Nigeria is the world’s second largest Bitcoin market after the United States. On 5th February 2021, the Central Bank of Nigeria (CBN) ordered banks to close all the accounts associated with cryptocurrency trading. The crypto ban has brought about confusion and has also triggered anger among Nigerians who see crypto as their last resort in a battered economy.
Cryptocurrency trading platforms are decentralized such that they eliminate the need for banks and other intermediaries in the management of currency and assets exchanges. The CBN also ordered banks to identify the people operating cryptocurrencies within their system.
Some of the Cryptocurrencies Banned
Some of the most used cryptocurrencies in Nigeria include Dogecoin, Bitcoin, and Ethereum. For a better understanding, let’s break these cryptocurrencies down.
Dogecoin (DOGE)- Dogecoin was launched in December 2013. The coin is a peer to peer open-source cryptocurrency that is considered an altcoin with an image of a Shiba Inu dog as its logo.
Bitcoin- Bitcoin was created in 2009, and the idea was set out in a whitepaper by its mysterious creator, who goes by a pseudonymous name Satoshi Nakamoto.
Ethereum- Ethereum uses blockchain technology featuring smart contract functionality. The coin is decentralized and is the second-largest cryptocurrency by market capitalization after Bitcoin. The currency came into the limelight in 2013 after programmer Vitalik Buterin proposed it.
The Ban is Not New in Nigeria
Back on 17th January 2007, the Central Bank of Nigeria passed a circular to inform all banks that transacting in Bitcoin and other virtual currencies had been banned by the government. Later on, the Nigerian Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria set up a committee.
The committee’s purpose was to look into the country’s feasibility of adopting the technology behind Bitcoin and other digital currencies. The technology in question being blockchain technology.
The committee submitted its report, but several “sub-committees” were still skeptical, according to the Director of Banking and Payments System Department at CBN, Mr.’ Dipo Fatokun.
Probable Cause of the Ban
The recent ban begs the question, why would the government ban this incredible discovery? Well, according to a financial journalist at Stears Business Abubakar Idris, the ban is to prevent financial fraud and funding of terrorist operations. Idris believes there are more legitimate concerns. Nigeria has an infamous international status for scams and online fraud. Additionally, the Nigerian government has been fighting Boko Haram terrorist groups for years.
Idris also stated that there are other motivations at play concerning the recent ban. The most crucial reason is CBN’s focus on stabilizing the exchange rate. Cryptocurrency gave an easier way for businesses and individuals around currency issues. Companies and individuals got better exchange rates and rendered central control measures ineffective.
By banning cryptocurrency transactions, the CBN wants to take control of the country’s international payment system. After the previous ban in 2017, the strategy worked. The only way to transfer money was through the bank, making the government take more control of money transactions.
Furthermore, the ban may be due to a dollar shortage due to the tremendous fall in oil prices, the main Nigerian export. Local banks are restricting customers to transact with hard currency. Customers can only withdraw less than $100 from these banks.
According to Shuaibu Idris, managing consultant at Time-Line Consult, CBN had foreseen a potential crisis in the digital currency trade. Mr. Shuaibu, in an interview with DW, stated that there was about $4 billion of assets lying in cryptocurrencies in Nigeria. Mr. Shuaibu tried to reason that, if the owners of these assets reside in other countries, let’s say China, India, Singapore, or Kenya, and come to retrieve their assets, the Nigerian economy would collapse.
Consequences of the Ban
BuyCoins, the mother company of sendcash, has processed crypto transactions worth more than $140 million as published by BuyCoins chief executive, Timi Ajiboye,
The new directive has seen BuyCoins entire business dismantled. The fall of this company has left many people without an easy way to move money. BuyCoins and other companies have gone silent and declined to speak to the press about the directive. The companies’ next move is still unclear.
However, people in the financial sector expect they will find a way to work around it. In the next couple of days, people may have to learn new ways to deposit money in their crypto wallets. According to Stears Business journalist Abubakar Idris, the Central Bank of Nigeria’s policy has made crypto more popular.
According to some of the cryptocurrency users, the ban has taken a significant toll on their businesses. Some victims of this ban complained they were unable to receive and send payments or procure goods online. Business owners are experiencing difficulties in purchasing goods because they cannot exceed the $100 limit on their naira debit card.
Nigerians have traded almost $600 million in Bitcoin in the last five years. It would be difficult for the CBN to control how people trade digital currencies regardless of how many strict measures are introduced. Potential traders cannot buy dollars or foreign exchange to import items; therefore, they turn to cryptocurrency which has lower transaction fees to solve the issue.
The number of informal businesses is almost twice of the registered companies, according to Shuaibu Idris.
Billions of dollars have circulated without the Nigerian government’s knowledge. The recent ban will worsen the situation and lead to a further fall in revenue.
Cryptocurrency enthusiasts feel that they will find a way around the ban. The cryptocurrency users believe that they don’t necessarily have to use banks to do their transactions. After all, it is the bank’s loss.