More harm than good? Nigerian crypto users in disbelief over CBN ban

sci tech nerds favicon

Written by SciTechNerds

February 14, 2021

More harm than good? Nigerian crypto users in disbelief over CBN ban

The Central Bank of Nigeria has banned banks from servicing crypto exchanges within the nation in a move that echoes actions taken by its Indian counterpart back in 2018. Reactions to the news among the many political class have been divided amongst ethnic and geopolitical lines, with the more progressive elements calling for a nuanced approach by the apex bank.

In November 2020, Nigeria’s gross domestic product declined for a second successive quarter, plunging the nation’s economy into another recession — the second in the span of five years. Based on the Nigerian Bureau of Statistics, 26 out of the 36 Nigerian states did not obtain any overseas investments in 2020.

Even before the onset of the coronavirus pandemic, Nigeria’s economic system had been battered under the perceived mismanagement and ineptitude of the current administration. Nevertheless, the nation’s cryptocurrency economic system had been flourishing in the same time period.

Nigeria has become a hub for crypto adoption, with Google Trends data showing the nation as No. 1 in the world when it comes to search curiosity for Bitcoin (BTC). Starved of access to foreign exchange, Nigerians have been turning to cryptocurrencies as the next best thing to protect their wealth against the rapidly declining naira.

CBN not a fan of Bitcoin

Earlier in February, the CBN issued a circular directing all financial establishments to stop rendering services to crypto exchanges. The notice additionally mandated banks to close down the accounts of any people or entities discovered to be participating in cryptocurrency buying and selling actions.

Defending its place, Nigeria’s central bank resorted to the standard arguments: volatility, money laundering, terrorist financing, Silk Road, and “rat poison,” amongst others. The CBN even highlighted the actions taken by the likes of Bangladesh, Ecuador, Egypt and Nepal, to say a number of, as justification for its ban. In a statement clarifying its position, the CBN remarked:

“The recent regulatory directive became necessary to protect the financial system and the generality of Nigerians from the risks inherent in crypto assets transactions.”

Amid the furor occasioned by the prohibition, the central bank declared that the announcement was not a brand new resolution however, quite, a restatement of its earlier position from 2017. Nevertheless, the 2017 communique in question only warned banks in opposition to holding or buying and selling crypto; there was no mention of any ban on monetary institutions offering account providers to cryptocurrency exchanges.

For some crypto proponents in Nigeria who spoke to Cointelegraph on the promise of anonymity to prevent any negative actions from their banks, there may be an insidious undertone to the CBN’s motion. For one, some claimed that the ban is a part of efforts to help “their friends” within the Bureaux de Change business.

Certainly, principal actors within the BDC scene have come out in help of the transfer, calling it a step in the right path relating to Anti-Money Laundering efforts. In the meantime, crypto buying and selling on exchanges in Nigeria was in adherence to strict Know Your Customer protocols involving verification steps, together with the all-important bank verification number.

With the CBN blocking foreign remittances in naira, crypto adoption was gaining much more ground in Nigeria. Tech-savvy Nigerians dissatisfied with the providers and exorbitant charges of BDC operators may have entry to foreign exchange through cryptocurrencies, particularly fiat-pegged stablecoins.

There are also rumblings that the CBN’s action is a part of the federal government’s continued clampdown on the October 2020 “EndSARS” protests in opposition to the special anti-robbery squad — the rogue police unit implicated in quite a few extortion and extrajudicial execution circumstances. When banks shut down the accounts of people and entities supporting the protests, many switched to cryptocurrencies as a means of circumventing the attempted monetary censorship.

The crypto criminality query

Based on the CBN, the federal government has obtained complaints from the US Federal Bureau of Investigation concerning the actions of scammers utilizing crypto. Certainly, again in July 2020, Cointelegraph reported on an FBI criticism about alleged Nigerian scammers using cryptocurrency to siphon tens of millions of {dollars}.

The CBN even went further to magnify the usage of crypto by legal enterprises stating: “Many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities.”

Whereas there are situations of the legal use of cryptocurrencies, the volumes of such actions are insignificant when in comparison with the general world crypto transaction matrix. In its 2020 crypto crime report, blockchain intelligence agency Chainalysis revealed that only 0.34% of the cryptocurrency transactions in 2020 were involved in illicit activity.

