Out of control and rising: why bitcoin has Nigerias government in a panic | Cryptocurrencies | The Guardian
When the Nigerian government suddenly banned foreign exchange access for textile importing companies in March 2019, moses awa* felt stuck. His business, importing woven shoes from Guangzhou, China, for sale in the northern city of Kano and his home state of Abia further south, had been suffering along with the country’s economy. the ban threatened to push it over the edge. “It was a serious crisis: I had to act fast,” says Awa.
turned to his younger brother, osy, who had started trading bitcoins. “He was just stockpiling, stockpiling crypto, saying that at some point in the future it could be a great investment. when the forex ban happened he also showed me how much i needed it. he could pay my vendors in bitcoins if they agreed, and they did.”
Reading: Bitcoin in nigeria
according to bitcoin trading platform paxful, nigeria now ranks second only to united states in bitcoin trading. The dollar volume of cryptocurrencies received by users in Nigeria in May was $2.4 billion, up from $684 million last December, according to blockchain research firm Chainalysis. and the actual scale of crypto flows through Africa’s largest economy is likely to be much larger, with many exchanges untraceable by analysts.
A number of factors, from political repression to currency controls and rampant inflation, have fueled the astonishing rise of cryptocurrencies in Nigeria. in February, the government freaked out and banned cryptocurrency transactions through authorized banks. In late July, it announced a pilot plan for a new government-controlled digital currency, hoping to reduce incentives for those who want to use unregulated crypto.
But these measures have done little to slow down trading, with exchanges reporting a continued increase in transactions this year.
The Nigerian experience offers lessons for governments around the world, many of whom are now thinking seriously about how to regulate digital currencies. British Chancellor Rishi Sunak is considering creating a central bank-controlled version, already called Britcoin. EU regulators have laid out plans to make digital currencies more traceable, in order to combat money laundering. In rural China, rows of computers used to create bitcoin in a computational process known as “mining” are being shut down after a crackdown by authorities. the ruling party imposed a transaction ban in May.
Elsewhere, Egypt, Turkey and Ghana have sought to clamp down on cryptocurrency trading, wary of potentially large movements of digital funds beyond their regulatory controls.
nigeria has one of the youngest populations in the world and is ready for digital finance. With many people looking for ways to escape widespread poverty, pyramid schemes are proliferating.
Forex trading is an everyday activity for many. Remittances to Nigeria from those working abroad, worth more than $17 billion in 2020, have played a role, as has the way digital currencies can provide insurance against exchange rate fluctuations. the value of the Nigerian naira has plummeted nearly 30% against the dollar in the last five years.
There are also political factors. some see cryptocurrencies as vital protection against government repression.
last october, nigeria was rocked by the largest protests in decades, as thousands marched against police brutality and the infamous sars police unit. the “endsars” protests saw abuses by security forces, who beat protesters and used water cannons and tear gas against them. over 50 protesters were killed, at least 12 of them shot dead at the lekki toll in lagos on 20 october
the repression was also financial. Bank accounts of civil society organizations, protest groups and pro-demonstrators who were raising funds to release protesters or provide them with first aid and food were suddenly suspended.
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Feminist Coalition, a collective of 13 young women founded during the demonstrations, garnered national attention when they raised funds for protest groups and supported demonstration efforts. when the women’s accounts were also suspended, the group began accepting bitcoin donations, eventually raising $150,000 for their cryptocurrency fighting fund.
jack dorsey, the founder of twitter and a prominent cryptocurrency advocate, re-shared femco’s bitcoin donation page, further drawing the ire of the nigerian government, which last month suspended twitter in nigeria .
Seeing young people openly critical of government figures easily maneuvering around restrictions shocked the country’s political class, according to adewunmi emoruwa, founder of gatefield, a public policy organization that gave grants to journalists covering the protests. .
“I think endsars is like the key catalyst for some of these decisions that the government is making,” he said. “It caused fear. they saw, for example, that people could choose to bypass government structures and institutions to mobilize. it sent shock waves and those shock waves have continued.”
During the protests, gatefield’s bank accounts were suspended, until a court found the suspension undeserved and ordered them to be reopened earlier this year.
The episode reinforced the need felt by many Nigerians to insure themselves against sudden moves by the authorities. many organizations now hold part of their finances in cryptocurrencies.
Speaking anonymously to avoid reprisals from the authorities, a leading figure from a civil society organization, whose accounts were also briefly suspended last October, said that digital currencies were now a key insurance against hostile interventions.
