The Future of Cryptocurrency in Nigeria.
Is there hope for cryptocurrency in Nigeria?
Cryptocurrency, short for crypto, refers to a digital method of payment that operates independently from central authorities such as banks or governments for transaction verification. Instead, it relies on cryptography to ensure secure transactions.
It functions as a decentralized system, enabling individuals from any location to send and receive payments without the involvement of traditional intermediaries like banks. It's important to note that cryptocurrency does not physically exist and is not necessarily issued by a central authority.
To store and secure cryptocurrency transactions, a digital wallet is used, and all transactions are recorded in a distributed public ledger known as the blockchain.
Examples of cryptocurrencies include Bitcoin (the first and most widely traded crypto), Ethereum, Litecoin, and Ripple.
By the end of this paper, you will:
Gain a comprehensive understanding of cryptocurrency.
Familiarize yourself with at least four other forms of currency aside from cryptocurrency.
Acquire insights into the government's stance on cryptocurrency and the challenges of its full adoption in Nigeria.
Discover at least eight real-world use cases of cryptocurrency.
Gain an understanding of what the future holds for cryptocurrency in Nigeria.
A Review of the Other kinds of Currencies that exist.
In addition to exploring cryptocurrency as a form of digital money, it is crucial to understand the various other types of money and their points of differentiation. This section will examine four significant types of money:
The first type is Fiat Money. Fiat currency is declared as a legal tender by a government but lacks any intrinsic value and is not backed by tangible commodities such as silver or gold. The value of fiat money is determined by the issuing government, which also has exclusive control over its supply.
The second currency on our list is Paper Money, also known as banknotes or notes. It is the official currency of a country, taking the form of printed banknotes that carry a specific value. Paper money is used for transactions, such as purchasing goods and services, within that particular country. It is typically issued by the country's central bank, which also regulates its printing and related activities.
Next, let's examine coins, which are small, flat, and round objects primarily used as a legal tender or medium of exchange. They have standardized weights and are often issued by the government. The front side of a coin is commonly referred to as "heads" because it often features the depiction of a prominent person, while the back side is popularly known as "tails." It's important to note that in Nigeria, coins are no longer recognized as a legal tender.
Lastly, we have Commercial Bank Money, which refers to funds held in demand accounts in commercial banks. It simply represents the money you have in the bank that you can withdraw at any time. For instance, when you check your account balance using a USSD code or your mobile banking app, the displayed amount is considered commercial bank money. Interestingly, in the present time and in most countries, this type of money constitutes the majority of the money supply.
These are the four major types of money, excluding digital money, which includes cryptocurrency, as well as two others: Virtual Money and Central Bank Digital Currency (CBDC)
Among the three digital currencies, Cryptocurrency stands out as the most popular, and many developed countries have made it legal for use. However, is that the case in Nigeria?
None of the aforementioned currencies use cryptography, which is what distinguishes cryptocurrency. Even with its distinct features and numerous beneficial use cases, how many countries recognize it as a legal tender? And how receptive are people to its usage?
Cryptocurrencies have been closely monitored by both the Nigerian government and citizens to assess their real-world use cases. Due to the unique qualities associated with cryptocurrencies, such as their complexity, cryptic nature, and susceptibility to scams, cryptocurrencies have faced significant backlash in Nigeria. However, they have also piqued the interest of tech-savvy youth, particularly in 2020, who are intrigued by cryptocurrency and blockchain. But does this mean that cryptocurrency is legal in Nigeria? No.
The legal status of cryptocurrencies in Nigeria remains ambiguous. While there are crypto-related companies operating in the country, there is no legal framework confirming the use of cryptocurrencies as a legal tender. Neither are there any crypto laws, provisions, or legal acts criminalizing their use. At the same time, there is currently no explicit ban on cryptocurrencies like in other countries. It is worth noting, however, that the Central Bank of Nigeria previously imposed a complete ban on cryptocurrency and its activities.
