Early in May 2024, TechCabal reported that the Federal Government of Nigeria had instructed Nigerian fintech startups, including Opay, Moniepoint, Paga, and Palmpay, to block the accounts of customers dealing in cryptocurrency in Nigeria.
Not only that, the directive also included that the startups report cryptocurrency transactions to law enforcement. This came after Nigeria’s National Security Adviser (NSA) classified crypto trading as a national security issue.
This move was surprising for many young Nigerians considering the federal government’s previous stance of acceptance of cryptocurrency.
In December 2023, the government lifted its ban on cryptocurrency transactions.
However, this unexpected decision to crack down on cryptocurrency transactions has left young Nigerians, who had embraced crypto with enthusiasm, facing a new reality.
Nigeria, Nigerians, and Cryptocurrency
Cryptocurrency, in a nutshell, is a digital form of money that operates outside the control of traditional banks and governments. It uses complex cryptography for security and relies on distributed ledger technology (blockchain) to track transactions. Bitcoin, the most well-known example, is a type of cryptocurrency.
Peer-to-peer (P2P) platforms connect individuals directly to buy and sell cryptocurrencies. These platforms act as facilitators and ensure secure transactions without the involvement of banks or other financial institutions.
Nigeria boasts a young, tech-savvy population. A report from Chainalysis, a blockchain research firm based in New York, revealed a notable increase in cryptocurrency transactions in Nigeria. Between July 2022 and June 2023, the volume of crypto transactions in the country experienced a 9% year-over-year growth, reaching $56.7 billion.
The surge in the popularity of cryptocurrencies among young Nigerians can be attributed to factors like the potential for high returns and the allure of being part of a new and disruptive technology.
However, this trend hit a roadblock with the Nigerian government’s decision to crack down on cryptocurrency transactions, blaming crypto for the weakening of naira, Nigeria’s official currency.
The woes have also been extended to Binance, one of the largest cryptocurrency exchanges by trading volume.
In February, two high-ranking Binance executives were apprehended following their arrival in Nigeria. Their purpose was to challenge the country’s decision to prohibit various cryptocurrency trading websites. The company’s head of financial crime compliance, Tigran Gambaryan, and its regional manager for Africa, Nadeem Anjarwalla, were both detained. The allegations against Binance included disregarding criminal offenses such as tax evasion and money laundering.
Why Young Nigerians Embrace Crypto
Africa is witnessing a surge in fintech innovation, and Nigeria stands out as a potential leader on the continent. With the youths accounting for 70 percent of the country’s population, Nigeria possesses the necessary ingredients to become a major fintech hub. However, the recent policy shift by the Nigerian government has thrown a wrench into these aspirations.
According to the National Bureau of Statistics (NBS), Nigeria’s economy exhibited a modest growth rate of 2.7% in the last year, signifying the slowest pace observed since the recession of 2020. The subdued growth can be ascribed to diminished growth across a broad spectrum of sectors, encompassing agriculture, trade, manufacturing, and construction, with the exception of the financial sector.
You see, modern finance is booming as young people are increasingly interested in how to properly manage their money and exert full control over it. As a result, young Nigerians have flocked to cryptocurrency for a multitude of reasons, often finding it to be a more accessible and empowering alternative to traditional financial systems. Here are some of the reasons:
Minimum Barrier to Entry and Cross-border Trade
With minimal barriers to entry, anyone with a smartphone and internet connection can participate in the crypto market. This financial independence allows young Nigerians greater control over their money and opens doors to opportunities that might otherwise be out of reach.
Additionally, crypto provides a valuable tool for international transactions. Sending and receiving money across borders through traditional channels can be slow, expensive and riddled with hidden fees.
Cryptocurrencies offer a faster, cheaper and more transparent alternative for international payments which facilitate cross-border trade and remittances for young Nigerians.
Investment Opportunities
The allure of potentially high returns in the crypto market has been a significant draw for young Nigerians. The rapid price increases and volatility experienced by some cryptocurrencies in recent years have fueled the perception of crypto as a path to financial success. This perception is particularly strong among young Nigerians facing economic hardship, who see crypto as a potential escape route from limited job opportunities and stagnant wages.
However, it is important to understand the inherent volatility of cryptocurrencies. Unlike traditional investments, crypto markets are prone to wild price swings, and significant losses are equally possible.
