Why crypto is booming in Nigeria despite the banking ban

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Nigerian regulators have tried to crack down on the cryptocurrency. Now, a few months later, it is clear that their efforts have not worked. The nation is a prime example of how people will turn to crypto to deal with a struggling economy despite the state’s prohibitive stance.

In February, the Central Bank of Nigeria ordered banks to “identify persons and / or entities” that conduct crypto transactions or execute crypto exchanges and “ensure that those accounts are closed immediately.” But this ban hasn’t done away with bitcoin in Nigeria. Instead, the crypto community has turned to peer-to-peer exchanges, or sending payments directly to each other.

According to blockchain research firm Chainalysis, the dollar volume of crypto received by users in Nigeria has steadily increased in 2020 and 2021, which may be partly related to this year’s bull market. Nigeria received $ 2.4 billion in crypto in May, up from $ 684 million last December, the analyst firm said.

While this type of geographic data comes with caveats, it is clear that crypto is alive and well in Nigeria.

Wealth Without Borders

According to a survey carried out in March by Statista, 32% of respondents in Nigeria use crypto. Nigeria also ranked eighth in the Chainalysis 2020 Global Cryptocurrency Adoption Report.

Interest in crypto increased last fall, when activists in the EndSARS movement, who were protesting police brutality in Nigeria, used bitcoin to raise funds.

Economic factors also seem to encourage adoption.

Recently, the devaluation of our local currency [encouraged] people [to start] save in crypto assets like Bitcoin and Ethereum, said Udeaja Kingsley, CEO of crypto startup BiTA, adding that crypto users are mostly young people who believe in it and trade it through P2P.

So far in 2021, the Nigerian naira has lost value with the country’s inflation rate at 18%. While US dollars can be hard to come by in Nigeria, bitcoin sometimes serves as a dollar substitute, allowing people to hedge against naira inflation. Since most of the goods Nigerians buy are imported, US dollars are in high demand and there is often not enough on the market.

However, some of Nigeria’s importers have already switched to crypto as a payment method, says Keith Mali Chung, president and co-founder of Loopblock Network, an African blockchain company. Over 70% of everything consumed in Nigeria is imported, and with financial restrictions, bitcoin is gaining the attention it deserves, he said.

Chinese traders selling clothing and electronics in Nigeria use crypto as a medium of exchange, Chung said. The pattern is similar to that of Eastern Europe, where Chinese traders could send tens of millions of dollars in crypto across the border daily.

Read more: Millions of cryptos cross the Russian-Chinese border daily. There Tether is king

It is difficult to estimate how much money is transferred from Nigeria to China this way, Chung said, but he has anecdotal evidence. I know a particular [merchants] who trade over $ 2 million to $ 5 million a day, and there are countless, and the numbers are growing rapidly, he said.

According to Chung, some young Nigerians see bitcoin and smaller, newer cryptocurrencies as a way to make money as the mainstream economy lags due to the pandemic.

Many people take advantage of the [decentralized finance] industry right now, it offers equal financial opportunities for everyone, regardless of nationality or whatever, Chung said. A lot of people are going into different yield farming programs, I know a number of people who got DeFi loans to run their businesses, he added.

Ray Youssef, CEO of Paxful, a service that allows users to buy and sell bitcoin peer-to-peer, believes the biggest factor in the popularity of crypto in Nigeria has been intense motivation and aptitude. Nigerian Youth Commercial.

Entrepreneurship is ingrained in their DNA, Youssef told CoinDesk via a spokesperson.

Frozen accounts

The Nigerian government, and the Central Bank of Nigeria in particular, have not been overtly hostile to crypto. Commenting on the controversial banking ban at a public event in March, Adamu Lamtek, the deputy governor of central banks, said the regulator had never completely banned cryptocurrency activity in Nigeria; instead, it only banned banking services for crypto companies.

For some crypto firms on the ground, however, the Nigerian reality remains difficult.

Luno, the crypto wallet owned by Digital Currency Group (also the parent company of CoinDesks), has frozen escrow deposits and withdrawals since February, he said in a recent statement from CEO Marcus Swanepoel.

Although the company successfully unblocked its bank account in Nigeria in June, users still cannot transfer their trust funds to and from the platform, Swanepoel said, adding that the company has stepped up regulatory lobbying to resolve the issue. problem.

We are negotiating day and night with relevant stakeholders in Nigeria to get them to work collectively with the government to find a solution that works for everyone, he added. This includes CBN and other crypto platforms, and allowing people to opt out is the top priority.

Chike Okonkwo, Africa sales and partnerships manager for an asset manager Thresh0ld, and also a member of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN), said the crypto community has tried speaking with the central bank, but has not had a response so far.

He says SiBAN, along with two other organizations, Blockchain Nigeria User Group and Cryptography Development Initiative of Nigeria, have been striving for some time to be on the same page with regulators.

We had meetings with the [Securities and Exchange Commission, the countrys securities regulator] before the announcement of the CBN ban, but due to the fact that the CBN did what it did, the SEC had to put its own plans on hold, Okonkwo said.

Also Read: Nigeria’s Protests Show Bitcoin Adoption Is Not Happening: It’s Here

Nigeria’s SEC announced in February that it was suspending its own crypto regulatory plans due to the CBN ban.

P2P tree

Crypto communities around the world have found ways to bypass government restrictions, and Nigeria is no exception.

According to Paxful’s Youssef, after the Central Bank of Nigeria banned crypto-related bank transfers in February, Nigerians sent even more bank transfers to buy bitcoin than before. Paxful is on track to have 23% more transactions funded by wire transfers in Nigeria than last year, and 36% more in terms of volume, Youssef said.

Nigeria is the company’s largest market, with around 1.5 million users and a transaction volume of over $ 1.5 billion, according to Paxful.

According to UsefulTulips, in the first half of 2021, the volumes of two major P2P platforms in Nigeria, Paxful and LocalBitcoins, were the largest in Africa, totaling over $ 200 million.

In the first five months of 2021, Nigerians traded 50% more than the same period last year on LocalBitcoins, said Jukka Blomberg, Marketing Director of LocalBitcoins, adding that new registrations have also increased this year. .

This activity can be explained at least in part by the fact that P2P exchanges are not easy to trace for officials. When people send money directly from one personal account to another, without passing it through a third party, it is difficult to see exactly how people are using the money. It could be for bitcoin they bought from someone, their monthly apartment rent, or a friend’s debt repayment.

It would therefore be difficult, if not impossible, for banks to “ensure that such accounts are closed immediately, as ordered by the Central Bank of Nigeria.”

Turning to peer-to-peer transactions could actually make Nigeria’s crypto ecosystem healthier and more resilient, according to Yele Bademosi, CEO of the Africa-focused crypto app Bundle.

In my opinion, we were too comfortable with relying on centralized rails and channels for crypto ramp on / off, Bademosi told CoinDesk. In the philosophy of bitcoin, P2P methods are more resilient because they do not have a central point of failure.

Also Read: Bitcoin Cannot Be Stopped: Nigerians Turn To P2P Exchanges After Crypto Ban

Nigeria is part of a larger regional trend. Africa has seen an insane 386.93% increase in P2P trading volumes on Binance since January, according to Damilola Odufuwa, Binances spokesperson in Africa. The number of users across the continent increased by 2,228.21% in those same four months, she added. The company declined to reveal specific data on Nigeria.

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