Cryptocurrency in Nigeria

Last updated

Cryptocurrency in Nigeria describes the extent of cryptocurrency use, social acceptance and regulation in Nigeria. Nigerians are one of the major global users of cryptocurrencies.

Contents

In 2017, the Central Bank of Nigeria instructed commercial banks to desist from cryptocurrency transactions.

Prevalence

According to a 2020 online survey, 32% of participating Nigerians used cryptocurrencies. With a total cryptocurrency transaction volume amounting to $400M, Nigeria ranks third after the United States and Russia according to 2020 estimates. [1] The most traded pair[ when? ] is Bitcoin/Naira, and other cryptocurrencies popular in Nigeria include Dash and Ripple.

At least as of late 2020, cryptocurrencies in Nigeria are a parallel and smaller system to the official Naira which the public still assigns importance to as the official currency. Researchers at the Central Bank of Nigeria suggest that rather than threatening the importance of the Naira,

"Cryptocurrencies can have a positive effect by acting as a disciplining device to central banks. Currency competition can succeed in calming inflation and preventing the sort of manipulation of interest rates and prices to which governments have historically been prone. This is a partial vindication of Hayek (1976), who argued in favour of breaking the state monopoly on money as a way to ensure the stability of the official currency[sic]." [2]

Perception

Bitcoin was initially looked upon with scepticism and associated with Ponzi schemes such as Bitconnect, OneCoin,[ citation needed ] and Mavrodi Mudial Moneybox (MMM). [3] Scams were commonplace in Nigeria and Bitcoin was often used as a tool for the victims of the scams to make payments as such Bitcoin was not separated in the perception of the people from these scams.[ citation needed ]

Factors that promote use

The official exchange rate in Nigeria of the Naira to foreign currencies is set by the Nigerian Central Bank, [4] and thus not by forex markets. The central bank tends to devalue the Naira against other currencies. This devaluation is a factor that causes Nigerians to look elsewhere to preserve the value of the money they earn. In 2020 the Central Bank of Nigeria decreased the value of the Naira by 24%. [1]

Transferring money from and to Nigeria is very costly using the traditional banking system, and cryptocurrency provides an alternative to the high fees experienced there. [1] v

Following the freezing of bank accounts for cryptocurrency-related activities, many Nigerians have said they will continue to use cryptocurrencies where they can and that they will switch to using peer-to-peer transactions. [1] These bypass traditional banks entirely because cryptocurrencies are sent from one person decentralised wallet to another.[ citation needed ]

Similarly, people have had their bank accounts blocked by authorities for participation in the End SARS anti-police brutality protests, leading to increased use of digital currencies with Bitcoin trending on Twitter at the time of the protests. [1]

Legality

The Central Bank of Nigeria Act 2007 gives the central bank, Central Bank of Nigeria (CBN) the right to issue Nigeria's legal tender which is legally prescribed to be the Naira. The act also gives the CBN the sole right to issue Naira and the right to determine the exchange rate of Naira to other fiat currencies. At the time the laws were passed, cryptocurrencies did not exist and thus there is no legal framework addressing cryptocurrencies, nor can they be considered legal tender according to existing laws. [5]

In 2016, the Nigeria Deposit Insurance Commission (NDIC) and the CBN set up a commission to look into Bitcoin after it became a relevant topic following the shutdown of the Ponzi scheme, Mavrodi Mudial Moneybox (MMM) that was active in Nigeria. MMM had announced it would be adopting Bitcoin. [3]

In January 2017, the Nigerian Securities and Exchange Commission (SEC) issued a warning that no companies or entities involved with cryptocurrencies are recognised or authorised and that there are no protections or insurances against financial losses involving cryptocurrencies. The CBN issued banks with the instruction that they ensure that they do not hold, transact, or in any way use virtual currencies and that customers of those banks that are virtual currency exchanges ensure that they have anti-money laundering regulations in place and otherwise terminate their relationship with those customers and report they are suspicious transactions to the Nigerian Financial Intelligence Unit. [6]

In 2017, the CBN banned banks from facilitating transactions that were cryptocurrency-related, however, this ban was not heavily enforced. [1] Moreover, the CBN and SEC tried to place a ban on cryptocurrencies, but have not done so. [2]

According to members of the research department at the Central Bank of Nigeria, the warnings by the CBN and SEC are designed more as a means to educate the citizens of Nigeria about cryptocurrencies and make sure that they understand that cryptocurrencies are not guaranteed by the state unlike the CBN issued Naira which is. [2]

On the 7 February 2021 statement, the CBN cited its need to protect the public from threats by unregulated activities that are potential areas of illegal operations. [1]

In 2021, Nigerians reportedly had their bank accounts frozen due to being involved in activities with cryptocurrencies. [1]

