Security fears as 33m Nigerians take to cryptocurrency trading - THE NATION
Despite the Central Bank of Nigeria restriction on cryptocurrencies-related transactions as well as mounting fears about the security of the payment system by multilateral agencies like the International Monetary Fund and the World Bank, a record over 33million Nigerians reportedly trade or own crypto assets, reports Ibrahim Apekhade Yusuf
With over 33 million Nigerians reportedly trading in cryptocurrencies, the question of the hour is who are those afraid of cryptocurrencies?
What are cryptocurrencies
For those who are not conversant with the universe of cryptocurrencies, it is important to state that Cryptocurrencies are digital or virtual currencies issued by largely anonymous entities and secured by cryptography. Cryptography is a method of encrypting and hiding codes that prevent oversight, accountability, and regulation. While there are a number of cryptocurrencies now in circulation, Bitcoin was the rest to be introduced in 2009, and now accounts for about 68 percent of all cryptocurrencies.
The devil is in the details
According to KuCoin, a crypto exchange with over 10 million registered users, almost a quarter of the nation’s population are fully involved in cryptocurrency trade or own related assets .
In its report, ‘Into The Cryptoverse: Decoding The World Of Crypto Consumers,’ KuCoin while citing a recent Google Trends stated, that Nigeria was recorded as the country with the highest number of bitcoin searches globally in early 2021, signaling the growing utility of cryptocurrency in the country.
Specifically, it said, “The data also pointed out that the country’s youth have been the decisive force behind the surge in bitcoin searches. According to our survey conducted in early 2022, 33.4 million Nigerians, which accounts for 35 per cent of the population aged 18 to 60, currently own or have traded cryptocurrencies over the past six months.
“70 per cent of these crypto investors claim that they will likely increase their cryptocurrency assets soon. Another six per cent of the country’s population are interested in investing in cryptocurrency in the coming six months, suggesting that the cryptocurrency adoption rate might continue to increase.”
According to the crypto exchange, the depreciation of the naira over the last six years has fuelled the increase in the number of crypto users in the nation.
It added, “The Nigerian currency, Naira, has depreciated by more than 209 per cent in the past six years. Some Nigerians recognised the financial opportunity brought by Bitcoin early on.
“According to our survey, 37 per cent of crypto investors in the country began trading cryptocurrencies more than three years ago. At the same time, 6 per cent started trading cryptocurrencies more than six years ago.
“Meanwhile, as prices continue to rise, with food inflation reaching its highest point since 2008, the challenging economic climate in Nigeria remains and has even worsened by COVID-19, making cryptocurrencies attractive alternative sources of income, particularly in the bullish market in 2021. According to the survey, 26 per cent of crypto investors have begun trading cryptocurrencies in the last six months.”
The firm said the average number of monthly transactions across African countries showed a 1,386.7 per cent from January 2021 to January 2022.
It added the number of users also increased by 2,467.2 per cent within the same time period.
In a related report by Chainalysis, a blockchain data platform, the cryptocurrency market in Nigeria and other African countries grew by 1200 per cent in 2021.
The firm added that Nigeria is the sixth leading country in the world in terms of cryptocurrency adoption as a result of its peer-to-peer monetary systems.
The report said the African region, dominated by Kenya, Nigeria, South Africa, and Tanzania, has one of the highest grassroots adoptions of crypto in the world. It added that Africa has the third-fastest growing cryptocurrency economy in the world.
In 2021, Paxful, a crypto P2P firm, said Nigerians traded at least N316.9bn in bitcoin in 2021 despite the CBN ban. According to the firm, there were over six million crypto transactions and 16,000 transactions per day from Nigeria on its platform in 2021.
The company said, “Nigeria is our largest country based on trade volume — Over $760m in trade volume last year.”
Justification for upsurge in cryptocurrency in Africa
The International Monetary Fund recently said the adoption of crypto assets was being driven by emerging markets and developing economies. It added that countries in this region increased their trading volumes in crypto exchanges in 2021.
X-raying CBN ban on cryptocurrency trade
The CBN has had a rough relationship with cryptocurrency, putting out warnings before eventually banning the digital currency.
The CBN also directed banks to close accounts of persons or entities involved in cryptocurrency transactions within their systems.
This directive was contained, in a circular dated February 5, 2021, signed by the Directors, Banking Supervision and Payments System Management, Bello Hassan and Musa Jimoh respectively, and communicated to deposit money banks (DMBs), Non-bank financial institutions (NBFIs), and other financial institutions (OFIs).