“we hold some value in crypto, not too many but enough, as a kind of insurance policy,” they said. “When the ban happened, luckily we were able to pay the salaries. this way, in a situation like that, we will have a way to continue paying our staff.”
In February, the Nigerian central bank responded by telling banks to close the accounts of all customers using cryptocurrencies. financial institutions would have to “identify persons and/or entities” transacting in cryptocurrencies or face sanctions.
At first, the ban was a blow to an emerging industry of cryptocurrency brokers that relied on commercial banks to facilitate transactions between sellers and buyers. however, many clients found workarounds, said marius reitz, general manager for africa at luno, a cryptocurrency trading platform.
“much of the trading activity has now been driven underground, meaning many Nigerians now rely on less secure and less transparent over the counter channels, as well as telegram and whatsapp groups, where people trade directly with each other. Reitz said. the ban has made cryptocurrency trading more difficult to monitor and less secure. “This also means that regulators now have a reduced level of visibility and control of the market and unfortunately this can expose consumers to a higher risk of being scammed.”
Platforms have also adjusted, continuing to facilitate transactions as long as the currency being traded is not declared a cryptocurrency.
While some platforms experienced a shock to exchanges, for others, the crackdown increased demand for cryptocurrencies, not reduced it. In the first five months of 2021, according to Helsinki-based platform LocalBitcoins, Nigerians traded 50% more than in the same period last year.
See also: Top 20 NZX trades by Sharesight users – July 2021
Indeed, the Nigerian government’s response to cryptocurrencies has been inconsistent. In announcing the February restrictions, central bank governor Godwin Emefiele told a Senate committee that cryptocurrencies were “not legitimate money.”
at the same time, vice president yemi osinbajo publicly rebuked the move. “Instead of adopting a policy that prohibits cryptocurrency trading in the Nigerian banking sector, we must act with knowledge and not fear,” he said, calling for a “robust regulatory regime that is thoughtful and knowledge-based.”
Another Nigerian government agency, the Securities and Exchange Commission, has been more open to creating a more regulated environment for cryptocurrency transactions.
The reality that cryptocurrencies cannot be effectively stopped had gradually dawned on the government, said a Nigerian cryptocurrency trading platform operator, speaking anonymously after being attacked by authorities. “They know they really can’t stop it. it’s out of their control and what scares them is that they’re not used to being in this position.”
* is not his real last name
bitcoin: pros and cons
Bitcoin was the first cryptocurrency, created in 2009, and remains the best known and most valuable. it is a digital or virtual asset, operating outside the traditional banking system, and its influence has skyrocketed, with a growing number of companies now accepting it for payments.
Each bitcoin is essentially a digital token containing a secret key that proves to anyone on the network who it belongs to. effectively, each bitcoin is a collective agreement by all the other computers on the bitcoin network that the token is real, created by a bitcoin “miner,” and then acquired through a series of legitimate transactions.
every time bitcoins are spent, the entire network knows that their ownership has been transferred. Every transaction is stored in a durable public record called a blockchain, which underpins the entire system, making it possible to trace a coin’s history and prevent people from spending coins they don’t own.
for bitcoin’s many proponents, the virtual system has several advantages, from the way the blockchain can be used to track things other than simple money, to compatibility with “smart contracts,” which run automatically when certain conditions are met.
But the biggest advantage of bitcoin is that it is decentralized and therefore extremely resistant to censorship or regulatory control by a single entity. it is possible to observe a bitcoin payment in process, but no one can stop it. this has made governments wary: in a conventional financial system, banks can freeze accounts, screen payments for money laundering, or enforce regulations.
Thanks to the decentralized nature of cryptocurrency networks, people have been able to make international payments from closed or tightly restricted economies, but this has also made them a haven for illegal activities, from cybercrime to money laundering. and drug trafficking.
another concern about bitcoins is that they harm the environment. Bitcoin mining, the process of awarding a bitcoin to a computer that solves a complex series of algorithms, consumes large amounts of energy. miners install large computing platforms to maximize the chances of obtaining bitcoins. The carbon footprint of this “mining” is now similar to that of Chile, according to the Cambridge Bitcoin Electricity Consumption Index, a Cambridge University tool that measures the energy use of the currency.
Bitcoin advocates say mining is increasingly done with electricity from renewable sources. And while the amount of energy consumed by bitcoin has dropped significantly this year, concerns remain. environmentalists argue that miners tend to settle where electricity is cheapest, which may be in places with coal-fired power.
See also: How to Accept Crypto Payments as a Small Business – Small Business Trends