Cryptocurrency-related companies are not forbidden in Nigeria. [7] The legal status of cryptocurrencies in Nigeria is ambiguous, unlike other countries where there is a clear ban. [2]

According to a study by price tracker CoinGecko, Nigeria became more interested in cryptocurrencies than any other country in Africa. Nigeria scored 371[ quantify ] in the study that looked at Google Trends data for six searches such as "buy crypto" or "invest in crypto". [8]

In May 2024, the Nigerian government announced a new regulatory framework that aims to delist the Nigerian naira from peer-to-peer cryptocurrency exchanges. [9]

Impact

In addition to discussing the impact on Monetary and Fiscal Policy, researchers at the CBN suggest that cryptocurrencies could have a positive effect on the agricultural and education sectors in Nigeria. In the agricultural sector, they suggest that blockchains have a significant potential to enhance access to finance by connecting the technology to their business model which can remedy food security issues. In the education sector, they see cryptocurrencies as being an opportunity as there is much to learn about them and by incorporation of cryptocurrency into education it will be overall beneficial to the development of the country. [2]

Related Research Articles

<span class="mw-page-title-main">Nigerian naira</span> Currency of Nigeria

The naira is the currency of Nigeria. One naira is divided into 100 kobo.

<span class="mw-page-title-main">Digital currency</span> Currency stored on electronic systems

Digital currency is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital currencies include cryptocurrency, virtual currency and central bank digital currency. Digital currency may be recorded on a distributed database on the internet, a centralized electronic computer database owned by a company or bank, within digital files or even on a stored-value card.

A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may accept credit card payments, wire transfers or other forms of payment in exchange for digital currencies or cryptocurrencies. A cryptocurrency exchange can be a market maker that typically takes the bid–ask spreads as a transaction commission for its service or, as a matching platform, simply charges fees.

<span class="mw-page-title-main">Central Bank of Nigeria</span> Central Bank of Nigeria

The Central Bank of Nigeria (CBN) is the central bank and apex monetary authority of Nigeria established by the CBN Act of 1958 and commenced operations on 1 July 1959. The major regulatory objectives of the bank as stated in the CBN Act are to: maintain the external reserves of the country, promote monetary stability and a sound financial environment, and act as a banker of last resort and financial adviser to the federal government. The central bank's role as lender of last resort and adviser to the federal government has sometimes pushed it into murky regulatory waters. After the end of imperial rule, the desire of the government to become proactive in the development of the economy became visible, especially after the end of the Nigerian civil war, the bank followed the government's desire and took a determined effort to supplement any show shortfalls, credit allocations to the real sector. The bank became involved in lending directly to consumers, contravening its original intention to work through commercial banks in activities involving consumer lending.

Virtual currency, or virtual money, is a digital currency that is largely unregulated, issued and usually controlled by its developers, and used and accepted electronically among the members of a specific virtual community. In 2014, the European Banking Authority defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically." A digital currency issued by a central bank is referred to as a central bank digital currency.

<span class="mw-page-title-main">Sergei Mavrodi</span> Russian financial fraudster (1955–2018)

Sergei Panteleevich Mavrodi was a Russian financial fraudster, financial criminal and previously a deputy of the State Duma. He was the founder of the МММ, a scheme that defrauded millions of people around the globe.

<span class="mw-page-title-main">Bitcoin</span> Decentralized digital currency

Bitcoin is the first decentralized cryptocurrency. Nodes in the peer-to-peer bitcoin network verify transactions through cryptography and record them in a public distributed ledger, called a blockchain, without central oversight. Consensus between nodes is achieved using a computationally intensive process based on proof of work, called mining, that guarantees the security of the bitcoin blockchain. Mining consumes increasing quantities of electricity and has been criticized for its environmental effects.

<span class="mw-page-title-main">Cryptocurrency</span> Digital currency not reliant on a central authority

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

<span class="mw-page-title-main">History of bitcoin</span> Cryptocurrency

Bitcoin is a cryptocurrency, a digital asset that uses cryptography to control its creation and management rather than relying on central authorities. Originally designed as a medium of exchange, Bitcoin is now primarily regarded as a store of value. The history of bitcoin started with its invention and implementation by Satoshi Nakamoto, who integrated many existing ideas from the cryptography community. Over the course of bitcoin's history, it has undergone rapid growth to become a significant store of value both on- and offline. From the mid-2010s, some businesses began accepting bitcoin in addition to traditional currencies.

<span class="mw-page-title-main">Legality of cryptocurrency by country or territory</span> Legal status of bitcoin and other decentralized digital currencies around the world

The legal status of cryptocurrencies varies substantially from one jurisdiction to another, and is still undefined or changing in many of them. Whereas, in the majority of countries the usage of cryptocurrency isn't in itself illegal, its status and usability as a means of payment varies, with differing regulatory implications.

