In 2020, the Securities and Exchange Commission (SEC) moved to integrate blockchain and virtual assets into Nigeria’s capital market. It encouraged Nigerian cryptocurrency enthusiasts but in a surprising twist, the Central Bank of Nigeria (CBN) recently directed all financial institutions to discontinue cryptocurrency exchanges and close accounts associated with cryptocurrency exchanges.
The conflicting stance of the two financial regulatory authorities has become a source of worry for Nigerian cryptocurrency startups; notwithstanding, the virtual asset which has come to disrupt the traditional financial services is unstoppable.
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Understandably, the ban is a deliberate attempt to cripple the cryptocurrency ecosystem and a calculated move to frustrate Nigerian youths who are leveraging on blockchain technology to create wealth. While the apex bank is wilfully skeptical of the nascent innovation, it is advisable for its leadership to understudy its cost benefits.
Some Nigerian merchants and start-ups receive remittances instantly through cryptocurrencies, making it possible to skirt round the complex bottlenecks posed by the traditional mode of money transfer across borders.
For instance, during the EndSARS protests, Feminist Coalition, a group of Nigerian women who were at the forefront of the anti-police brutality movement, raised bitcoins valued at over $88,000 (33 million naira). They resorted to cryptocurrency to manoeuvre the illegal blockade imposed on the organizers’ bank accounts. The funds aided logistics for peaceful demonstrators kicking against police brutality in the country.
In spite of the government’s frantic attempts to stifle the use of cryptocurrency, it is rather gaining popularity as a store of value and a hedge against inflation and the weakening naira. Nigerians traded more than $400m (152 billion naira) worth of crypto on local crypto exchange platforms in 2020. Not a coincidence, Nigeria was ranked second in volume of cryptocurrency worldwide by Paxful, a popular and leading peer-to-peer cryptocurrency marketplace. Apparently, the wide acceptance and massive boost in cryptocurrencies as an alternative medium of exchange is perceived as a threat to CBN’s monetary policy.
As a key player in Africa, Nigeria needs to embrace innovative methods in the ever-dynamic fintech industry. Blockchain is a catalyst in achieving CBN’s cashless economy. CBN can adopt blockchain technology for transfers between international and local banks since transactions are instantaneous in real-time without delay, and at zero cost. Interestingly, there is no need for a third party transfer agent since blockchain technology is not limited by borders.
A blanket ban on cryptocurrency transactions on the incredulous premise of financing terrorism and aiding illicit fund flows into the country and money laundering is akin to shutting down internet activities just because few users are cybercriminals. That is a bad move and is detrimental to legitimate business owners who utilize blockchain technology. Rather, the government should devise smart ways of fighting crime without denying Nigerians the immense benefits of cryptocurrencies.
Cryptocurrency transactions are not hidden from law enforcements’ scrutiny contrary to the belief that bitcoin payment is anonymous and untraceable. It is possible to identify users, track illicit financial flows and tax evaders through blockchain forensics. When a bitcoin transaction is initiated, a forensic trail that makes financial history public is created – which enhances further investigation. A handful of criminals using cryptocurrency for nefarious activities have been nabbed and jailed through forensic trails.
CBN should endeavour to forge synergy with innovators in blockchain and cryptocurrency technologies, and most importantly, fine-tune a safety framework for investors to transact.
In order not to be left behind in the burgeoning global cryptocurrency economy, the Nigerian apex bank should reconsider and embrace cryptocurrency, an innovative means of finance which is gaining traction in international trade. Cryptocurrency has come to stay, Nigeria is ignoring it at its peril.
Odewale Abayomi is a writing fellow at African Liberty. He tweets @ODEWALEAbayomi