Why Nigeria and Africa should not ignore the cryptocurrency evolution

Franklin Izuchukwu

Nigeria and other African countries need to re-examine the economic role of cryptocurrency in the region; there is a need to find ways of managing the rising market of digital currencies rather than outright bans.

Africa and cryptocurrency.

When Satoshi Nakamoto released the revolutionary Bitcoin in 2009, the world never saw how it would change the entire financial system. A relatively unknown medium of payment in 2009 has turned into an advancing economic ecosystem, leading to the development of other cryptocurrency projects.

The uncharted cryptocurrency market has turned into a 1.97 trillion USD at publication. The market moved with a formidable force, garnering adoption from individuals, corporations, and government bodies, with many describing it as nothing short of spectacular.

One of the continents that welcomed the alien financial system was Africa; Nigeria was also one of the major African countries that recorded country-wide adoption.

The value of Nigerian currency and other African countries has always been downward, so it was never a surprise when the residents sought succor in bitcoin as a hedge against inflation. Notwithstanding, the country's apex bank released a directive that prevented local financial institutions from processing transactions related to crypto payments. Other African countries have also followed suit in this regard.

These government institutions in Africa have refused to study the potential of digital currencies and how they can benefit the people, even when the widespread adoption of cryptocurrency has led Nigeria and other African countries to announce the development of their Central Bank Digital Currencies (CBDCs).

There will be a thorough analysis of cryptocurrency and its journey in Africa. It is time to reveal the excess of government regulation as regards cryptocurrency.

Bitcoin and other cryptocurrencies have shown a potential for risks and benefits, which has made Government institutions wary of the dangers and refuse to consider the prospect. The article will show how the cryptocurrency revolution can benefit African countries like Nigeria and what can be done to harness the potential of this nascent market.

Why Government institutions are wary of cryptocurrency

It is no secret that many government institutions are wary of Bitcoin and other cryptocurrencies. People often ask: why the government hates cryptocurrency? What do they stand to gain by prohibiting access to crypto?.

As stated earlier, the Central bank of Nigeria banned Nigerian banks from processing cryptocurrency transactions; even the proclamation from Kenya's apex bank was meant to dissuade Kenyan citizens from accessing cryptocurrency.

After these actions, the Kenyan shilling has lost at least 7% of its value, while the Nigerian Naira has plummeted to about 52%.

These edicts seemed to have a reverse effect because as the value of Bitcoin rose, people circumvented the government's regulations through the use of P2P transactions. A report by the Guardian also showed that exchanges reported increased transactions following the ban from the Nigerian government.

To analyze why the government is wary of Cryptocurrencies, Clacified was able to classify the problem into economic and political factors.

The Economic factor

Ever since the world moved from Commodity currency (where the value of money is pegged to the price of gold), most economies have adopted Fiat currencies.

The government backs the value of fiat currencies. In simplest terms, the Nigerian Naira has value as a legal tender because the federal government of Nigeria says it does.

The forgoing advantage of the current monetary system is Control. The government dictates how much money can be printed, makes policies that can affect its use, tracks its movement, and efficiently tax it to generate more revenue. All these are made possible through coherent activities of the politicians, CBNs, and traditional financial institutions.

With the presence of Bitcoin and other cryptocurrencies, it boycotts the intermediaries to establish themselves as a decentralized financial infrastructure. This simple deficiency makes the government claim:

  1. Cryptocurrencies can circumvent Capital-controls

    Most Governments usually place Capital-controls to prevent the exportation of their currencies (which can debase their value).

    For Instance, the Chinese citizens have an annual limit of $50,000 to purchase foreign currencies. Still, a report from ChainAnalysis revealed that more than $50 billion worth of crypto was moved from Chinese -based wallets to other countries' wallets to sidestep the government's regulation.

  2. Cryptocurrencies are haven for illegal activities

    The decentralized nature of Bitcoin and other crypto removes the need for intermediaries and nay government regulation.

    Criminals and other dubious actors benefit from the anonymity advantage offered by Bitcoin to foster money laundering, dark web and ransomware activities.

Image from Business Insider.

The Political factor

One can say that the need to ban cryptocurrency in Nigeria became apparent during the EndSars protest, where the Nigerian residents took to the streets to protect against police brutality and economic repression.

Nigerians in diaspora and some notable names globally, like Twitter co-founder Jack Dorsey championed the EndSars cause through Donations.

Initially, the EndSars funds were raised using banks, but the government moved to close the accounts. It was at this point that cryptocurrency became a better alternative.

Using Bitcoin as a form of donation handicapped the government because they could not track the transactions or prevent access to cryptocurrency, where all you need is a smartphone and internet connection.

The EndSars case proved that a regime change could be sponsored using Bitcoin and other digital assets - a scenario that gives governments the shivers.

Governments should seek ways to manage cryptocurrency

The digital currency space is a new venture worth studying because recent crackdowns from government forces have not deterred the use of cryptocurrencies. So rather than an outright ban of the new commodity, the African and Nigerian governments should seek ways to manage it.

The United States government has been weighing its options on what to do with cryptocurrency; thus, president Biden signed an executive order meant to study the risks of digital currencies and how to harness the potential. The goal of the executive order is to foster financial inclusion competitiveness to protect U.S. Consumers, Investors, and Businesses.

A Press release from the white house revealed that the rise in digital assets presents an opportunity for America to reinforce its leadership in the global financial system and at the technological frontier.

If the African governments were to order a comprehensive study of cryptocurrencies, it could develop solutions to allay its fears about monetary control and money laundering. They can also increase national revenue by implementing capital gains tax laws that can tax profits from digital currencies.

Other benefits of cryptocurrency

Blockchain infrastructures also come with endless possibilities and applications. Recent innovations have shown that blockchain technology can be applied in many sectors of the economy, as shown below:

Education: Blockchain Software can be used for verifying credentials and achievements. It will implement a cheaper and seamless means of verification. The government can also use this verification model to reduce workload and avoid errors.

Product counterfeiting: With blockchain, there could be a reduction in the number of fake products flooding the online market. Blockchain can be tweaked to provide a tamper-proof system to establish product provenance to ensure every product sold is certified as the original. It can also be applied in medicine to prevent counterfeit drugs.

Agriculture: Farmers can apply blockchain in supply chain tracking to prevent counterfeit and trace their product as it moves.

Healthcare: The government and other private institutions can change the course of record-keeping in the healthcare industry through blockchain technology. Record keeping in Nigerian hospitals is regressive, abysmal and needs to adopt the latest technology for quality medical consultations.

Elections: More research still needs to be done on how the government can apply blockchain technology in National elections. However, the prospect presents an opportunity for African countries and Nigeria ravaged by electoral malpractices. If blockchain can return democracy to the realm, it is time to change course.

Conclusion

With all its technology, the cryptocurrency market has come to stay and may not be dampened through bans and crackdowns. So, government institutions must seek to regulate and adapt to the growth of digital currencies, which can serve as a clarion call that it supports all innovations and products that may come as outgrowths.

Innovations are products of entrepreneurship and capitalism, and all seem to advance under friendly environments where progress is not stifled.

Martin Luther King Jr once commented on progress when he said, "Human progress is neither automatic nor inevitable...". Even one of the former American Presidents Franklin D. Roosevelt, encouraged progress when he said, "There are many ways of going forward, but only one way of standing still."