According to bitcoin trading platform Paxful, Nigeria is now second only to the US for bitcoin trading. The dollar volume of crypto received by users in Nigeria in May was $2.4bn, up from $684m last December, according to blockchain research firm Chainalysis. And the true scale of crypto flows through Africa’s largest economy is likely to be much larger, with many trades untraceable by analysts.
An array of factors, from political repression to currency controls and rampant inflation, have fuelled the stunning rise of cryptocurrencies in Nigeria. In February, the government took fright and banned cryptocurrency transactions through licensed banks. In late July, it announced a pilot scheme for a new government-controlled digital currency – hoping to reduce incentives for those wanting to use unregulated crypto.
But these measures have done little to dampen trading, with exchanges reporting a continued rise in transactions this year.
Nigeria’s experience holds lessons for governments around the world, many of which are now thinking hard about how to regulate digital currencies. Britain’s chancellor, Rishi Sunak, is looking at creating a central-bank-controlled version, already being called Britcoin. EU regulators have set 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 switched off after a clampdown by the authorities. The ruling party imposed a ban on transactions in May.
Elsewhere, Egypt, Turkey and Ghana have sought to clamp down on crypto trading, wary of potentially vast movements of digital funds beyond their regulatory controls.
Nigeria has one of the youngest populations in the world and is ripe for digital finance. With many people looking for ways to escape widespread poverty, pyramid schemes are proliferating.
Trading in foreign currencies is an everyday activity for many. Remittances into Nigeria from those working abroad, which were worth more than $17bn 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 almost 30% against the dollar in the past five years.
There are political factors too. Some see cryptocurrencies as vital protection from government repression😑.