Why Nigeria Banned Crypto
By Bashir Kabir
Even before the Central Bank of Nigeria (CBN) announcement the total ban of the crypto currency transaction in Nigeria, there was already a lot of misunderstanding and controversies surrounding the digital asset. And this is most particularly so on the African continent where it can be assumed that a large number of people don’t know what it is all about.
The technicalities of how the crypto currency is obtained are not within the context of this article. However, for those that need clarification with regards to what separates a crypto currency and the various pyramidal and Ponzi schemes most people know of, and before we delve right into why Nigeria banned crypto, let’s take a look at this.
A crypto currency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. These are the only factors that determine its value.
Bitcoin is the first decentralized crypto or the mother of all crypto currencies with value at the moment of N17, 261, 208.12. Tokens, cryptocurrencies, and other types of digital assets that are not bitcoin are collectively known as alternative cryptocurrencies with values less than that of the bitcoin.
Having laid that foundation, the crypto transaction has become global. It has evolved into an industry worth trillions of dollars and directly competing with the fiat (AKA paper money) industries. It has several advantages that the conservative financial industry lacks. And these include the lack of a third party (e.g banks) in undertaking transactions, anonymity of the transaction, convenience, and the absolute control and freedom to the owner.
Concerns of crypto regulatory oversight, the potential this has for illicit use through its anonymity within a young under-developed exchange system, and infrastructural breaches influenced by the growth of cyber criminality are genuine, though. Each of these concerns influences the perception of the role of crypto currencies as a credible investment asset class and legitimacy of value.
In Nigeria, several scams platforms introduced nonexistent valueless alternative crypto currencies with which money was exchanged for.
Unlike the normal method of transacting crypto through trading on legitimate platforms, these fake platforms offered timely ‘fixed’ returns to investors regardless of value fluctuations.
The banning of crypto in Nigeria might seem to many like an overnight decision by the mighty bank. However, in 2017 the bank released a circular to financial institutions pointing to the potential use of the virtual currency to commit crimes such as laundering and financing terrorism due to lack of traceability of transactions.
Contained in the 2017 letter was a directive to banks to ‘ensure that they do not use, trade and/or transact in any way in virtual currencies’. The directive went further to instruct banks to make sure that if their customer is trading in crypto, he or she must be verified and ascertained that they’re not laundering money or are terrorism financiers.
The position of the Security and Exchange Commission (SEC) in Nigeria was a little more accommodating to the virtual money by calling it ‘digital asset unless proven otherwise.’
Now that we have that in perspective, it is easier to understand how it all calumniated into the decision to finally ban the crypto in Nigeria. In September 2020, the CBN reiterated that crypto is not a ‘legal tender’. Meaning it is not money.
In February 2021, CBN issued another letter, stating that ‘dealing in cryptocurrencies or facilitating payments for cryptocurrencies exchange (by banks) is prohibited.’ What this means is that any commercial bank to breaches this directive might face severe consequences such as seizing of license.
CBN hitting the final hammer to nail the crypto coffin in Nigeria might seem like a gradual process from the above premise.
Yet, reports indicated external influence in the decision-making. The reports showed that FBI might have warned the federal government on Nigerian scammers using crypto currencies to defraud the West. Nigeria surfaced as one of the highest crypto transaction destinations in the world. In comparison, the crypto exchange last year trashed the stock exchange by several billions of naira. However, this alone doesn’t make sense as a sole reason to pass the stern directives by the mighty bank.
To be fair to the Nigerian government however, the FBI’s interest in keeping the West safe from the merciless defrauding it is suffering from Nigerians might not be the prime mover that warrants banning crypto in the country. Pressing issues of security as well as the souring financial crimes committed through the virtual money transaction cannot be ignored.
For someone with a fair amount of knowledge in this field of crypto, I would opine that a complete banning of the digital asset transaction is not the best thing to do if the interest is to control cyber financial crimes and harmful money movement. Most of these legitimate crypto platforms that I know of have traceable procedures of operating. Personal information verification such as BVN, NIN, residential details in addition to the bank data must be made available in order to transact on the platform. Also, a ceiling or limitation of what can be transacted per day can control money flow while monitored and traced at the same time.
Perhaps it is these platforms that need to be regulated instead of the whole process being banned, because from indications the virtual money is here to stay.
A popular opinion is that the CBN ban on crypto is perhaps not in the interest of security or crime control, but rather it is economic-based, to help the naira. Controlling the flow of the dollar or in other words, using the dollar to import is not in the best interest of the naira. And crypto opened up that portal which in the opinion of the economists might be the reason why naira is further suffering, fast losing its value and not making any gain.
