KEY POINTS

• Nigeria is one of Africa’s leading cryptocurrency adopters.
• Cryptocurrencies offer cheaper and faster remittances for Nigerians.
• The volatile market and fraud risks require clear regulation.

Cryptocurrency has received much attention concerning its possibilities of completely changing the financial system in Nigeria and the issues related to it. Despite the lucrative prospects that they present in terms of financial inclusion and innovation, there are certain risks associated with cryptocurrencies that we cannot turn a blind eye on. In Nigeria’s ongoing progression of implementing digital currencies, it is imperative for the government, investors, and the public to comprehend the gains and pains associated with such an integration.

The Use of Cryptocurrency in Nigeria: Its Advantages

Another fact that reveals Nigeria as one of the biggest players in the African cryptocurrency market today is the inhabitants’ active usage of cryptocurrency. By having a young and technology-literate population as well as an emerging demand for diversified forms of investment, digital currencies such as Bitcoin, Ethereum, and local tokens are gradually gaining a strong market in the country. An online survey by Statista opined that in 2021, Nigeria ranked third among countries with the highest usage of cryptocurrencies, with 30 percent of Nigerians actively involved in cryptocurrency trading or usage.

The appeal of cryptocurrency in Nigeria is largely driven by the country’s economic challenges, including inflation, a fluctuating national currency, and high unemployment rates. Cryptocurrencies are often viewed as an alternative store of value and a potential hedge against inflation. They also provide a means for Nigerians to send and receive remittances, bypassing traditional financial institutions and avoiding exorbitant transaction fees.

Benefits of Cryptocurrency in Nigeria

1. Financial Inclusion: Nigeria’s banking penetration remains low, particularly in rural areas where access to traditional financial services is limited. Cryptocurrencies offer an inclusive financial ecosystem, allowing individuals to participate in digital transactions using just a smartphone. According to a 2019 report by the Central Bank of Nigeria (CBN), an estimated 60% of Nigerians are unbanked, making cryptocurrencies an attractive alternative for financial inclusion.
2. Global Remittances: Nigeria is one of the top remittance-receiving countries in the world, with billions of dollars flowing in each year. Cryptocurrencies offer a cheaper and faster method of sending and receiving money from the diaspora. According to the World Bank, Nigerians in the diaspora sent over $23 billion in remittances in 2020 alone, and digital currencies have the potential to lower transaction fees significantly, benefiting both senders and recipients.
3. Economic Growth and Innovation: Blockchain technology—the underlying framework for cryptocurrencies—has the potential to drive economic growth by fostering innovation in various sectors, including finance, healthcare, and logistics. Nigerian startups are increasingly exploring blockchain for applications beyond cryptocurrency, such as supply chain management and digital identity solutions. According to PwC, blockchain technology could generate $1.76 trillion in business value by 2030, with Nigeria poised to be a key player.

Risks of Cryptocurrency in Nigeria

Despite its many benefits, cryptocurrency comes with significant risks, especially for Nigeria’s regulatory and financial landscape.

1. Volatility: Cryptocurrencies are notoriously volatile. The value of assets like Bitcoin and Ethereum can fluctuate dramatically within short periods, making them high-risk investments. For instance, in 2021, Bitcoin’s value surged to an all-time high of $63,000 before plunging below $30,000. This volatility can cause significant financial losses for individuals and investors, particularly those who lack experience or knowledge of the market.
2. Regulatory Uncertainty: Nigeria’s regulatory stance on cryptocurrency has been inconsistent. In February 2021, the Central Bank of Nigeria (CBN) issued a directive prohibiting financial institutions from facilitating cryptocurrency transactions. This move created uncertainty in the market, though many Nigerian crypto users have found ways to bypass the restrictions using peer-to-peer (P2P) platforms. The lack of clear regulations leaves investors exposed to risks, including legal challenges and potential government crackdowns.
3. Fraud and Scams: The cryptocurrency space is rife with fraud, scams, and Ponzi schemes, often targeting inexperienced investors. In Nigeria, several fraudulent crypto schemes have surfaced, preying on the hopes of ordinary people looking to make quick profits. The Nigerian Security and Exchange Commission (SEC) has raised concerns about the rise of scams, noting that many crypto ventures in the country lack transparency and proper oversight.
4. Security Risks: Cryptocurrency exchanges and wallets are susceptible to hacking, and there have been numerous high-profile breaches globally. In 2020, the KuCoin Exchange lost over $150 million worth of cryptocurrencies to hackers. Nigerians who store their funds on unsecured platforms may face substantial financial losses if their accounts are compromised. 
   

   Government’s Role in Shaping the Future of Cryptocurrency

For cryptocurrencies to thrive in Nigeria, a balanced regulatory approach is essential. The Nigerian government must carefully craft policies that protect consumers from fraud while fostering innovation and financial inclusion. The National Blockchain Adoption Strategy introduced by the Nigerian government in 2021 aims to harness the benefits of blockchain technology, but the country’s broader stance on cryptocurrency remains uncertain.

The introduction of a Central Bank Digital Currency (CBDC) known as the eNaira, in 2021 demonstrates Nigeria’s interest in digital currencies. However, the eNaira’s adoption has been slow, and it remains to be seen whether it will compete with decentralized cryptocurrencies like Bitcoin and Ethereum.

One potential area for development is the creation of clearer, more transparent regulations for cryptocurrency exchanges and peer-to-peer (P2P) platforms, which have become popular alternatives in Nigeria due to the banking restrictions. If properly regulated, these platforms can serve as a gateway for Nigerians to engage with digital assets safely.

The Future of Cryptocurrency in Nigeria

While the risks associated with cryptocurrencies cannot be ignored, the benefits, particularly in the areas of financial inclusion and remittances, are significant. As Nigeria continues to grapple with economic challenges, cryptocurrencies may offer an important tool for both personal financial management and broader economic development.

The country’s young and entrepreneurial population is already embracing digital currencies, and with the right regulatory framework, cryptocurrency can play a central role in shaping the future of Nigeria’s economy. However, greater awareness and education about the risks involved, along with robust regulatory oversight, will be crucial to ensuring that cryptocurrencies can provide value without exacerbating financial instability.

As the global cryptocurrency landscape continues to evolve, Nigeria’s role as a key player in Africa’s digital transformation will likely grow. Whether cryptocurrencies become fully integrated into the national financial ecosystem or remain a niche market for tech-savvy individuals, they will continue to influence the country’s economic future.