Cryptocurrency Adoption in Emerging Markets: Nigeria
Demand for new ways of value storage is often connected to economic happenings and citizens taking matters into their own hands. In recent years, many people have been turning to cryptocurrency to find solutions to the current flawed financial system. According to blockchain analytics firm Chainalysis, emerging markets are consistently at the forefront of global crypto adoption. But does this mean crypto adoption is proving to be more successful in emerging markets and if so, why? And how exactly can crypto adoption offer real, long-lasting solutions?
Financial Inclusion in Nigeria: An Overview
According to the World Bank, Nigeria is one of the seven countries contributing to half of the global unbanked population. Around 64 million of the West-African nation’s 211 million citizens are unbanked as of 2022. Minimum balance requirements for bank accounts and service fees are often barriers for people living in poverty. Lack of official forms of identification or significant distance to financial institutions or banks were also frequently cited as a disadvantage. However, mobile money has in recent years driven increased financial inclusion particularly in Sub-Saharan Africa, with COVID-19 accelerating financial inclusion through an increase in digital payments and an expansion of formal financial services. The Deputy Governor of the Central Bank of Nigeria Aishah Ahmad stated earlier this year that financial inclusion in Nigeria has improved significantly. The country’s financial inclusion rate currently sits at 64%, with the Central Bank setting a target of 95% by 2024. Financial technology and digital banking are key factors driving change and opening innovative ways of fostering financial inclusion throughout the country.
In 2021, Nigeria became the first African Nation to introduce a digital currency called eNaira. The digital version of their national currency Naira was designed to cut transaction costs and boost financial inclusion. Many praised the president for its bold, creative and modern leadership driven by innovation and digital technology. Nigerians have remained critical to a digital government-owned and country-dependent currency though. The crypto-like eNaira was introduced shortly after other cryptocurrency was banned in the country, leaving many citizens confused surrounding eNaira legislation. Many Nigerians are also wary of the state and ruling elite and weren’t sure how to feel about a government-owned digital currency. A recent Bloomberg report found that less than 0.5% of Nigerians are currently using the eNaira. The Naira itself has been devalued around six times since 2015 and is expected to further lose 20% of its value due to inflation. A mix of government-skepticism and devaluing country-own currency have made Nigerians look for alternative digital currencies independent from their own country.
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Cryptocurrency Adoption in Emerging Markets
Emerging markets are consistently at the forefront of global crypto adoption. “One reason for this could be the value that users in emerging markets get from cryptocurrency. These countries dominate the adoption index, in large part because cryptocurrency provides unique, tangible benefits to people living in unstable economic conditions,” the Global Adoption Report states (coindesk.com). Kim Grauer, Director of Research at Chainalysis, further supports this research: “We found that a lot of people simply don’t have the same level of access to investments and instead turn to crypto offerings. We see that a lot in emerging markets, where there’s a young, tech-savvy population who are starting to have disposable income” (forbes.com). Cryptocurrencies are seen by many as a safe haven, especially in periods of economic pressure. Despite weaker public sentiment on cryptocurrencies in the current bear market, demand has remained resilient in emerging economies. Nigeria ranked 11th in the 2022 Chainalysis Cryptocurrency Adoption Index, which likely can be attributed to the high degree of online payment innovation in the country.
Many young Nigerians are also turning to cryptocurrency as a way to preserve and build wealth in times of low economic opportunities. Adedeji Owonibi, founder of Nigeria-based blockchain consultancy and product studio Convexity, states: “We see a lot of daily traders who are trading to make ends meet. We don’t have big, institutional-level traders in Sub-Saharan Africa. The people driving the market here are retail. Nigeria has a ton of highly educated young graduates with high unemployment rates, and no jobs available — crypto to them is a rescue. It’s a way to feed their family and solve their daily financial needs.” (Chainalysis: Geography Of Cryptocurrency Report 2022). According to Deji, the volatility of the Nigerian Naira also drives the need for cryptocurrency in the country as users believe they can better preserve their savings with stablecoins like Tether.
On top of that, remittances play a huge role in the country’s cryptocurrency adoption. International payments can be expensive and challenging to make: there are thousands of payment networks in Africa, and only a few are connected. Many businesses relying on international suppliers have turned to crypto for payments, as sending funds abroad is difficult due to Nigeria’s tight capital controls.
Cryptocurrency in Nigeria Today
Nigeria deals with regulatory uncertainty and economic instability, and its inadequate financial services have undoubtedly pushed people toward alternative currencies. Cryptocurrency usage driven by everyday necessity has seen the number of small retail transfers rising despite the current bear market. This is interesting as it shows that the online payment innovation factor plays a considerable role in cryptocurrency adoption in the country. Many Nigerians are trading cryptocurrency out of economic necessity. It is estimated that 22 million people, 10.34% of Nigeria’s total population, currently own cryptocurrency.
Value storage and the potential of financial freedom continues to play an essential role among citizens. Many Nigerians have also used the cryptocurrency industry to leverage new job opportunities such as cryptocurrency writing, game development or NFT marketing.
Nigeria is undoubtedly a crypto-curious population but is currently somewhat held back by restrictions and regulations. In 2021, the government restricted the usage of the Naira for buying cryptocurrency due to concerns around scams and tax evasion. Cryptocurrency-related activities are also banned.
The Central Bank of Nigeria instructed banks to block accounts suspected of engaging in cryptocurrency trading and went as far as to say that the use of cryptocurrencies is a “direct contravention of existing law.” (spglobal.com). Nevertheless, citizens are open to new technology and excited about the industry’s opportunities — from new job possibilities to financial inclusion to cryptocurrency trading and alternative value storage. We are hoping the government rethinks the regulations and sees the benefits of what cryptocurrency can bring to the country and we are excited to see the many use cases it can have for Nigerians in the near future.
See here for the previous editions of the series:
Part 1 — India.
Part 2 — Vietnam.
Part 3 — Philippines.
~By Tina~
