(Part 2) The Voice of Reason—What did Nigeria’s blockchain & crypto industry tell the Central Bank of Nigeria in February 2021?

“The essence of democracy is rational public conversation”- Prof. Pat Utomi

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.

The Opener

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”.

The Periscope

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.

Excerpt:

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

The Microphone

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:

The emerging technology called blockchain can not be ignored, and the more the central government fights it, the more it may cause havoc to our economy and financial system at large. Since we have seen the emergence of blockchain technology and the various underlining uses, including cryptocurrency application, we have started witnessing equal access to financial opportunities and it has brought value. This is what governments have been struggling to bring to individual finances and the economy. I believe that the government is capable of creating more value for peoples' money but it continues to struggle with this. What blockchain has essentially come to do is to help people create real value for money in a people-oriented digital economy. Putting the risks and opportunities involved in dealing in this new technology, the opportunities outweigh the risks. This is why Nigerians will continue to engage in it.

Anegbode Kingsley, a member of SiBAN:

Truly, the contributions of the blockchain technology is not in dispute but cynics and skeptics are questioning the influence of the crypto aspect of blockchain technology. All industries involve financial transactions as no economic activity is done without value and each value is expressed in a financial price. Regulatory authorities cannot claim not to know the advantages of cryptocurrency in the finance & banking industry. These advantages inter-alia include: (a) the speed of transactions; (b) the reduction of transaction cost; (c) the elimination of unnecessary bureaucracies in transactions; and above all (d) the ‘TRUSTLESSENESS' in bringing two or more ‘unknown’ parties or institutions to transact with high-level transparency and peace. The cryptocurrency market is a global market like the FX Market where individuals and institutions trade and earn income from digital assets (coins/tokens) emanating from digital and technological innovative projects. Prior to the CBN action, a lot of persons, employed and unemployed, especially the young lads were participating in the crypto space to render these economic activities which they used in creating jobs for themselves and therefore reducing the level of crime and criminality in the country. In reality, existence is in a parallel stream. Where you see the good you may likely see the bad (or evil). There is no industry or human activity where these occurrences does not play out, even in religious settings. In the banking & finance industry, oil & gas, real estate, etc there are always miscreants and law breakers. So we can not say because some miscreants came up with scams and unprofessional conducts in the crypto space, we will throw away the baby and the bathwater. Indeed the blockchain & crypto industry has contributed far more than recorded to the growth of the Nigerian economy.

Chike Okonkwo, Head of Strategic Partnerships at ThreshOld:

Yes, the emerging blockchain and crypto industry in Nigeria has impacted so much in the country especially in the growing youths in the country. A lot of youths are being employed by international crypto companies which has also led them to acquire new skills for these roles. The market has practically helped people understand what it feels like to trade in the global Financial market. This isn't taught in any Nigerian university. It has also created economic opportunities for more Nigerians and has given them the opportunity to diversify their investment portfolio.

Ophi Rume, founder of Cryptopreacher Academy:

The blockchain and crypto industry has contributed to Nigeria, but I would like to say in an informal way. The fact that the appropriate authorities refuse to engage stakeholders on ways to put frameworks in place to regulate, makes it even difficult to have data of those involved in the sector.

Seun Dania, Chief Executive Officer of Tradefada:

The I.T. sector is under the tertiary sector in which we would classify the blockchain & crypto industry. Being the 4th largest contributor to Nigeria’s real GDP after oil, agriculture, and trade with a contribution of over N29 billion in 2019, the I.T. sector cannot be overlooked. The emerging blockchain & crypto industry has been identified by the Director-General of the National Information Technology Development Agency (NITDA) to be a $10bn industry by 2030. Today, in the real economy, there has been a huge rise in crypto traders, blockchain developers, community managers, blockchain lawyers, blockchain media houses, graphics designers, etc. It is therefore safe to say that this currently uncaptured industry is already contributing a lot to the growth of Nigeria's economy through local investments and FDIs, and job creation. Also, banks have seen a rise in volume of transactions due to the dealings within the industry. The blockchain & crypto industry has injected a lot of liquidity into the economy and has increased disposable income. This has helped to sustain a lot of families and businesses in the country. As opposed to unpredictable international remittances which the government depends on for foreign exchange inflow, it is necessary to regulate the industry in order for Nigeria to be able to adequately capture its contribution to the nation’s GDP.

The Desk

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 undergroundthe informal marketwill 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.

Right of Reply: Any person, entity, or agency that wishes to reply to the issue or issues raised in the publication above may email its response to editorial@cryptoassetbuyer.com for our review and consideration for publication in accordance with our editorial and ethical policies.

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. 

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