Technological Innovation and Advancement
Beyond financial gain, young Nigerians are drawn to the cutting-edge nature of cryptocurrency. The technology behind crypto, blockchain, represents a disruptive innovation with the potential to revolutionize various industries.
Being part of this new and exciting technological landscape holds significant appeal for young Nigerians with a tech-savvy mindset. They are eager to explore the possibilities of blockchain and potentially build careers in the burgeoning Nigerian crypto space.
Will Nigeria’s Crypto Crackdown Stifle Innovation?
The answer is a resounding yes. The Nigerian government’s crackdown on cryptocurrency transactions will definitely negatively affect the young and tech-savvy population who have embraced this new financial technology.
The consequences are immense and they impact not just access to investment opportunities but also livelihoods.
Likewise, this crackdown isn’t just a financial hurdle for young Nigerians, it poses a significant threat to the nation’s long-term potential for innovation. Here is a look at some of the impact of the crackdown:
Loss of Income Opportunities
For a segment of young Nigerians, cryptocurrency wasn’t just an investment tool, it was a source of income.
Crypto trading, particularly for freelancers and those in the gig economy, provided a flexible and potentially lucrative way to earn. The crackdown has significantly impacted their ability to generate income through these means. Finding alternative income sources in a challenging economic climate presents a significant hurdle for these individuals.
Reduced Innovation and Brain Drain
The uncertain regulatory environment surrounding crypto discourages young tech talent with an interest in blockchain technology. The lack of clear guidelines makes it difficult for them to invest in crypto-focused startups or pursue careers in this field, especially in a country like Nigeria. This stifles the development of a skilled workforce capable of driving innovation in the Nigerian fintech space.
Talented developers frustrated by the limitations imposed by the crackdown may choose to relocate to countries with more favorable regulations towards cryptocurrency and blockchain technology. This “brain drain” would deprive Nigeria of the expertise needed to stay competitive in the global fintech space.
Nigeria has the potential to be a major player in Africa’s fintech revolution. However, the crackdown on crypto creates a roadblock for the development of innovative blockchain-based solutions that could benefit various sectors of the Nigerian economy. This could lead to Nigeria falling behind other African nations that are embracing crypto and blockchain technology
Limited Access to P2P Platforms
One of the most immediate effects is the difficulty in buying and selling cryptocurrency. With P2P platforms, the primary avenues for young Nigerians to engage in crypto transactions, now restricted, obtaining and trading crypto has become a significant challenge.
This loss of a trusted platform creates uncertainty and frustration for those who previously relied on it for secure and reliable crypto transactions.
The situation may force some to resort to unregulated or less secure platforms, exposing them to increased risks of scams and fraud. This may require heightened cybersecurity awareness and skills and the ability to discern legitimate platforms from risky ventures.
Limited Opportunities for Experimentation
With access to P2P platforms restricted, the ability to experiment and develop innovative blockchain-based solutions is severely hampered. Startups and tech entrepreneurs struggle to test and refine their ideas, hindering the growth of a robust blockchain ecosystem in Nigeria.
This restrictive approach leads to Nigeria missing out on the potential economic development and job creation opportunities that this innovative technology could bring.
The Way Forward
The challenges facing cryptocurrency adoption in Nigeria can be solved through balancing innovation with regulation and consumer protection laws in the country. Here are some potential paths forward:
Developing Clear Regulation
Instead of an outright ban, crafting clear and well-defined regulations for cryptocurrencies and blockchain technology is a more sustainable solution for Nigeria.
This would provide a framework for businesses to operate within, giving a way for innovation while safeguarding consumer interests and ensuring financial stability.
Creating a Testing Environment
Establishing a regulatory sandbox could provide a safe space for startups and tech companies to test and develop innovative blockchain-based solutions. This would allow for controlled experimentation and refinement before wider rollout, minimizing risks and encouraging responsible innovation.
Promoting Dialogue and Collaboration
Open communication between the government, financial institutions and the tech industry is important.
Such dialogue and collaboration offers a better understanding of the opportunities and risks associated with crypto. This can lead to better understanding of the technology behind cryptocurrencies among the political elite, and by extension, the development of more effective regulations.
Investing in Education and Training
Equipping young Nigerians with the knowledge and skills necessary to thrive in the world of blockchain technology is also vital.
This can be done by investing in educational programs and training initiatives that can create a workforce prepared to lead the future of Nigeria’s fintech sector.
