Moctar BouraimaFor several years, Bitcoin has been an integral part of the financial scene in Nigeria. The country has become the leading market for Bitcoin in Africa, and this, despite the absence of clear regulations on cryptocurrencies. The country has even experienced partial bans on the use of cryptocurrencies without ever really deciding categorically on the subject. Laws change as the crypto industry evolves and according to the positions of elected politicians. However, one thing is constant: Bitcoin adoption in the country is rapid and seems unstoppable.
According to Chainalysis, Kenya and Nigeria dominate the adoption of Bitcoin in Africa as evidenced by the trading volumes operated on the peer-to-peer exchange platform. It should be noted that on a global scale, Nigeria ranks 6th, which makes the country a major leader in the adoption of Bitcoin.
Why such adoption of bitcoin in the country? What motivates Nigerians to turn to Bitcoin so much? What are the benefits and barriers to such adoption?
These are the questions that drive our article, here, in which we will explore the history of Bitcoin in Nigeria and the socio-economic factors that have influenced its adoption.
A difficult socio-economic context
Although Bitcoin was developed in 2009, it took several years before it gained popularity in Nigeria. Peer-to-peer Bitcoin exchange platforms have been more widely used in the country since 2016 and the Bitcoin community in Nigeria has continued to grow.
This adoption of Bitcoin in Nigeria is also due to a particular socio-economic context. Since 2016, Nigeria is experiencing a deep economic crisis which has not been able to be resolved since then. The country suffers from high inflation leading to frequent and brutal devaluation of the naira, the local currency. According to the African Development Bank, "Inflation peaked at 18,8%, its highest level in two decades, fuelled by rising energy and food prices and the effects of the depreciation of the exchange rate."
In view of these concerns, the population has sought alternatives to protect their purchasing power and their savings. With Bitcoin continuing to rise in price, Nigerians have become interested in cryptocurrency as a hedge against inflation.
From another perspective, bitcoin has also been widely used to defend and support local collectives and associations. It can be noted that the collective which fights to denounce the violence of the Nigerian police unit SARS (“Special Anti-Robbery Squad”), received donations in bitcoin in order to circumvent government prohibitions. Bitcoin as a political tool was widely acclaimed in the country following the denunciations made by demonstrators during the presidential election in Nigeria. Activists across the country have discovered how bitcoin donations can help them sustain their businesses.
Read: The Bitcoin helps fight authoritarian rule, in Nigeria
Bitcoin seen as an optimal alternative
To reduce the loss of capital in the country, there are also ever-increasing restrictions on fund transfers, making them ever more difficult and costly. Nigeria has a large expatriate population who regularly send money to their families in the country. Bitcoin allows for fast and inexpensive transfers, without requiring the involvement of third parties such as banks. This makes bitcoin attractive to Nigerians who want to receive money from abroad quickly, easily and cost-effectively.
Bitcoin is also popular in Nigeria as an investment opportunity, especially among younger people. Nigerians see the growth potential of Bitcoin and are looking to take advantage of it by investing in the cryptocurrency. Even if minimal, there is some online financial culture in Nigeria, fostered by a vibrant startup scene in the region. The young population in Nigeria is fond of Mobile Money and internet use compared to older populations. Most certainly, this has favored such sustained adoption of Bitcoin in the country.
It should be noted that Nigeria is an English-speaking country, which can be beneficial for the entire population as the vast majority of Bitcoin information sites are broadcast in English. Access to knowledge and knowledge of Bitcoin has certainly been so strong in Nigeria for this reason, too.
The ambiguous regulation of cryptocurrency in Nigeria
Since gaining popularity, cryptocurrency regulation in Nigeria has been constantly evolving. In 2017, the country's Central Bank issued a directive prohibiting banks and financial institutions from processing cryptocurrency transactions. This sparked a mixed reaction from the population but did not stop local traders and investors from continuing to use cryptocurrency exchanges. The increase in the use of these platforms was even significant following the ban on the use of Bitcoin, especially since during this period, the asset had just reached an ATH, flirting below $20,000.
In September 2020, the Nigerian Securities and Exchange Commission announced the regulation of digital assets and crypto. This regulation includes provisions for cryptocurrency exchanges, brokers, and transactions with digital assets. This was seen as a positive sign for the cryptocurrency industry in Nigeria and gave a clear legal framework for the use and trading of cryptocurrency.
