The Next Wave: Nigeria’s crypto hurdle

Retreat, Reinforce

In December 2015, the Central Bank of Kenya sent a memo to CEOs of commercial banks, mortgage firms and microfinance banks. It read:

“Transactions in virtual currencies are largely untraceable and anonymous making them susceptible to abuse by criminals in money laundering and financing of terrorism.”

The CBK forbade Kenyan financial institutions from opening accounts “for any person dealing in virtual currencies such as Bitcoin.” Offending banks would face “remedial action.”

Nigeria’s official relationship with crypto is now at this prohibitive phase. Crypto exchanges have moved their money from banks, and said banks are closing some customer accounts, apparently to rid the financial system of this untraceable, anonymous virus. 

[ Read: Nigerian banks begin closing customer accounts with history of crypto transactions ]

Cryptocurrencies are not banned in Nigeria. You’d have to outlaw crypto exchanges and shut down the internet to achieve that. But the Central Bank of Nigeria has undercut the nascent sector by refusing to let trucks (i.e. crypto exchanges like BuyCoins, Bundle, Luno and Quidax) deliver goods to consumers through its bridges.

What are these stranded truck owners doing? They are looking to Kenya for fuel.

Michael Kimani, co-founder and chairman of the Blockchain Association in Kenya, anticipates two things: Nigerian crypto companies will diversify their risk by opening operations in East Africa, and will adopt the peer-to-peer system.

A summary of how peer-to-peer crypto transactions work: 

• Individual buyers and sellers transfer fiat currency to each other through normal bank accounts, the normal way a lady pays for her Valentine date’s flowers through a bank transfer to a florist. 
• Crypto exchanges act as mediators guaranteeing the exchange of cash for crypto between buyer and seller. 

Kimani says this works well in Kenya. The exchanges eliminate the dangers associated with peer-to-peer transactions done on WhatsApp or Telegram by demanding some Know Your Customer (KYC) information. Product teams at Nigerian crypto exchanges are finalising plans to roll out peer-to-peer systems in the coming weeks.

Guess what? This pivot will be more of a headache for central banks in Africa. 

Power to the exchanges

But by pushing these transactions to the peer-to-peer realm, crypto exchanges become more powerful than they were before, accelerating enthusiasm for these digital currencies.

Eloho Omame, managing director of Endeavor Nigeria, tells me cryptocurrency adoption raises important monetary issues. However, she appreciates the emergence of cryptocurrencies as alternative and safe stores of value. 

She also appreciates the role Nigeria is playing in defining the future of digital currencies and blockchain technology. Rather than see this as a threat, Omame believes the opportunity should be eagerly and constructively embraced by the central bank.

After cryptocurrency was discussed last week at the Nigerian Senate, Ray Youssef, CEO of Paxful which operates in Kenya, ecstatically declared: “Bitcoin has disrupted an entire nation” and that “The whole world will follow Nigeria!”

I imagine the war rooms at Nigeria’s crypto exchanges are motivated by these ambitious, definitive statements. 

The CBN might not send them flowers or chocolate. The last week may have caused an identity crisis, a mild panic about being dumped. But expect them to reinforce from this retreat. And when they do, to never look back.

While the average world ownership of crypto is 7%, South Africa and Nigeria have an ownership rate of 13% and 7% respectively. This high ownership rate and the large volume traded annually presents Africa as a large market for crypto exchange startups. Prominent among them are Luno, Quidax, BuyCoins, Huobi, and Coindirect. 

But nothing says belief in Africa more than having one of the world’s largest coin exchange companies shine its light on Africa. 

Binance, a Malta-based crypto exchange with a 24-hr trading volume of over $26m, entered the African market in 2020. According to the CEO and founder, Changpeng Zhao, Africa’s population numbers make it a very important market for the global cryptocurrency industry. The company believes that it has the opportunity to provide alternative financial services to a large number of people simultaneously. 

For this reason, it established peer-to-peer trading in Africa, and from March 2020 till  February 2021, it has recorded $320m in transactions in Africa. Binance allows customers from Nigeria, South Africa, Kenya, Ghana, Morocco, Uganda to purchase cryptocurrencies using their local currencies with zero transaction fees. 

Regardless of these achievements, it has faced major challenges. Most notable is the instability of cryptocurrency regulations. Most governments believe that they could be used to fund terrorism therefore they consider them a security threat.   

Binance CEO Changpeng Zhao thinks that these obstacles are surmountable. According to him, the COVID-19 pandemic made Africans explore new uses for cryptocurrencies and he strongly believes that the desire to seek for more cashless alternatives will be a contributing factor to Binance’s successful expansion into other African countries. 

Overcoming the obstacles to the growth of cryptocurrencies on the continent will not happen overnight. But even though it’s a long road, Africa plays such a key role that Zhao believes it will be a highly rewarding one. “If you want business results in the next 6 months, then maybe Africa is not the best place to spend money on. We are looking at this at a 5, 10, 15 year horizon, and I think Africa is going to be huge.”, he says.

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Written by Michelle Adesina