In the wake of __CBN's ban __on cryptocurrency in Nigeria, one could say that an action taken by the government meant to derail a booming digital financial market only succeeded in hurling the market amongst crypto enthusiasts. Perhaps the Central Bank of Nigeria's (CBN) ban on cryptocurrency lamed the further growth of the digital market.

Cryptocurrency is built on trailblazing blockchain technology, making it nearly impossible to double-spend or counterfeit—and this decentralized digital money (crypto) was meant to free the crypto economy from government interference or manipulation.

We can't deny the government's censorship abilities in the blockchain space. The Tornado ban and Celcius' bankruptcy, among other things, demonstrate this capability. And the lack of a central authority to guarantee that things run smoothly, or support the value of crypto, is an act of design seen as a weakness by the government.

Cryptocurrency is a big deal in Nigeria! The country's crypto trade has grown astronomically during the last few years; the largest cryptocurrency market in Africa and the country that trades the most bitcoin globally after the United States.

Impact Of Digital Currency On Nigerians

The typical young Nigerian has developed an interest in cryptocurrencies; many would argue that the CBN's ban on it is a sham since government officials allegedly invest in it more than the average Nigerian.

A nation plagued with a high poverty rate, and Naira, the country's currency, has been experiencing inflation with hyperinflation-like characteristics. However, many Nigerians are turning to cryptocurrency as a hedge of financial value since hedging is the best approach for reducing risks associated with financial assets.

Despite the CBN ban and risks associated with cryptocurrency, many Nigerians continue to invest in it. Crypto trades and investments are now a financial haven for many trying to escape the country's economic woes.

Why does the CBN not back Crypto?

Crypto mania came into the financial world like a whirlwind, declaring war on the traditional banking and monetary system.

Due to several factors—notably the volatility of cryptocurrencies, a lack of regulation, and concerns that they may lose value—the government is unwilling to place its trust in them. CBN's main objection is that they are vulnerable to fraud.

Despite their reservations, the Central African Republic followed El Salvador's lead and made Bitcoin legal tender amid the global economic crisis.

CBN Bans Crypto

The crypto ban struck the Nigerian crypto community when least expected.

"The ban was aimed at stemming the threats of terrorism financing and money laundering," —according to Mr. Kelvin Amugo, Director, Financial Policy and Regulation Department.

The central bank of Nigeria (CBN) first took a strong stance against cryptocurrencies on January 12, 2017. They issued a circular on February 5, 2021, ordering financial institutions to cease facilitating cryptocurrency transactions.

On February 7, 2021, they issued another circular, stating that "no new restrictions have been placed on cryptocurrencies— it's an enforcement of a ban that has been in place since 2017."

It is safe to call the ban in Nigeria 'a crypto banking ban' —since firms can exist as long as they do not transact with commercial banks.

What did the SEC Have to Say?

Contrary to the CBN, the SEC in Nigeria issued guidelines for crypto assets, reaffirming their legal status, but not as legal tender.

The Nigerian Senate summoned the SEC and CBN one week following the suspension. The SEC reversed its prior decision and supported the CBN, citing market stability and reiterating its continued commitment to innovation.

In a release, they noted: "For the purpose of admittance into the SEC Regulatory Incubation Framework, the assessment of all persons and products affected by the CBN Circular of February 5, 2021, is hereby put on hold until such persons are able to operate bank accounts within the Nigerian banking system."

The ban affected the activities of crypto-based fintech firms as they battled to mitigate its impact.

Fintech Disruption

Following the ban, great anxiety and panic erupted as the crypto community in Nigeria scrambled to move their assets to safety. All naira deposits and withdrawals halted—new alternatives were urgently needed.

Crypto-based fintech firms had to remodel and evolve different peer-to-peer financial models to remain in the market. Users had to adapt quickly to this emergency drift in transaction methods, which actually worked.

Why The Surge in Cryptocurrency Holders?

In Nigeria, the value of cryptocurrencies has increased steadily. Pharmaceuticals, travel companies, and the fashion industry are among the big enterprises and sectors that have adopted cryptocurrency payments—Proofing that digital currencies have the nitty-gritty to break through boundaries and eventually replace conventional financial systems.

Nigeria continues to witness a rise in crypto ownership for several reasons, including potential employment opportunities and low entry barriers.

According to data from Paxful, Nigerians traded $185 million worth of Bitcoin in the first three-month of 2022, indicating a 5.71% increase compared to the same period last year when the CBN ban was enforced.

Blockchain Continuous Adoption

Regarding blockchain and fintech, Nigeria and the rest of Africa are progressively emerging as major global IT hubs. The bulk of investments made in Africa has gone to Nigeria. More than 70% of all VC funding in the continent was made in countries like Kenya, South Africa, and Seychelles.

According to Standard Bank and Crypto Valley Capital, $49.6m was raised in 2021 by 18 Nigerian ventures, as stated in their inaugural African blockchain report.

VCs have invested $177 million more in blockchain technology across the continent than in 2021 ($127 million), totaling $304 million for the first and second quarters of 2022—a 139% increase.

Afriex, a Nigerian startup, joined Kucoin and Mara, the Pan African exchange, with a $10 million funding round to achieve its stablecoin facilitated payments using e-wallets.

However, the crypto ban in Nigeria has failed to tame its usage and adoption, notwithstanding a bearish market and falling prices.

A CBDC was launched in what was perceived as an effort by the CBN to woo back the younger generation whose hearts had been sold out to cryptocurrency.

The CBDC Lunch

After various delays, the Nigerian central bank finally introduced the eNaira, Africa's first digital currency.

In a press release, the CBN governor, Mr. Godwin Emefiele, noted the CBDC benefits to include:

 

 "increased cross-border trade, accelerated financial inclusion, cheap and faster remittance inflows, easier target social interventions, as well as improvement in monetary policy effectiveness, payment system efficiency, and tax collection."

In a recent assessment of its CBDC, the CBN found 270,000 active users, including both consumer and merchant wallets, and more than 840,000 downloads for the eNaira app. To date, trades of N4 billion, or £8 million, have taken place.

According to an index recently released by PricewaterhouseCoopers, the CBN's CBDC led the global rally in the central banks' retail projects index, followed by the sand dollar issued by the Central Bank of the Bahamas.

In a recent assessment of its CBDC, the CBN found 270,000 active users, including both consumer and merchant wallets, and more than 840,000 downloads for the eNaira app. To date, trades of N4 billion, or £8000 million, have taken place.

NSE to Adopt Blockchain

The Nigerian Stock Exchange (NSE) has plans to incorporate blockchain by 2023 to make it appealing to younger investors, so the CBN is not alone in this race to win over the younger generation.

According to Mr. Temi Popoola, CEO of The NSE, "Blockchain technology can facilitate different parts of the capital market, whether around the creation of products or facilitation of the Exchange to trade financial assets."

A further increase in crypto HOdLers is expected as blockchain adoption continues to widen in Nigeria.

Despite the hostile relationship between Nigeria and the crypto community, the recent partnership between the government and Binance to build an export processing zone authority (NEPZA) has further demonstrated Nigeria's determination to reap blockchains' benefits regardless of her current deposition.

On A Final Note

A friendlier atmosphere is probably on the horizon. The CBN's CBDC, the NEPZA, and NSE's plan to adopt blockchain only mean a deepening blockchain adoption. The financial inflows to crypto and blockchain-based fintech will continue to rise, though the recent increase only accounts for less than 1% of global VC startup funding.

Nigeria, the largest African crypto market, cannot be overlooked, especially given the tenacity of its investors, who will continue to play significant roles in the global crypto economy—in terms of driving trade volume and more holders.

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