This unfortunatly more tolerant policy towards crypto-assets in the country attracts entrepreneurs and investors who wish to develop crypto-related projects in the country. There are more and more companies offering cryptocurrency-related services setting up shop in Nigeria. Indeed, establishing a regulatory framework for the cryptocurrency industry can guarantee the protection of investors, the strengthening of legal certainty and the reduction of criminal activities. This will perhaps mark a new direction for the country.
Although the regulation of cryptocurrencies in Nigeria has advantages, there are some shortcomings. These relate more to high compliance costs for businesses or the complexity and incompleteness of regulations. To overcome these problems, the authorities must put in place flexible regulations adapted to the local market.
How has the use of Bitcoin changed payment habits?
The use of Bitcoin in Nigeria has changed payment habits by providing a fast, inexpensive and secure alternative to traditional payment methods. Transactions are carried out online through apps and cryptocurrency exchanges, eliminating the need for a trusted third party to make payments. Small traders and entrepreneurs benefit from this ease of access without the obligation of having a traditional bank account.
This also allows Nigerians to benefit from new commercial and financial opportunities for individuals and businesses. Businesses can invoice in cryptocurrencies with border and foreign countries. This is why many Nigerians also buy stablecoins including USDC and USDT, for commercial purposes. Many are the freelancers Nigerians who can work for foreign clients because they agree to be paid in cryptocurrencies.
Bitcoin transactions are not subject to foreign exchange rates, preventing loss of currency value. Additionally, the ease of use of Bitcoin has increased access to cryptocurrency investments, allowing new investors to enter the investment and financial innovation market while strengthening the resilience of the economy.
The Disadvantages of Using Bitcoin in Nigeria
However, despite the advantages of using Bitcoin, there are also disadvantages. In fact, fluctuating crypto prices can lead to volatility in the economy for those who invest in them. Additionally, changing regulations may discourage the development of the cryptocurrency industry.
There is no denying that the strong growth of bitcoin in Nigeria is attracting scams and fraudulent projects. Criminal investigations have become tougher and scams are fewer. However, after losing their savings in “crypto projects”, many Nigerians are disillusioned with cryptocurrency. It is essential that education is made more widely available among the different populations living in the country.
The outlook for Bitcoin adoption in Nigeria
The existence of cryptocurrency, and Bitcoin in particular, has the potential to revolutionize Nigeria's financial sector. It can change the way financial transactions are carried out in the country. This is why the fintech and cryptocurrency industry in Nigeria is growing rapidly and continues to attract new investors.
As we have seen, the country needs to adopt flexible and tolerant regulations that encourage the development of the cryptocurrency industry. This, while protecting consumers and investors.
Furthermore, it is important that the adoption of Bitcoin is accompanied by public education on how the cryptocurrency works as well as the risks associated with its use. This way, users will be able to make informed decisions when investing in cryptoassets.
If efforts are made to educate the population on the benefits and risks of this new technology, things could take on a different dimension. It can be assumed that the bitcoin ecosystem will expand and that many companies will be interested in setting up in the country, as the local population already seems to be "educated" in the basics of using cryptocurrencies.
Final Word on the Bitcoin Situation in Nigeria
The adoption of Bitcoin in Nigeria can be seen as a response, or even a solution, to a set of problems that the country has been facing for many years. However, the country is going through such a financial situation that Bitcoin is also not a complete solution to the country's ills. Bitcoin can bring improvement to the financial system in the country but politicians need to work on the social impact of their policies, to different degrees.
Finally, Nigeria is far from being the only country in Africa where Bitcoin is so successful. Other countries are experiencing a strong attraction for this electronic currency. If within countries, bitcoin addresses many infrastructure problems, on a continent-wide scale, it is also seen as an African currency, facilitating exchanges within the continent. This also explains why bitcoin is experiencing such adoption in Africa, compared to other regions of the world and why hyperbitcoinization in the continent seems inevitable…
In December 2023, the Central Bank of Nigeria drastically relaxed the law and now allows operators to use cryptocurrencies. Moreover, Nigeria has just launched a new stablecoin cNGN to mark its desire to embrace the world of crypto-assets.
See as well:
- Bitcoin in Ivory Coast: State of play 🇨🇮
- Despite the obstacles, Bitcoin is gaining momentum in Senegal 🇸🇳
- Bitcoin in Morocco: Despite the ban, interest is still growing 🇲🇦
- What is the situation of Bitcoin in Cameroon?🇨🇲
- Bitcoin in Haiti: State of play 🇭🇹
- Why does Africa need to (urgently) adopt regulations for cryptocurrencies?
[…] Why is Nigeria 🇳🇬 the first African country to adopt Bitcoin? […]