Let's examine the government's stance on cryptocurrency with the major updates below:
Read more about the eNaira
Read more about the National Blockchain policy
The most recent development signifies that the government acknowledges the importance of blockchain technology in the economy. They envision a policy that can facilitate a "Blockchain-powered economy" supporting secure transactions, data sharing, and value exchange among people, businesses, and the government. This is expected to foster innovation, trust, growth, and prosperity for all. The reception of this recent development has been positive, as it suggests that the government is reconsidering its stance on certain technology positions.
However, it is crucial to note that cryptocurrency remains banned. This creates an intriguing situation where the country approves a blockchain policy while not accepting cryptocurrency, which currently represents one of the most prominent use cases of blockchain technology. The National Blockchain Adoption Strategy explains more about it.
With the current situation in Nigeria, let's explore some existing use cases of cryptocurrency and its potential benefits if fully adopted in the Nigerian economy.
Payment for goods and services: Bitcoin and other cryptocurrencies are already being used for payment transactions, both physically and virtually. Nigerian stores such as Regal Flowers, CloudSMS, GigaLayer, and Minku Atelier now accept cryptocurrencies for goods and services. If fully adopted, there is a possibility of its expansion to other organizations and sectors, leading to increased usage for various transactions.
Private transactions: Cryptocurrency allows for anonymous financial transactions, which can be advantageous in certain situations where individuals prefer privacy. With cryptocurrency, money transfers can be conducted without involving a commercial bank or having to explain the reason behind large sum transfers.
Travel purposes: Since the launch of cryptocurrencies in 2009 and their subsequent growth, travel agents have started accepting Bitcoin and other cryptocurrencies as payment for travel expenses such as flight bookings, hotel reservations, and car rentals. Additionally, travelers can convert their cryptocurrencies into local currency accepted in the destination city. This option is convenient for individuals who prefer not to carry physical money.
Wealth storage: Cryptocurrencies can be used as a means of storing wealth, similar to physical money. Unlike the risk of frozen or hacked bank accounts, cryptocurrencies stored in a digital wallet can only be accessed by the individual with the private keys.
Other use cases include:
Crypto staking: This method allows individuals to earn passive income from their cryptocurrency assets. Staking is possible based on a proof-of-stake consensus mechanism, and several cryptocurrencies offer this option:
• Ethereum (ETH]
• Solana [SOL]
• Cardano [ADA]
• Avalanche [AVAX]
• Luna [LUNA]
• Polkadot [DOT]
6. Asset Tokenization
7. Crypto gaming
8. Non-Fungible Tokens {NFTs}
Please note that these use cases highlight the potential benefits of cryptocurrency adoption, but it is important to consider the specific risks and regulatory factors associated with cryptocurrencies in Nigeria.
No doubt, the use case for cryptocurrencies will continue to increase and evolve over time. Currently, only two countries have officially recognized Bitcoin as legal tender: El Salvador in 2021 and the Central African Republic in 2022.
However, other countries like the U.S, Israel, Canada, and Australia consider cryptocurrencies as digital assets and have legislation governing their use. Additionally, countries such as India, Japan, Mexico, Singapore, Saudi Arabia, and the UAE allow for the free use of cryptocurrencies. Unfortunately, Nigeria is not yet included in the list of countries where cryptocurrencies can be used freely, which raises questions about whether it will ever be considered as legal tender in Nigeria.
Some experts in the tech space believe that the government's new policy on blockchain may indicate that the country is moving towards fully accepting cryptocurrencies. Many of us hope that this is the case because the world is rapidly embracing digital currencies, and Nigeria should not be left behind. The use cases for cryptocurrencies have far-reaching impacts that we should not miss out on.
At the time this article was written, the use of cryptocurrencies in Nigeria was not sustainable due to the lack of legal backing, and it is advisable not to be overly optimistic about its legality considering the past resistance it has faced. However, the development of the eNaira and the new blockchain policy provide a glimmer of hope for a bright future for cryptocurrencies in Nigeria. While the journey ahead may not be easy, there is a possibility that cryptocurrencies will be legalized someday.
WRITTEN BY OLUWAPELUMI ORESANYA.
Notable References:
https://www.kaspersky.com/resource-center/definitions/what-is-cryptocurrency
https://www.nigeriabitcoincommunity.com/nigeria-bitcoin-stores/#sto1