The Central Bank of Nigeria, on February 5, 2021, shocked a lot of people when it ordered all financial institutions in the country to stop the facilitation of all transactions involving cryptocurrencies.
And as if that was not enough, the apex bank asked regulated agencies in the system to identify persons or organizations that are involved in cryptocurrency operations and then close their accounts swiftly, or they will be at the risk of being punished and sanctioned.
Even with this development, cryptocurrency trading can not be said to be illegal in Nigeria, the apex bank only tried to limit the exposure of Nigerians to crypto because of its volatility.
The brains behind bitcoin Satoshi Nakamoto and the first person to receive bitcoin, Hal Finney, came up with the idea to make sure there is total anonymity.
No country or an institution can stop the use of cryptocurrencies, they can only put in checks. For CBN to make move to stop crypto, it means it’s yet to perfectly understand how crypto works.
Therefore, it is not an illegal thing to transact crypto in Nigeria, at least for now. However, as it is in other countries, what an individual decides to do with cryptocurrency they transact, will determine if it is unlawful or not. For instance, like other payment methods and options, cryptocurrency can be used to purchase lawful products and services, as well as unlawful ones.
There are tons of cryptocurrency users in Nigeria, and Nigerians have been dominating several international crypto exchanges. The country is Africa’s biggest crypto marketplace, and trading has become a big deal here, due to several reasons.
Nigerians are smart people no doubt, and it is not surprising that just last year, around $400 million worth of cryptocurrency was traded in Nigeria.
In a report in October 2021, Chinalysis revealed that residents in four countries including Nigeria “many residents use P2P cryptocurrency exchanges as their primary on-ramp into cryptocurrency, often because they don’t have access to centralized exchanges.”
And it was as if cryptocurrency has come to find solace in the West African country until the CBN made the big announcement – although it doesn’t mean cryptocurrency trading in Nigeria is illegal or a criminal offence.
Why is CBN Afraid of Cryptocurrency Trading in Nigeria
At the time of this write-up, there is no law criminalising trading in bitcoin, ethereum and other cryptocurrencies in Nigeria.
Nevertheless, the country’s apex bank does not recognize these digital coins and didn’t make any regulatory framework for cryptocurrency operators in Nigeria’s financial system.
The CBN which is Nigeria’s financial market regulator, and like several other central banks in the world, has been wary of the decentralized features of blockchain technology.
Since these digital coins are untraceable, the authorities are still worried that criminals can have a field day taking advantage of this to fund their criminal activities.
Additionally, since Nigeria has been bedevilled by terrorism for some time now, the government claimed to block terrorism financing. Though, the same government continues to pardon terrorists.
After the order given to financial institutions in the country by the CBN in February 2021, even the Securities and Exchange Commission that has previously made known its commitments to regulate digital coins, turned around to declare its decision to partner with the Central Bank of Nigeria.
Why CBN Can Never Stop Cryptocurrency in Nigeria
Blockchain technology came as a phenomenon that many are still struggling to fully understand. However, one prominent feature of crypto which can be easily observed and highlighted is its decentralized nature and anonymity.
It enables any unknown person or group to move a huge amount of money from one territory to another without issues – but this is a big issue to traditional bankers. It is believed criminal activities will keep going on with the aid of cryptocurrency.
Now, it is a known fact that the central banks of every country loves the idea of control and being at the top of the game as far as the financial sector is concerned.
But this is something they can’t achieve as far as blockchain technology is concerned because it was built on the idea of decentralization.
Those that structured the frameworks were fed up with being controlled by the government central authority, and they want to have their liberty.
A Blow on Nigeria’s FinTech Industry
Bringing the discussion down to the Nigeria Fintech Ecosystem, we have to start by emphasizing how this sector keeps growing in leaps and bounds, and how it keeps attracting interest among foreign investors.
It is incredible that in the first quarter of 2020 alone, these firms were able to raise up to $55 million all from foreign investments (and have raised, between 2014 and 2019, over $600 million). It is indeed impressive, and Nigeria is taking the lead in Africa.
Now, many Nigerian Fintech companies provide cryptocurrency remittance services to their numerous customers, mainly very young Nigerians. They allow their customers to not just save and invest on their platforms, but also purchase crypto, with great ease.
These smart fintech companies saw a need (Nigeria is a country where it’s traditionally tough and expensive to transfer money in and out of the country), and they took advantage of the problem to create innovative products and services that made things easier.
It’s not too surprising then that these companies could grow beyond the CBN’s imagination in a short period, bringing crypto-based solutions embraced by thousands of their users around the country.
But, after the CBN infamous letter in February, banks were not the only ones that quickly complied – but even these fintech companies were quick to adhere.
The likes of Piggyvest and Flutterwave (that were providing cryptocurrency processing options to their users on their interface) swiftly announced that they are removing virtual accounts hosted with Deposit Money Banks and that they are no longer processing crypto transactions with naira deposit.
Of course, there were several reactions from different parts of the country, and many young people were not pleased with the anti-crypto policy by the CBN.
Popularity of P2P
However, these fintech companies innovated once again and proved that they are smart indeed. They quickly remodelled their operation on their different platforms by adding P2P models, where users can buy and sell crypto assets without violating the rule by the apex bank.
Peer to peer platforms have enabled users to transact directly with one another, without the need for intermediaries or third parties.
Slowly, this model became embraced, and these firms are now able to work as an escrow that are coordinating transactions between individuals on their platforms.
Thus, it became possible to transact crypto once again, but this time, without the need to go through banks as a third party.
Cryptocurrency is not illegal in Nigeria, although the CBN is trying to regulate it which negates the idea behind crypto.
Among other roles the central bank should play in crypto is by working with the stakeholders in the blockchain to come up with a legal framework or legislation for the digital assets.
Coming up eNaira its digital currency isn’t a solution to the restrictions placed on trading crypto in Nigeria.
Trading crypto in Nigeria isn’t outlawed, however, you can’t use your debit card to fund your wallet. Your account will be blocked. You can only trade on P2P platforms.
Above all, you’re advised to invest what can afford to lose. Don’t invest a loan in cryptocurrency.
- By Austin Distel of unsplash.com