The Voice of Reason Series (Part 2)
The Voice of Reason draws deserving attention to key issues in Nigeria’s policy and regulatory environment, with focus on the emerging blockchain industry.
The Voice of Reason, we hope, will stimulate what we at CAB consider the missing rational public conversation on key issues affecting players and stakeholders in Nigeria’s emerging blockchain industry. With rational public conversation amongst all stakeholders, we believe that the current misconceptions, misgivings, and misunderstandings—on both the innovators and regulators’ part—that often result in distrust, suspicion, and consequently hostility in Nigeria’s crypto space would be avoided or at least significantly minimized.
Every publication under The Voice of Reason Series is divided into four parts, namely the opener, the periscope, the microphone, and the desk. To read the first in the series, click here.
This is the second part of the Voice of Reason Series which we introduced last week. This week, we focus on the blockchain & crypto industry and its impact on the Nigerian economy. BICCoN addressed this under the section, “The growth of Nigeria’s crypto industry to No. 1 in Africa and the crypto industry’s contributions to Nigeria’s economy and competitiveness on the global crypto map”.
Nigeria’s emerging blockchain & crypto industry has been contributing to the growth of Nigeria’s economy. While crypto remittances through the informal economy understandably hurt inflows that should have passed through the traditional banking system and use of crypto for illicit transactions create risks for the financial system, the CBN circular may further worsen the situation for the country if not reviewed, maintains BICCoN.
Nigeria is Africa’s largest cryptocurrency market and one of the world’s fastest-growing cryptocurrency markets in terms of bitcoin volume at the time of writing this statement. In 2020, estimates from BuyCoins showed that total volumes of bitcoin traded in Nigeria stood at $200 million monthly. According to Useful Tulips, Nigeria’s daily trading volume of over $2.8 million on Paxful, a peer-to-peer bitcoin marketplace, tops the rest of African countries, with South Africa ranking over $400,000 and Kenya ranking over $700,000.
By mid-November 2020, according to Coin Dance, a crypto-statistics platform, Nigeria has traded 60,215 bitcoins ($566 million) in the last 5 years. This figure represents the second largest volume on Paxful, next to the United States. As captured by Quartz Africa, since May 2015 to mid-November 2020, bitcoin trade in Nigeria has increased at a minimum yearly rate of 19% in volume since 2017.
Nigeria’s mobile and young population is adopting crypto, making the country number one in crypto adoption by young people. According to CoinMarketCap’s Q1 2020 report on global cryptocurrency adoption, Africa is the second highest with a percentage youth growth of 91.47%. This is driven by Nigeria’s 210.6% growth in young crypto users, far ahead of Australia (+158.07%), Spain (+120.71%), Canada (+112.45%), and Mexico (+97.33%) in the top 5.
In the wake of the CBN circular, crypto trading in Nigeria is expected to be pushed to peer-to-peer crypto platforms, a decentralized world further away from regulation.
The crypto industry’s contributions to Nigeria’s economy and competitiveness on the global crypto map
Nigeria’s emerging blockchain & crypto industry has been contributing to the growth of Nigeria’s economy. While crypto remittances through the informal economy understandably hurt inflows that should have passed through the traditional banking system and use of crypto for illicit transactions create risks for the financial system, the CBN circular may further worsen the situation for the country if not reviewed. What Nigeria needs is a nuanced, risk-based approach to the issue. As industry stakeholders, we are also concerned and we believe that ad hoc or knee-jerk reactions will further exacerbate the problem regulators may be trying to solve.
Below are the major ways crypto adoption in Nigeria has been benefiting the Nigerian people and the nation:
- Stimulation of Economic Activity: Beyond the crypto-trading volumes from Nigeria, an entire industry has been built on cryptocurrencies in the country. From local and foreign crypto-wallet services to crypto exchanges; crypto-remittance services to crypto investments; crypto education services to crypto advisory services, the crypto industry in Nigeria has witnessed growth particularly in the last 4 years. Notably, this development is against the background of lack of policy and regulatory support in the country.
- Enabling and expanding financial inclusion: Cryptocurrencies are enabling and expanding access to finance to millions of people across Africa, including Nigeria. Up to 40% of the adult population in Nigeria do not have access to basic banking services. Savings, loans, and other essential banking services in the traditional finance system are out of reach. With relatively high fees, poor digital identity, and low trust in the traditional financial system, cryptocurrencies particularly Decentralized Finance (DeFi), an open, community-driven, and peer-to-peer alternative to centralized finance (CeFi), offering amazing opportunities for enabling and expanding financial inclusion in Nigeria. This is making millions of Nigerians more financially connected to the global internet economy.
- Job creation: The emerging crypto industry in Nigeria is creating jobs for our ever-growing youth population. In a biting Covid-19 period as well as the background of Nigeria’s dwindling economy, the crypto industry has provided job opportunities in the country, directly and indirectly. In a number of the local and global brands in the industry, Nigerians are chief executive officers (CEOs), chief technology officers (CTOs), country directors, marketing managers, community managers, legal & compliance officers, etc. Local blockchain & crypto authors, educators, forensic experts, journalists, lawyers, presenters, programmers, reporters, researchers, software developers, writers, etc. have also emerged, bringing about an ecosystem of innovation, collaboration, and growth.