The report additional indicated a decline in crypto crime as reliable cryptocurrency commerce virtually tripled in volume between 2019 and 2020. In a conversation with Cointelegraph, Danny Oyekan, founding father of blockchain firm Dan Holdings, remarked that the CBN’s rhetoric only deflects from the true utility of cryptocurrencies, including:

“For a long time, crypto has been associated with nefarious activities, but in reality, fiat currency is used 10x more than crypto for criminal purposes. […] Banning access to crypto will affect a country more negatively than the criminal activity the industry is falsely associated with.”

David Ajala, CEO of NairaEx — considered one of Nigeria’s oldest Bitcoin exchange platforms — additionally faulted the CBN’s characterization of crypto as a tool for criminal activities, telling Cointelegraph, “it is a false narrative to assume that the majority of cryptocurrency is used for criminal activity.” He added:

“It is the job of the regulatory body to start figuring out ways to curb illegal activities on the blockchain just the same way processes and framework are used to curb illegal activities using fiat, and we believe one of the best ways is for regulatory bodies to work with crypto-fiat exchanges, as exchanges currently serve as gatekeepers for people dealing in cryptocurrencies.”

Crypto solves Nigeria’s skyrocketing unemployment

While still in its early days, the CBN ban appears to have accomplished little to change Nigeria’s established hyperbitcoinization culture. However with banks already reportedly shutting down accounts related with crypto buying and selling, customers within the nation are embracing peer-to-peer channels much more. For Ajala, the financial advantages related to crypto involvement far outstrip any inconveniences occasioned by the CBN ban, including:

“Cryptocurrencies have served as economic empowerment to millions of Nigerians using trading as a source of income and have become a hedge against a high inflation rate of over 15% in the country.”

Based on him, the booming crypto industry has contributed to solving the unemployment disaster within the nation. Certainly, Nigeria’s unemployment rate has more than tripled during the last 5 years, a scenario additional worsened by the COVID-19 pandemic. Ajala added: “There is a minimum of 100 startups in Nigeria that operate in the blockchain industry either as exchanges, educators, digital assets management firms, etc. They have all employed thousands of Nigerians.”

For Oyekan, Nigeria stands to profit an excellent deal from insurance policies aimed toward supporting the burgeoning crypto market. “Nigeria ranks eighth in global adoption of cryptocurrency and is ranked first in peer-to-peer payments, moving $139 million in the past year,” he famous to Cointelegraph, including:

“In emerging markets where local currencies are extremely volatile, providing access to a financial system, like the one crypto and blockchain technology provides, does more good than bad. It empowers the unbanked, aids in creating wealth, and creates financial stability.”

Oyekan is of the opinion that the central bank ought to take into account nuance laws quite than outright bans. Based on him, the CBN ought to arrange a licensing regime for crypto companies while considering holding Bitcoin on its balance sheet.

In the meantime, Nigeria’s Securities and Exchange Commission has halted its planned regulatory sandbox for crypto companies following the CBN ban. Based on the SEC, the choice was taken as a result of certified companies underneath the sandbox framework are at the moment prohibited from holding financial institution accounts within the nation.

The finance ministry had previously been collaborating with the SEC to create a authorized framework for crypto and blockchain in Nigeria. At the time, the transfer was seen as a major step in boosting the country’s growing digital economy.

Related Articles

What’s behind the rerating of Cosmos?
What’s behind the rerating of Cosmos?

ATOM, the native cryptocurrency of the Cosmos blockchain protocol, has rallied by over 100% in the past week. Analysts are attributing the rally of ATOM to 2 main elementary components. First, in recent weeks, layer one blockchain protocols, like Avalanche (AVAX) and...

5 Takeaways From Chia Network’s New White Paper
5 Takeaways From Chia Network’s New White Paper

It would take 21 years for the remainder of the world to mine as much of the Chia (XCH) cryptocurrency as the company behind it will have on the day its mainnet launches next month. “We believe that chia, a new digital currency built on our new blockchain with...

Market Wrap: Ether Sets New Highs as Bitcoin Stays Below $49K
Market Wrap: Ether Sets New Highs as Bitcoin Stays Below $49K

The price of bitcoin struggled to regain $49,000 Friday, continuing to bounce between $48,000 and $46,000 heading into the weekend. As bitcoin contemplated which way to go, ether made a brand new all-time high above $1,850. A lot of bitcoin’s choppy price action might...

Stay Up to Date With The Latest News & Updates