The State of Crypto in Nigeria
Alexander Gafoor BA, LL.B (hons), LEC, CAMLS
? Blockchain, IP and AI Attorney ? Key Note Speaker ? Entrepreneur ? Lecturer
Hi friends, today we explore the degree to which cryptocurrency usage has been indoctrinated into the daily lives of Nigerians. We will also examine the state as a potential region for crypto operations. Buckle up and HODL your satoshis!
Macro Landscape
Nigeria, a vibrant nation buzzing with life and culture, situate in West Africa is a melting pot of diversity with a population of over 200m people from over 250 ethnic groups. Economically speaking it’s the second richest nation in Africa with a GDP of over 390 Billion dollars and a year-on-year growth rate of 3.46% in real terms. Also, Nigerians are surprisingly tech enabled being touted as Africa’s largest ICT market with the Nigerian Communications Commission (NCC) reporting about 85 million broadband subscriptions, with a penetration rate of 44%. However, this should be no surprise as the World Bank reported that about 70% of the population is under 30 and we know how much young people love the internet.
Additionally, the World Bank conducted a study on access to traditional financial institutions and found that the percentage of respondents with an account (self or together with someone else) at a bank, credit union, another financial institution, or the post office in Nigeria was 45.14% in 2021. But what do these two data points suggest? In my mind, it represents that there are over 80 million Nigerians that are tech enabled, most of them frustrated with trad-fi, who are potential users of fintech products.
Adoption
Nigeria has a high rate of crypto penetration with 47% of Nigerians between 18-64 having used crypto before and over 10% owning a digital currency. But they don’t just hold, as Nigeria also ranks third globally for cryptocurrency usage with a year-on-year growth rate of 9% between 2022 and 2023 representing over $56 billion in transaction volume. An assertion can be made that this is mainly due to the high cost of transferring money using traditional banking systems and the constant devaluation of the Naira by the Central Bank of Nigeria (CBN). A supporting factor is that the majority of crypto held is in stablecoins and bitcoin suggesting that Nigerians are using crypto as a hedge against inflation.
Regulation
The road to full-scale adoption has been marred by governmental policies intended to preserve local traditional financial institutions. The prima facie position by the Nigerian Securities Exchange Commission (NSEC) in a statement made in 2020 was that unless otherwise proven, digital assets are securities. However, the most inhibitive policy was contained in a letter penned by the CBN in 2021 effectively preventing financial institutions from facilitating crypto transactions. However, the NSEC in May 2022 issued rules for the Issuance, Offering Platforms and Custody of Digital Assets in Nigeria. These rules, as described by the NSEC itself, will facilitate the “licensing, registration and ongoing screening of Digital and VASP Beneficial Owners to ensure that criminals are not registered as operators.” In a concurrent statement the NSEC further stated that “the SEC is ready to interface with genuine Virtual Asset Providers (VASPs) based on these clear rules and regulations,” indicating a clear shift in sentiment. Additionally, the Money Laundering (Prevention and Prohibition) Act 2022 was signed into law on 12 May 2022 expanding the definition of financial institutions to include virtual asset providers and the definition of funds to include virtual assets in order to subject VASPs to various AML compliance obligations.
In May 2023, the Nigerian Government set the stage for a change in stance with the issuance of a National Blockchain Policy. This swiftly prompted the CBN to fully lift its ban on crypto as of December 2023, with the public reversal of its stance on crypto and an issuance of guidelines for operating bank accounts associated with VASPs particularly in relation to the monitoring of such accounts. Leading to the suggestion that Nigeria is taking an “if you can’t beat em, regulate em” approach. To explain, as stated earlier in this article, over $56 billion was done in crypto transaction volume. That is $56 billion dollars that is virtually untraceable, operating outside of the traditional financial system, that the Government has no control over which is a scary proposition for any Central Bank or Minister of Finance. By issuing regulations, this money can be brought back into the remit of the state. While this is repugnant to the decentralized nature of crypto, regulation brings adoption so its not all bad.?
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Despite this shift in sentiment, Crypto companies are not out of the woods yet as Binance, one of the globe’s most compliant crypto exchanges was charged with exploitation, devaluation of the naira and money laundering resulting in a fine of $10bn in 2024.
After putting on my thinking cap, the actions of the NSEC seem somewhat insincere, similar to regulators in the U.S. who seek to extort large sums from successful crypto exchanges, benefitting from the state of flux in the law perpetuated by them. To expound, as the regulars are the ones making the rules, it seems like a fixed game as the burden to create a framework for the crypto companies to operate in was and still remains on them. However I digress, this is the formative process a new industry must go through to get to a state of maturity and legislation, at the very least, promotes vibrancy and growth.?
N.B. In addition to new legislation, the regulation of crypto operations may also be regulated by existing legislation as is the case with intellectual property law in relation to non-fungible tokens. For example, the Investments and Securities Act 2007 lays out several requirements of capital market operators while containing elements of user protection that are immediately applicable to crypto operations.?
Analysis
Nigeria has a young, crypto-friendly population with a legislative environment that is warming up to cryptocurrency. In my mind, these result in a perfect storm of bullish factors making Nigeria a prime location for Fintechs in Africa. This is due in part to the immature nature of the market allowing participants to enjoy first mover advantage along with the risk they must inherently bear by operating in a jurisdiction with developing legislation. Further, despite the lawsuit against Binance and the fairly weighty fine issued against them, the stage is now set for good actors to create quality crypto projects as the enabling legislation is coming into place piece by piece.
*All figures quoted in this article are in USD.
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