A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Since each block contains information about the previous block, they effectively form a chain, with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.

United States virtual currency law is financial regulation as applied to transactions in virtual currency in the U.S. The Commodity Futures Trading Commission has regulated and may continue to regulate virtual currencies as commodities. The Securities and Exchange Commission also requires registration of any virtual currency traded in the U.S. if it is classified as a security and of any trading platform that meets its definition of an exchange.

MMM Global is a Ponzi scheme launched in 2011 by Sergei Mavrodi, with subsidiaries in up to 110 countries. MMM Global is a new avatar of the Russian company MMM, also created by Mavrodi and which operated from 1989 to 2004. The difference between the two is that MMM Global targets developing countries. MMM Global became widely popular in various African countries such as South Africa, Nigeria, Zimbabwe, Kenya and Ghana, with some attributing this popularity to poverty and poor government regulation or law enforcement.

<span class="mw-page-title-main">Quadriga Fintech Solutions</span> Former Canadian cryptocurrency company

Quadriga Fintech Solutions was the owner and operator of QuadrigaCX, which was believed to be Canada's largest cryptocurrency exchange at the time of its collapse in 2019, with the exchange ceasing operations and the company filing for bankruptcy with C$215.7 million in liabilities and about C$28 million in assets.

An initial coin offering (ICO) or initial currency offering is a type of funding using cryptocurrencies. It is often a form of crowdfunding, although a private ICO which does not seek public investment is also possible. In an ICO, a quantity of cryptocurrency is sold in the form of "tokens" ("coins") to speculators or investors, in exchange for legal tender or other cryptocurrencies such as Bitcoin or Ether. The tokens are promoted as future functional units of currency if or when the ICO's funding goal is met and the project successfully launches.

Bitcoin was designed by its pseudonymous inventor, Satoshi Nakamoto, to work as a currency, but its status as a currency is disputed. Economists define money as a store of value, a medium of exchange and a unit of account, and agree that bitcoin does not currently meet all these criteria.

<span class="mw-page-title-main">Bitconnect</span> 2016–2018 fraudulent cryptocurrency

Bitconnect was an open-source cryptocurrency in 2016–2018 that was connected with a high-yield investment program, a type of Ponzi scheme. After the platform administrators closed the earning platform on January 16, 2018, and refunded the users' investments in BCC following a 92% coin value crash, confidence was lost and the value of the coin plummeted to below $1 from a previous high of nearly $525.

A cryptocurrency bubble is a phenomenon where the market increasingly considers the going price of cryptocurrency assets to be inflated against their hypothetical value. The history of cryptocurrency has been marked by several speculative bubbles.

Binance Holdings Ltd., branded Binance, is a global company that operates the largest cryptocurrency exchange in terms of daily trading volume of cryptocurrencies. Binance was founded in 2017 by Changpeng Zhao, a developer who had previously created high-frequency trading software. Binance was initially based in China, then moved to Japan shortly before the Chinese government restricted cryptocurrency companies. Binance subsequently left Japan for Malta and currently has no official company headquarters.

Cryptocurrency and crime describe notable examples of cybercrime related to theft of cryptocurrencies and some methods or security vulnerabilities commonly exploited. Cryptojacking is a form of cybercrime specific to cryptocurrencies that have been used on websites to hijack a victim's resources and use them for hashing and mining cryptocurrency.

References

Citations

  1. 1 2 3 4 5 6 7 8 "Cryptocurrencies: Why Nigeria is a global leader in Bitcoin trade". BBC. 28 February 2021. Retrieved 22 August 2022.
  2. 1 2 3 4 5 Peter, Enitan Gbenga; Akadiri, Seyi (4 December 2020). "Cryptocurrency and the Nigerian Economy". Journal of Economics & Management Research. 1 (3): 1–2. doi: 10.47363/JESMR/2020(1)113 .
  3. 1 2 Abdul 2018, p. 7.
  4. ↑ Abdul 2018, p. 6.
  5. ↑ Abdul 2018, p. 6-7.
  6. ↑ Abdul 2018, p. 7-8.
  7. ↑ "5 Popular Cryptocurrencies in Nigeria". South Africa. Business Day. 20 April 2021. Retrieved 22 August 2022.
  8. ↑ Nyambura, Helen (10 August 2022). "The Most Curious Nation About Crypto Is Nigeria, Study Shows". Bloomberg L.P.
  9. ↑ "Nigeria to Ban Person-to-Person Crypto Trade in Dented Naira". Bloomberg. 7 May 2024.

Bibliography

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.