According to a survey by KuCoin, 65% of Nigerian investors now use peer-to-peer trading to deposit fiat into cryptocurrencies. This is despite the Central Bank of Nigeria banning banks from enabling crypto transactions in February 2021. The survey also shows that the total number of monthly transactions made across Africa increased by 1,386.7% during the same period, and the number of active users increased by 2,467.2%.
Private sector’s role in speeding up the adoption of crypto
The government has taken a cautious stance on crypto, but recent changes have signaled a softening stance. The latest rules require entities wanting to launch initial digital asset offerings (ICOs) to submit a white paper that the Securities and Exchange Commission will evaluate. They also need cryptocurrency exchanges to have paid-up capital of at least 500 million nairas. This is important for banks, which handle large amounts of remittances.
To increase the adoption of blockchain-based solutions in Nigeria, the private sector must play a key role. It can speed up the process by launching industry-wide education campaigns introducing Nigerians to innovative technology. Moreover, it should promote the privacy-enhancing features of blockchain. Furthermore, the private sector can address the challenges facing the country’s unbanked population. Its innovations can significantly improve access to finance and financial inclusion.
The private sector has also played an essential role in adopting cryptocurrency in the country. For example, Afex, an agricultural trading cooperative, has been operating in Nigeria since 2014. The company has implemented blockchain-based warehouse receipt systems to help reduce fraud and streamline receiving capital for smallholder farmers.
These innovations in identity management will enable more transparent KYC procedures, give more transparency to institutions and citizens, and streamline P2P payments and domestic remittances. Additionally, blockchain technology can help facilitate land titling and registration. They will also store land ownership records on the blockchain.
While these risks are relatively low globally, they concern developing and emerging economies. While the crypto market can bring tangible benefits, the risks remain. Therefore, it is essential to manage the risks of crypto assets and stablecoins.
High cost of cross-border payments
Nigeria suffered under colonialism, which has left the continent with unique challenges. The country suffers from low infrastructure and an inability to provide banking services to its citizens. Approximately 60 million Nigerians do not have access to the financial system.
This problem has prompted many to turn to cryptocurrencies. In October 2021, the central bank of Nigeria issued its digital currency, the eNaira. This made Nigeria the first African country to issue its own central bank digital currency, following a global trend started by China.
Currently, banks are not allowed to process crypto transactions in Nigeria, but the value of bitcoin increased on websites like LocalBitcoins and Paxful. These platforms enable crypto buyers and sellers to connect and transfer money. Currently, the sites have 1.5 million Nigerian users.
Although the cost of cross-border payments in Nigeria remains high, consumers are increasingly choosing to use cryptocurrency as a convenient and affordable payment option. This is also helping the economy by eliminating the need for expensive international bank transfers. However, this method has not taken off at scale in the continent.
In addition, regulated infrastructure is another critical component of African e-payments infrastructure. For example, agent networks, such as the Shared Agent Network Expansion Facilities (SANEF) platform, were created by the Central Bank of Nigeria in 2019. The Central Bank of Nigeria aims to reduce costs through these platforms while accelerating innovation. It also aims to eliminate inefficiencies that have plagued the country’s financial sector.
Cross-border payments in Africa are still challenging, with 75 percent of funds moving outside official channels. The Pan-African Payments System (PAPSS) is an effort to reduce these constraints. While the PAPSS depends on voluntary participation, it will shift the intra-African payments paradigm. However, multi-country schemes take time to materialize.
Lack of retail outlets accepting crypto
Despite regulatory attempts to curb access and discourage investment, cryptocurrency adoption is growing rapidly in Nigeria. In addition, the naira’s depreciation and inflation have led users to seek alternative transaction methods. As a result, the country is ranked sixth in the 2021 Global Crypto Adoption Index. Moreover, more than a third of Nigerians between 18 and 60 already invest in cryptocurrencies.
However, many Nigerians have reservations about CBDCs. They view this as the government’s attempt to limit the benefits of cryptocurrency users. Moreover, government officials have recently cracked down on crypto activities. In many countries, governments use financial intelligence units to monitor and collect information on suspicious financial activity.
According to the latest regulatory guidelines in Nigeria, entities wanting to launch initial digital asset offerings (ICOs) must submit a white paper to the securities and exchange commission. In addition, Nigerian regulated crypto exchanges must have a paid-up capital of at least 500 million nairas. This is because Nigeria’s banking sector relies on remittances, which account for a substantial portion of its revenue.
In addition, the country faces legal issues regarding trading crypto. For example, government regulations on cryptocurrencies are a hindrance to cross-border transactions. There are also concerns about the safety of crypto investments. There are many risks associated with investing in these digital currencies, so it’s essential to be aware of them.
Government’s stance on cryptocurrencies
There are many concerns about the government’s stance on cryptocurrencies in Nigeria. Traditional banks do not regulate cryptocurrencies, and many senior government officials have accounts abroad. Central bankers are struggling to understand how to regulate virtual currencies, and many citizens are moving away from traditional banking in favor of cryptocurrency. There is also no harmonized legal framework for cryptocurrencies in Nigeria, and the regulators are unclear.
Despite these concerns, Nigerian authorities have also acted on the booming cryptocurrency industry. A recent ban on access to foreign exchange for textile import companies is one example of this. Moses Awa, a man who imports Chinese woven shoes from China, feared the ban would tip his business over the edge.
In February 2021, the CBN ruled against cryptocurrency transactions and closed the accounts of entities using them. While the Nigerian economy has been struggling to recover from the effects of the recession and high COVID, this ban will likely hurt the growth of cryptocurrencies. Meanwhile, platforms continue to facilitate transactions with cryptocurrencies without disclosing their use.
The central bank of Nigeria aims to maintain centralized authority over financial transactions. This can help curb fraud and tax evasion. However, the central bank cannot control offshore criminal activities. This is a problem for Nigerian enterprises trying to establish cross-border partnerships and raise investment funds for complex international projects.
Several other measures have accompanied the CBN’s recent ban on cryptocurrency transactions in Nigeria. The Central Bank of Nigeria (CBN) imposed a ban on cryptocurrency transactions through licensed banks in February, but this did not dampen the trade, and bitcoin continues to grow. Despite the ban, several cryptocurrency exchanges in Nigeria report a steady rise in transactions this year.