- Cryptocurrency was formerly banned due to illegal use in money laundering and terrorism financing.
- Despite its ban over two years ago, the teeming Nigerian youth population has been using cryptocurrency virtual assets.
- The government has rescinded its decision on the ban.
- Nigeria’s Money Laundering (Prevention and Prohibition) Act, 2022, now recognizes virtual assets service providers (VASPs) as part of the definition of a financial institution.
The Central Bank of Nigeria (CBN) recently rescinded its decision on the cryptocurrency ban in Nigeria. This reversal of the crypto ban was dated December 22, 2023, with reference number FPR/DIR/PUB/CIR/002/003, and signed by CBN Director, Financial Policy and Regulation Department, Haruna Mustafa.
The decision to ban cryptocurrency usage in February 2021 has been cited as a result of crypto use in money laundering and the ability to use it to finance terrorism. However, despite the ban, Nigerians have subtly been making crypto transactions for over two years.
The teeming youth population believes that crypto gives them access to make quick and easy transactions without needing a centralized system. Besides this, for them, cryptocurrency is one of the means to generate income. It is little wonder Nigeria accounts for over 60 % of Africa’s interest in cryptocurrency. In fact, in a 2020 online survey of Statista, 32 % of participants reported to have used cryptocurrency. Blockchain.com corroborated this fact, claiming that Nigeria is the fastest-growing cryptocurrency market in the world.
The Good Side
With the recent announcement by the CBN to start permitting cryptocurrency usage, there will be a significant shift in how monetary transactions take place. The question is, “What benefit does this bring?”
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Increased Adoption
More people and organizations will now be open to give and receive the cryptocurrency equivalent of their monetary transaction. In the early days, people were skeptical of cryptocurrency due to a lack of technical know-how and the fear of losing their hard-earned money. However, the narrative changes as blockchain technology advances and several industries endorse crypto usage.
The former complex barrier of acquiring and using crypto has been removed by the development of mobile wallets, user-friendly transaction interfaces, and several crypto exchange platforms, which make it easy for users to buy, store, and trade their crypto assets. These features give cryptocurrency a broader and more willing audience.
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Protection against Inflation
As of June 2023, the National Bureau of Statistics puts Nigeria’s inflation rate at 22.79 %. KPMG predicted that this figure will get to 30 % before the new year, and no one can specifically tell whether it will reduce. Cryptocurrency safeguards against inflation because any increase in demand with a limited supply leads to a rise in value. Taking Bitcoin, for instance, the number minted is capped at 21 million, leading to increased demand and value. On the other hand, Fiat currency will be unable to keep up with the market trends, and inflation contributes to reduced value.
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Transaction Ease
Because of crypto’s decentralized system, it is easy to perform transactions effortlessly. Conventional Nigerian banks charge an ample amount for every transaction, in addition to the fact that there may be glitches in the network, which may cause delays in transactions. Crypto transactions are done within minutes with minimal cost. Investors can easily buy their crypto assets using regular fiat currency.
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Means of Side Income
Nigeria’s unemployment rate is 33.3 % in 2021, representing 23.2 million people. However, this has drastically reduced to 4.2 % in the 2023 second quarter, according to the National Bureau of Statistics data. This considerable reduction is seen to have resulted from the teeming population’s embrace of remote jobs. Nevertheless, unemployed people without professional digital skills have resorted to trading cryptocurrency, which is a better avenue to generate side income.
Cryptocurrency is a good source for diversifying investments and generating profit because it is not tied to conventional markets like bonds or stocks. Some people specialize in the crypto business, offering more job prospects for Nigerians.
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The Down Side
Despite increased adoption, popularity, and ability to make a side income from cryptocurrency, investors and the government should be worried about the downside. Because of its decentralized system, cryptocurrency is anonymous, and tracking transactions when users lose access to their wallets becomes very difficult. Users and the government should, therefore, be worried about the following downside of cryptocurrency usage;
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Volatility
Many investors with technical know-how have used cryptocurrency’s volatility to make huge profits. Crypto prices often fluctuate, causing significant gains, especially when the price suddenly increases significantly. In the same way, crypto fees can suddenly reduce drastically, causing an enormous loss on the part of investors. Because of this volatility, it is not a good investment for people looking for a steady income.
For instance, in 2022, the cryptocurrency’s price, Bitcoin, dropped by more than 60 %. An anonymous trader confessed to having lost N40 million during this dip. This trader is just one of many people who have lost their earnings in the drop.
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Loss Risk
Once a user loses access to the crypto wallet, it becomes difficult to retrieve, and their ownership can no longer be proven. This situation sharply contrasts with the centralized financial institution where users can easily complain to the required authority and get access to their account once verified to be the owner.
Besides this, it is easy for hackers to attack digital wallets and crypto exchange platforms, causing users to lose. And once the hack is done, transactions are irreversible.
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Lack of Regulation
Many potential investors have always been worried because of crypto’s lack of regulation, and this concern is logical. As long as the government finds it challenging to control crypto usage, people will keep losing their investment, and no one can be prosecuted in this case.
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Deflation
The production of cryptocurrency is generally capped as a particular figure; this leads to an increase in value, but a continuous rise in value only favors early crypto users. And because most crypto needs to be converted to regular currency, it becomes difficult to guarantee its actual valuation.
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Excessive Power Usage
Mining cryptocurrencies consume an enormous amount of energy. Instances have been made where the energy need for mining cryptocurrencies becomes nearly the same as the energy need of some nations. This fact has been the significant argument posed by critics against crypto adoption.
The Way Out
Crypto has already been adopted, and the government will not rescind their decision this time. The government needs to put more apparatuses in place to checkmate the illegal use of cryptocurrency. However, critics will argue that the unregulated nature of cryptocurrency gives them the ability to trust its system. But behind this argument is a yearning for a partially centralized system that lets them know what goes behind every transaction.
Therefore, the government must involve more policymakers in tech and financial matters to provide a modality that seamlessly governs cryptocurrency usage.
Conclusion
Undoubtedly, cryptocurrency provides a viable way to transact and make more money. However, the government needs to control the activities of users and virtual assets service providers (VASPs) since VASPs have already been recognized as part of Nigeria’s financial institution.
With the government’s readiness to verify the identity of crypto users, crypto usage will become more streamlined in the coming days.