Accordingly, all DMBs, NBFIs and OFIs were directed to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.
The CBN warned local financial institutions against having any transactions in crypto or facilitating payments for crypto exchanges.
While further justifying its restriction on the payment, the CBN noted that many countries of the world including China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have all provided several directives ruling out the use of these currencies.
Defending the apex bank’s position in a statement, the media minder, Mr Osita Nwanisobi recalled that even famed investor Warren Buffett has called cryptocurrencies “rat poison squared,” a “mirage,” and a “gambling device.”
Also, during an online forum hosted by the Davosbased World Economic Forum few weeks ago, Andrew Bailey, the Governor of the Bank of England, highlighted the extreme price volatility of cryptocurrencies as one of the biggest flaws and explained that this makes it impossible for them to be used as a lasting means of payment.
“Have we landed on what I would call the design, governance and arrangements for what I might call a lasting digital currency? No, I don’t think we’re there yet, honestly. I don’t think cryptocurrencies as originally formulated are it, he said.
It is not surprising he would take that position because, Bitcoin, the best-known cryptocurrency, hit a record high of $42,000 per unit on January 8, 2021, and sank as low as $28,800 about two weeks later. This is far greater volatility than is found with normal currencies.
This is just as the apex bank fined three deposit money banks N800m fine for violating its regulations barring customers from transacting in cryptocurrencies few months ago.
Yet this has not stopped Nigerians from wheeling and dealing in the prohibited item which appears selling like hotcake in the market in a manner of speaking.
Fallout of CBN ban
It may be recalled that the 2021 crypto ban set Twitter on flames as young Nigerians took to the social networking platform to voice their frustrations about the move.
In an interview with our correspondent a cryptocurrency trader who would not be named said he woke up to a buzzing phone on the said day as his crypto WhatsApp group was agog with news of the Central Bank of Nigeria’s ban on cryptocurrency.
According to him, most people in the group thought it was fake news until they started seeing it on verified news outlets. He said, “There had been speculations of a ban prior to that day, but no one expected them to do it. This is a source of income for a lot of young people.
“Before the ban, my friends and I could move funds from our bank accounts to our crypto wallets directly and safely. Everything changed after the ban.”
According to him, many crypto traders now bought directly from people they knew, who had crypto in their wallets before the ban. He said the industry was now being regulated by word of mouth, as traders only dealt with sellers or traders they had links to.
“So, we just transfer coins and then receive payment between friends. And if my friend isn’t buying, he will refer me to someone who will. The same goes for me if I’m in need of crypto assets. I make my request known and then any vendor that has will state his rate and then we will deal,” he added.
Another source explained that traders had devised a means to circumvent the government’s directive, and since crypto traders were no longer in the formal financial sector, the government had been missing out on new sources of revenue.
Making a case for cryptocurrencies
In the view of the Founder/Co-ordinator, Blockchain Nigeria User Group, Chimezie Chuta, the government effectively cut itself from benefiting from the crypto boom by banning digital currencies.
He said, “The issue of regulation has been a standing battle between Nigerian legislators and policymakers, and the blockchain and crypto industry. And that has been going on for probably three years, and the Securities Exchange Commission had an intent to understand it.
“Unfortunately, in February 2021, the Central Bank of Nigeria brought out that circular that restricted financial service providers from interacting and dealing with crypto entities. But that did not in any way diminish the adoption of crypto assets in Nigeria.”
He stated that since digital assets were technologically driven, they would not be restricted by marketplace limitations. They could take on their own forms and whatever action the regulator took would not affect them since the market was always open.
Chuta added, “In my opinion, not regulating is a major downside to an economy that wants to shore up income through tax and Foreign Direct Investment. It is counterproductive not to regulate a burgeoning sector like crypto.
“The result is that the nation is losing a lot of money, a lot of revenue that could have come in as VAT. Because if you do not regulate, you cannot tax. See the figures from Paxful, which is the biggest P2P company in Nigeria, or Binance which is the biggest blockchain platform in Nigeria.
“They do transactions but without regulation, you cannot adequately determine what tax would have accrued. This counts as a loss to the nation in terms of revenue. In most cases when we try to engage with either SEC or CBN or any of the other regulatory bodies, we tell them that not regulating is bad because there is nothing that can sufficiently stop the activities of the operators. And the nation is losing revenue if it not licensing operators or taxing their profits.”
According to him, to effectively