Early February saw the Nigerian Central Bank took the country by surprise by issuing a ruling that instructed banks and financial institutions in the country to restrict accounts that were involved in cryptocurrency transactions.
Given that Nigeria has been one of the largest cryptocurrency markets in the world over the last few years, this sent shockwaves not just through the Nigerian crypto community, but the global crypto community.
Over $400 million worth of crypto was traded in the country last year, and it has been the second-largest market for crypto in the world, only behind the United States.
In a recent survey across 74 countries, Nigerians were the most likely to say that they used or owned cryptocurrencies.
There are various reasons why crypto enjoys such high popularity in the country.
The biggest one is that the naira, the country’s fiat currency, has been quite unstable over the last few years, losing a lot of value due to high inflation.
This has been compounded by the country’s low foreign exchange reserves, as well as the low price of crude oil over the last few months, which is the country’s largest export.
Thus, cryptocurrencies, which are decentralised, not controlled by any government, and virtually free to use and transfer, have become immensely popular in the country.
This is true not just for individuals, but businesses as well, many of which have been accepting cryptocurrencies as a form of payment.
Cryptocurrencies are being used at online casinos, for example, where players can play blackjack BTC or other casino table games by placing bets via crypto tokens.
Thus, crypto has become a crucial part of the Nigerian economy, so the central bank’s approach may be a little misguided here.
The CBN has always been quite cautious and apprehensive towards crypto, issuing a circular back in 2017 as well that instructed commercial banks to avoid virtual currency transactions.
Their reasons for opposing crypto are the high volatility of cryptocurrencies, which make them akin to speculative assets rather than stable currencies which can be used as stores of value and means of exchange.
This is true of Bitcoin and some other crypto tokens, but it is important to note that there are several currencies such as XLM and XRP, which have been created specifically to process payments, and are therefore suited to this purpose.
Additionally, the CBN also believes that the anonymous nature of crypto transactions makes them more open to fraud.
This is also a legitimate concern, although crypto transactions are in fact far safer than fiat transactions since they are conducted on blockchain networks.
While the CBN’s concerns may be valid, banning cryptocurrencies completely does not seem to be the right way to address them.
Crypto innovation is thriving, with multiple startups raising millions of dollars to operate in the country, which will also generate employment opportunities.
Regulation is also improving, which should help improve some of the issues around safety and security as well.
Rather than a blanket ban, the need of the hour is to invest in user education and cybersecurity while creating partnerships between crypto firms and regulators.
The CBN’s hardline stance could risk nullifying all the progress made in the Nigerian crypto space over the last couple of years.
Fortunately, it seems as though they are reconsidering this ban, with a suggestion made recently that they will work with regulators to find possible solutions.
This would be the best way forward, as it would allow the Nigerian crypto industry to thrive and improve, while also ensuring that customers and users are protected against fraud.
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