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Embracing digital currency realities

The recent bank actions against digital currency traders have again accentuated the position of the Nigerian government on cryptocurrencies. But for stakeholders, the best way government can leverage the growing interest of Nigerians in crypto is to also embrace it. SAMSON AKINTARO reports

Some Nigerian banks, last week, froze some accounts believed to be linked with cryptocurrencies in compliance with a directive from the Central Bank of Nigeria (CBN). While that is not the first time government is making its stance on digital currencies known, it showed that government is not relenting in its efforts to discourage Nigerians from embracing crypto trading. That efforts, however, may have proved abortive over the years as recent reports indicated that Nigeria now had the largest number of crypto traders in the world. This, according to industry experts, calls for a strategic approach to regulating the burgeoning industry rather than banning or blocking crypto transactions across banking platforms.

CBN’s directive

In a renewed onslaught against crypto traders, commercial banks have begun monitoring accounts that appear to be utilised for cryptocurrency trading. The action is in response to a directive from CBN demanding that all commercial banks freeze accounts belonging to at least two individuals engaged in cryptocurrency trading. According to reports, an internal memo in one of the banks instructed employees to start monitoring accounts with significant transaction volumes or those that are believed to be used for cryptocurrency trading. The memo reads: “We wish to reiterate that CBN is strictly monitoring non-compliance with the directive on the closure of all accounts involved in cryptocurrency for high impact regulatory sanction. “In view of the above, all staff are hereby advised to identify entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.” Earlier in February this year, CBN had banned financial institutions from providing services to crypto trading platforms. As part of the order, the central bank instructed commercial banks to identify and shut down accounts tied to cryptocurrency trading activities.

However, CBN has clarified that cryptocurrency is not banned in Nigeria. According to the central bank, the banking prohibition was to prevent the use of the country’s financial apparatus to support crypto transactions. Following the ban, peer-topeer transactions reportedly account for the bulk of the country’s virtual currency trading activity. Cheaper remittance costs and currency devaluation continue to drive crypto adoption in Nigeria despite the CBN ban.

Growing embrace

Despite government’s clampdown on traders and blocking of transactions through commercial banks, Nigeria has been reported to have the highest number of people owning and trading digital currencies globally. According to a report by Finder, a global independent comparison and information service platform, Nigeria has the highest rate of crypto adoption in the world at 24.2 per cent as of this year. Nigeria is followed by Malaysia and Australia, which have 18.0 per cent and 17.7 per cent ownership of cryptocurrencies respectively. The Finder Cryptocurrency Adoption Index surveyed over 41,000 individuals in 22 countries. The results show that investors from the top three countries are putting their money into bitcoin, Ethereum and Cardano. Bitcoin remains the most popular worldwide, as it has become a house-hold name. Interestingly, some of the more developed Western nations show little interest in cryptocurrencies. The adoption rate in the UK is among the lowest, with ownership estimated to be 5.4 per cent. According to the report, cryptocurrencies’ adoption in the United States of America stood at 10.4 per cent. Confirming the Finder’s report in a telephone conversation with our correspondent, the President of Stakeholders in Blockchain Technology Association of Nigeria (SIBAN), Mr. Paul Ezeafulukwe, said the report reflected the reality of the cryptocurrencies adoption in Nigeria. According to him, many Nigerian youths who are unemployed or those who desire an alternative source of income are into crypto trading. Asked about the amount that may have been invested by Nigerians so far, Ezeafulukwe who leads the umbrella body of cryptocurrencies traders in Nigeria, said the anonymity nature of cryptocurrency trading does not allow monitoring the amount that is coming in. He, however, noted that exchanges globally know where the transactions are coming from through the IP addresses. “Don’t forget that we are currently not using the bank gateways to buy crypto in Nigeria. A lot of people are doing peer-to-peer trading. “For example, if I want to transact with you right now, it cannot go into the record, even though the currency has left me to you. “Ever since the CBN ban, ma-jority of transactions have gone P to P, hence, it will be difficult to track the amount being traded by Nigerians,” he said.

Between eNaira and cryptocurrencies

According to industry experts, being a digital currency stored in a digital wallet and operates on a peer-to-peer system, the eNaira bears some semblance to cryptocurrencies. However, the fact that eNaira is fiat money issued and controlled by CBN and backed by a government guarantee makes it fundamentally different from cryptocurrencies. Unlike the eNaira, a cryptocurrency is a decentralised digital currency that is not issued by any central authority and which exists outside the control of a government. While eNaira is expected to boost financial inclusion, cryptocurrencies are believed to offer more economic advantages to a country like Nigeria.

Nigeria’s losses

Nigeria is said to be losing billions of naira yearly due to the initial government’s apathy towards digital currency. According to industry experts, some foreign investors in the country had been repatriating funds from the country through cryptocurrencies, thus bypassing the normal repatriation process and denying the country taxes. According to SIBAN President, Ezeafulukwe, government needs to sit down with the experts to get an understanding of how blockchain technology can help the economy. “I expect that by now, government should have pushed the private sector to form a stable coin, which the country can use in place of dollars. “We can only have the dollar as our reserve, but we can use stable coins to give to our traders who go to China, America and Europe to trade. And over time, we can back it up by oil or we can even back it up by gold we can back it up by so many currencies, all those are possibilities on the blockchain technology,” he said.

Last line

While CBN’s directives to banks on cryptocurrencies may be intended for the good of the economy and to prevent banks from diverting depositors’ money into crypto trading, the regulator should converse with the industry experts on how best to leverage the growing crypto interest among Nigerians for economic growth, rather than banning or discouraging it.

 

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