More than two years have passed since Africa’s biggest economy banned licensed banks from engaging in cryptocurrency-related activities as a means to clamp down on a surge of unregulated transactions. Yet, despite such regulatory limitations, Nigeria’s crypto market has defied the odds and consolidated its status as a key transactional vehicle in the sub-Saharan nation.
Today, Nigeria’s cryptocurrency usage remains the highest in Africa and among the most developed in the world as a whole, with a year-on-year growth rate of 9%, according to a report from Chainalysis, which puts Nigeria in third place on a list of only six countries that reported constant growth since 2021.
The roots of Nigeria’s affinity for cryptocurrencies lie in a number of key factors, which have prepared fertile ground. Since 2016, the country has gone through two economic recessions caused by a combination of a drop in oil prices and long-standing economic challenges. Inflation and lack of access to more traditional forms of finance have also contributed to the overall movement of the population towards less conventional transaction formats.
Additionally, Nigeria has one of the fastest-growing populations in Africa, currently standing at 223 million, as well as one of the youngest demographics in the world, with 43% of the country currently under the age of 15, according to research by the UN. A young and tech-savvy society, paired with the falling prices of smartphones, is making cryptocurrency-related transactions more accessible. A recent study from KuCoin found that 35% of Nigerians aged between 18 and 60 are investing or trading bitcoin or other cryptocurrencies.
Yomi Bilewomo, growth marketing manager at bitcoin exchange Nairaex, says that the crypto market is fostering financial inclusion because, for many Nigerians, it is easier to open an account to trade cryptocurrencies than to open a bank account.
“To open a bank account, most Nigerians have to physically go to the bank, while, to access cryptocurrencies and make transactions, you only need to have internet access on your mobile phone,” he says.
Mr Bilewomo adds that the time when cryptocurrencies would mostly appeal to people looking to ‘get rich quick’ is now over. “Now there is more information and knowledge about cryptocurrency and, because of the recent devaluation of the naira, educated people are actually using it as a tool against high inflation,” he says.
Regulatory shift
Last year, Nigeria’s Securities and Exchange Commission published a new set of rules aimed at regulating digital assets, signalling a potential change of attitude from the government towards the widespread use of cryptocurrencies.
In June, the government passed the Nigerian Finance Act 2023. Under the act, individuals and businesses that buy, sell and trade digital assets, including cryptocurrencies, will have to pay a tax of 10% on their earnings. The introduction of such regulations is putting the crypto market on a path of complete legalisation.
Mr Bilewomo says that the new tax on exchanges is actually a good thing for crypto. “Having the regulators putting rules on cryptocurrencies is actually a positive development for us because it shows that the government is growing more supportive of the market,” he says.
What are Nigerians using crypto for?
At the same time, the crypto ban within the Nigerian banking system has drawn users towards peer-to-peer (P2P) platforms, which are exempt from the crypto regulations placed on banks because such platforms are non-custodial and allow customers to trade cash for cryptocurrencies among themselves, according to Chainalysis.
Chris Maurice, founder and chief executive officer at Yellow Card, Africa’s largest centralised cryptocurrency exchange, says that people in Nigeria are buying crypto for three main reasons: international payments, savings and remittances.
According to Chainalysis, sub-Saharan Africa received $48bn-worth of remittances through banks in 2019 alone, about half of which went to Nigeria. Although the majority of those remittances are sent to Africa from Europe and North America, a large chunk of them are also sent from elsewhere in Africa. However, some countries have implemented restrictions. In Nigeria, some banks only allow people to send $500 out of the country at a time. Chainlalysis says that cryptocurrency-linked payments below $1000 have increased steadily.
Although bitcoin remains the most widely traded cryptocurrency in Nigeria, other less mainstream options such as stablecoins are also gaining traction.
[Stablecoins] are a threat to the US dollar and the way it operates in the African continent
Stablecoins differ from other tokens because they are pegged to a reference asset, which could be fiat money, commodities or even other cryptocurrencies, protecting them from extreme volatility. Currently, tether is the most widely traded stablecoin in Nigeria.
Stability is the key feature of these currencies, along with low volatility and transaction costs, as well as enhanced safety. These features make stablecoins more competitive than other cryptocurrencies because they are more reliable for use in real-time transactions.
Yellow Card’s Mr Maurice says that stablecoins have the potential to completely “rethink and replace” the way that we think about the US dollar as the reliable currency of choice in a number of African nations. Furthermore, he adds that stablecoins are not here to replace local currencies or the local banking system; instead, “they are a threat to the US dollar and the way it operates in the African continent”.
He says that, although Nigeria got off to a “rocky start” back in 2021, the country has come a long way on crypto regulations and Yellow Card is on a strategic mission to “help formalise the industry” in the country, as well as pushing it forward within Africa.
Although the Nigerian federal government passed what it calls a “national blockchain policy” early this year, which could signal a shift towards a more open approach to crypto, as long as bans remain in place, standard currency transfers remain a preferred choice for many. Exchanging cryptocurrencies for the naira is not an easy task, which puts limitations on the use that people can make of bitcoins or other securities.
“I think it would be a cold day in hell when you walk into a coffee shop in Lagos and you’re paying for your espresso with bitcoin. It is just not realistic,” says Mr Maurice. Nevertheless, he believes cryptocurrencies have the potential to reshape the way that we perceive more standardised means of payment and enable more people to easily access and interact with local economies.
