoting openness: Make it mandatory for cryptocurrency companies to reveal their financial dealings and operations.
A balanced approach by the Nigerian government could harness the advantages of cryptocurrency while protecting its citizens. This would lead to a more robust financial system and promote innovation and economic growth.
The apprehension surrounding cryptocurrencies in Nigeria is multifaceted, with diverse opinions prevalent. Government and financial institutions perceive cryptocurrencies as a risk to economic security and the established financial systems.
However, most people are confused and afraid of digital currencies because they come with many risks. Even though people are worried about these things, the use and interest in cryptocurrency are still growing. This is because young people who are good with technology want to try new ways to make money.
A well-known expert on financial technology, Dr Adebayo Adeniyi, says, “The key to addressing these fears lies in comprehensive education and strong regulatory frameworks.” Nigeria can use digital currencies to grow its economy by ensuring that the public and financial institutions know about the pros and cons of these digital currencies and putting in place rules that protect users without blocking new ideas.
Nigeria’s approach to cryptocurrencies should balance regulation and innovation. By fostering dialogue between the public, officials, and the crypto community and establishing robust risk management systems, Nigeria can leverage cryptocurrencies’ full economic potential.
If the proper measures are implemented, this shift in perspective can transform Nigeria’s fear of cryptocurrencies into a catalyst for financial equality and technological advancement.
Contributors: Modupe Olalere, Felicia Akindurodoye, Ibukun Bankole, Hauwa Ali, Temitayo Olumofe, Olanrewaju Adeniyi
