The ban on cryptocurrency has crippled foreign direct investment in Nigeria's Fintech industry: An Emerging Report Claims

Technology is rapidly transforming our daily lives. Fintech, blockchain, and cryptocurrencies are reshaping the financial system in developed nations, opening up new avenues for financial service development.

As a result, while some governments welcome technological advancements, others resist them.

In Nigeria for instance, the federal government imposed a ban on cryptocurrency transactions in the country in February 2021, and banks and other financial institutions were required to fish out and shut down all cryptocurrency exchange accounts.

Despite these restrictions, Paxful, which is a Bitcoin marketplace, reports that Nigeria has the highest volume of peer-to-peer trade outside of the U.S.

According to a new report, Nigerian government limitations on crypto trading may have attributed to a drop in foreign direct investment into the fintech industry.

This very same ban, as well as the Twitter ban, has severely impacted young Nigerians who earn money through cryptocurrency trading.

The report had the title Africa’s Urbanization Dynamics 2022: The Economic Power of Africa’s Cities.

It was co-published by the Organization for Economic Co-operation and Development (OECD) and the United Nations Secretary-General (UN).

Younger Nigerians are faced with the risk of being negatively affected by varied government policies, according to highlights from the report.

“Jobs in the tech sector range from creating apps, trading digital currencies, operating in social media marketplaces, to freelancing and gig work. Many young people can plug into the global economy and make enough to get by. However, this involves the expense of data and devices and can be frustrating when arbitrary government policies are enacted,” the report partly stated.

It further revealed that “The restrictions on cryptocurrency transactions and the outright ban of Twitter in Nigeria have crippled foreign direct investment in the fin‑tech industry and negatively impacted millions of young Nigerians who earn a living from the sector. 

However, many have found a way to lawfully bypass these restrictions and continue the business, effectively denying Nigeria the taxes and transaction fees that would otherwise come into the system.”

Many governments have structured legislation and permitted cryptocurrency on a global scale.

Similarly, as the prices of cryptocurrencies such as Bitcoin and Ethereum have skyrocketed, global investors have poured money into these countries. Many crypto specialists believe Nigeria is taking a step backward by prohibiting cryptocurrencies.

As a result, analysts say the government should concentrate on regulating digital currencies.

They further claim that because bitcoin transactions use blockchain technology, which is very practical, they are incredibly transparent and can be monitored online.

Nigeria and Cryptocurrency Ban

Last October, a survey on crypto usage in 154 countries ranked Nigeria sixth, amid a change that saw the value of crypto traded in Africa increase by 1,200 percent. 

Peer-to-peer exchanges on platforms like Paxful and LocalBitcoins, as well as WhatsApp and Telegram, drove this surge.

The naira has weakened, and more Nigerians are using cryptocurrency now than before the ban.

Different methods have been adopted by crypto exchanges to fit into the new reality. Patricia, which is an Africa-centric integrated alternative payment and e-commerce company that simplifies the usage of digital currencies, has relocated to Estonia, a crypto refuge.

Buycoins, a platform that allows African currencies to be traded, has begun advertising on large billboards in Lagos.

At the recently finished Africa Cup of Nations, Binance, the world's largest cryptocurrency exchange by volume, took up spots on electronic billboards.

With these developments even with the current ban on cryptocurrency, the Nigerian government might have to reconsider the ban and set up measures to ensure the crypto market is properly regulated.

Why does the CBN need to lift the restriction on crypto in Nigerian banks?

Nigerian banks are not allowed to serve consumers that deal in cryptocurrency.

Banks quickly cooperated with the law and shut off the accounts of bitcoin exchange businesses and private users in response to the approaching threat of hefty fines. 

There are sore reasons why the CBN might need to reconsider the ban, some of which are:

Despite the CBN's restriction, crypto usage is increasing in Nigeria. With Africa's largest country facing significant economic troubles, more and more young people are turning to cryptocurrency to insure against currency depreciation, transfer money cheaply, or earn a living, despite banks' prohibition.

Nigeria still controls the majority of peer-to-peer transactions in Africa. On two main platforms (Paxful and Localbitcoins), Nigeria now has a P2P volume of $400 million, followed by Kenya with more than $160 million and South Africa with $117 million.

The rules are evolving. The CBN's justification for enforcing the restriction is tainted by the misconception that crypto is anonymous when used.

Local regulated exchanges have gotten ahead of the game by requiring users to follow stringent anti-money laundering and know-your-customer regulations.

Because users provide extensive personal information at the entry and exit points to the highly centralized cryptocurrency system, every transaction is immediately identified with a user.

If you are a person of interest, it is nearly hard to get away with theft and other crimes aided through exchanges since these exchanges use incredibly advanced blockchain surveillance systems.

Even in the regulated financial system, those venues are likely to have less traceability.

Economic advantages. Despite poverty, inflation, and unemployment levels at all-time highs, and with COVID-19 as a threat, blockchain technology has given a variety of new possibilities for Nigerians trying to expand their revenue sources and protect themselves from economic recessions.

According to Enhancing Financial Innovation & Access (EFInA), which fosters access to financial services through financial sector development, a disruptive technology may lessen obstacles to financial inclusion in Nigeria.

Africa's largest economy might see a $29 billion rise in its gross domestic product by the end of the decade, according to the analysis.

Conclusion

Instead of excluding it from the Nigerian banking environment, the central bank should embrace it, and probably also look for ways to regulate it because crypto and blockchain technology, in general, will challenge traditional banking, including central banking, in ways we haven't yet imagined.