- Foreign Direct Investments (FDIs): Billions of dollars have been invested in blockchain and crypto projects globally. Between January and mid-July 2018, $16.9 billion was raised globally through Initial Coin Offerings (ICOs), according to Coinschedule. An ICO, a form of crowdfunding, is often used by early-stage startups to raise capital. Apart from ICOs, a number of foreign-owned crypto businesses carry out business in Nigeria. A number of Nigerian crypto startups get funding through foreign investors or from Nigerians in Diaspora. While regulation will help Nigeria take better stock of blockchain- and crypto-related FDIs into Nigeria, banning will most likely limit it to the informal economy.
- Equipping and empowering the knowledge economy: From zero blockchain developers in Nigeria a few years ago, the country now has a number of indigenous blockchain developers, thanks to investments in learning and capacity building in blockchain technology and development. For example, Binance, a global crypto company, recently launched a masterclass on blockchain development where it is equipping and building up to 1000 African blockchain developers. This is one of the number of capacity building programs in the industry.
- Social developments: A number of crypto brands in the space, through their charitable and philanthropic initiatives, continue to contribute to education, healthcare, and poverty alleviation in the country. Some of them include Paxful’s BuiltWithBitcoin initiative through which it is funding the building of Early Education Centre, Ankara, Nandu Village, Kaduna State;and Binance’s Crypto against Covid donations in hospitals and schools in Lagos States and Oyo States, Nigeria.
Policy and regulation should not stifle innovation. This is one of the major thrusts behind the proposed National Blockchain Adoption Strategy, an initiative of the National Information Technology Development Agency (NITDA) in Nigeria’s emerging blockchain industry. NITDA, working with the Federal Ministry of Communications and the Digital Economy (FMoCDE) had recently exposed a draft national adoption strategy to all stakeholders. It enjoys the support of FMoCDE and the Federal Government of Nigeria. As one of the key stakeholders in this initiative—which include the CBN, SEC, and other relevant regulators and public agencies—we remain committed to the vision and mission adopted in the proposed National Blockchain Adoption Strategy which is ongoing.
As communicated by NITDA in November 2020, the Federal Government plans to earn $6 billion from blockchain technology by 2030. We strongly believe that this is achievable. To enable Nigeria achieve this target, we appeal to the CBN to reconsider its cryptocurrency policy. A reconsidered approach that does not stifle innovation will help significantly boost the Federal Government’s policies on diversification of the Nigerian economy, digital economy, and digital transformation, not forgetting the CBN’s financial-inclusion policy and target.
Has Nigeria’s emerging blockchain & crypto industry been contributing to the growth of Nigeria’s economy?
In search of answers, CAB went to town to find out what some of the players in Nigeria’s emerging blockchain & crypto industry think. We share their thoughts below:
Adebiyi Ayoyinka, CEO and Founder of HaggleX:
Anegbode Kingsley, a member of SiBAN:
Chike Okonkwo, Head of Strategic Partnerships at ThreshOld:
Ophi Rume, founder of Cryptopreacher Academy:
Seun Dania, Chief Executive Officer of Tradefada:
A lot of concerns and fears have been raised by governments around the world about the risks and threats that crypto adoption portends for any financial system and the economy at large. It is not uncommon to hear or read that crypto adoption will negatively affect the rate of remittances into the country, banks may lose business to both centralized and particularly decentralized cryptocurrency networks, and that the ability of central banks to control monetary policy would be badly affected. These concerns and fears are understandable, and so regulators and governments generally have been making efforts to resist crypto adoption, especially as a currency.
That said, from the argument made by BICCoN under the periscope section above, crypto adoption in Nigeria has been contributing to the growth and development of the real economy. Crypto adoption in the country has been creating jobs and empowering young people particularly at a time Covid-19 and other unfavorable economic factors have impoverished millions of Nigerians.
From the views expressed by a number of players above, it may not be very accurate to claim that Nigeria has lost remittance inflows, but that because Nigeria has no regulatory framework for cryptocurrencies and virtual assets, the remittances into the country by means of crypto are not been captured by regulators. Regulators, including the CBN, has repeatedly emphasized that cryptocurrencies are used by criminals, fraudsters, and terrorists, and consequently they do not have a place in Nigeria’s banking and financial system (at this time).
Considering that every innovation, including fiat currencies such as the Naira, Dollar, Euro, Pound, or Yuan, can all be used and are in fact used by criminals, fraudsters, terrorists daily, this is why regulators have introduced know your customer (KYC), anti-money laundering (AML), and combating the financing of terrorism (CFT) regulations. For a crypto innovation that enables cheaper, faster, and more secure vehicle for transactions, should regulators not also introduce KYC, AML, and CFT regulations for cryptocurrencies rather than calling it a bad name to hang it? As rightly said by the Securities and Exchange Commission (SEC) in its October 2020 statement on digital assets, “[t]he general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market”.
Therefore, to help Nigeria maximize the economic opportunities offered by cryptocurrencies or crypto assets in today’s global, digital, and increasingly decentralized economy, governments, including regulators, should as a matter of urgency introduce regulatory frameworks for cryptocurrencies or crypto assets. Driving crypto adoption underground—the informal market—will possibly hurt more the very interest governments and regulators seek to protect. Crypto operators, including centralized exchanges, peer-to-peer platforms, and OTC traders should be seen and treated as critical partners to regulators, not a den of criminals, fraudsters, and terrorists. Together, we can do better, before it is too late.
Next on Voice of Reason Series ....
The Voice of Reason Series continues next week when we get to focus on “Legitimate threats and risks of cryptocurrency adoption and the regulatory approach to mitigating them”. This will be the third excerpt from BICCoN’s press release.
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NOTE: No part of the Voice of Reason Series is legal advice. CAB is only for educational and informational purposes. For legal advice, contact your lawyer or get one.