THE STRUGGLES AND GROWTH OF CRYPTO IN NIGERIA
By Chris
Cryptocurrency is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Since the inception of Bitcoin in 2009 by pseudonymous programmer(s), Satoshi Nakamoto, several cryptocurrencies have been introduced, but Bitcoin has been deemed as the most successful one.
In 2016, Bitcoin started becoming very popular in Nigeria and is not unconnected with the popular Ponzi scheme “MMM” (Mavrodi Mudial Moneybox). MMM platform would later go on to announce its adoption of Bitcoin after its temporary close in December,2016. Bitcoin being associated with the Ponzi scheme would raise a lot of doubts for Nigerians embracing the currency. Although the Nigerian market has outgrown this phase. This phase was not peculiar to the Nigerian market alone; we had seen similar occurrences in different parts of the world. Bitcoin faced something similar during the silk road saga but bitcoin outgrew that stage also.
- RESPONSE OF NIGERIAN FINANCIAL REGULATORY AUTHORITIES
As cryptocurrency began to gain momentum in Nigeria, later on around December, 2016 the Central Bank of Nigeria(CBN) and the Nigeria Deposit Insurance Commission (“ NDIC”) would set up a committee to look into the trending bitcoin.
The following month, January 2017, the Securities and Exchange Commission(“SEC”), the apex regulator of the Nigerian capital market gave a public notice warning Nigerians from investing in cryptocurrency. The notice deeply warned that since no regulations have been implemented for cryptocurrencies by any regulatory authority in Nigeria, investors or users will not be protected from any financial loss if the virtual currencies should fail or the companies promoting them go out of business.
In a similar way the Central Bank of Nigeria(CBN) would issue a circular to all banks advising caution in relation to virtual currencies stating that virtual currencies were not a legal tender in Nigeria.
For protection of the integrity of the Nigerian financial system, the circular required banks and other reporting financial institutions , pending substantive regulation or decision by the CBN, to take the following actions;
- Ensure they do not use, hold, and/or transact in any way in virtual currencies.
- Ensure that existing customers, that are virtual currency exchangers have effective Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) controls that enable them to comply with customer identification, verification and transaction monitoring requirements.
- Where banks or other financial institutions are not satisfied with the controls put in place by the virtual currency exchange or customers, the relationship should be discontinued immediately.
- Any suspicious transactions by these customers should immediately reported to the Nigerian Financial Intelligence Unit (NFIU).
I can’t blame the precautionary response of the Nigerian financial regulators as the crypto market is so volatile and participants/investors have no effective legal protection when things go bad. I think the regulators should do more by implementing more substantive regulations on cryptocurrencies.
Regardless, financial institutions would continue to carry out crypto transactions following the CBN guidelines/regulations up until February, 5th 2021. The CBN released new orders that all financial institutions should stop facilitating crypto transactions and disregard all entities companies engaging in crypto. The Banks were also instructed to close all accounts of individuals and entities that were engaging in this type of transaction.
This caused a lot of commotion amongst people as to whether they could still purchase crypto and engage in crypto transactions. In interviews with top CBN officials they stated and explained that the ban was not to discourage people from engaging in crypto but that the transactions should not be linked with the banking sector.
- THE USE OF PEER-TO-PEER FOR CRYPTO TRANSACTIONS
As the government banned all financial institutions from facilitating crypto transactions and also instructed that they shutdown and report any account associated with this kind of trade, Nigerian crypto traders turned to peer-to-peer exchanges for their cryptocurrency transactions.
The peer-to-peer exchanges only serve as a marketplace bringing buyers and sellers together.
On peer-to-peer platforms the buyer transfers the worth of bitcoin or crypto currency he/she wants to purchase directly to the seller’s account just like a normal inter-bank transfer and the seller sends the crypto asset to the buyer’s wallet via the exchange. This offers more privacy as it is impossible for the financial institutions to know the purpose of these transactions.
- CONCLUSION
As we all know Nigeria is one of the leading countries in the world when it comes to crypto adoption as many people do not want to miss out on opportunities cryptocurrency has to offer. This increased the number of people looking to buy cryptocurrency in Nigeria.
Despite the ban, strict FX laws is also a factor that has aided the adoption of cryptocurrency in Nigeria.
In conclusion, Nigerians use bitcoin to hedge against inflation as naira continues to lose its value, so investors and cryptocurrency traders keep finding ways to buy bitcoin in Nigeria and the adoption keeps growing day by day.
My big question is, will Nigerians ever stop trading Crypto?
