Cryptocurrency Ban and Its Implications for Business Owners
By Opeyemi Solaru
On 5th February, 2021, the Central Bank of Nigeria (CBN) announced that it would be placing a general public ban on all cryptocurrency transactions, effective immediately. Although this announcement came as a surprise, this was not the first time the CBN warned against cryptocurrency trading. In 2017, the CBN issued its first warning that prohibited the holding and trading of cryptocurrency. In 2018, it reissued this warning in another press release.
Regardless, the most recent announcement was met with shock and panic, as Nigerians have been investing in cryptocurrency increasingly in recent years. According to QZ Africa, Nigerians have invested over $566 million over the past 5 years. With zero notice, many crypto traders sought to understand the implications of this new policy.
For some context, according to investopedia, “cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it almost impossible to counterfeit or double-spend”. Its decentralized structure allows it to exist outside the regulation of banks and governments. Many have heard of the popular coins, such as Bitcoin, Litecoin and Ethereum, but there are over 4,000 digital coins that exist.
Cryptocurrency trading platforms, such as Buycoins, were quick to release statements assuring users that they were doing everything within their power to ensure that everyone’s money was safe. However, this could not change the unfortunate fact that the fate of hundreds of millions of dollars was up in the air. In efforts to mitigate the impact of this impromptu decision, Nigerian cryptocurrency platforms have shifted to utilizing a peer-to-peer model, which allows traders to connect directly with other traders through the platform. This allows them to coordinate these trade transactions independent of any bank. One could say this is the beauty of cryptocurrency — no one can actually ban cryptocurrency itself.
Additionally, there is opportunity for innovation within fintech, as innovators can explore ways to improve the current peer-to-peer platforms. Innovators can now work towards developing new and existing peer-to-peer trading platforms that allow Nigerians to engage in seamless and secure transactions domestically and internationally.
Nevertheless, this does not mean that this policy is not incredibly inconvenient for Nigerians. Aside from not being unable to buy and sell cryptocurrency, this policy will negatively impact the welfare of Nigerians and likely further stunt economic growth. Cryptocurrency has led to the emergence of trading platforms, such as Yellow Card, which has raised over $1.5 million dollars from American investors. While the CBN claims that cryptocurrency is detrimental to the economy, discouraging the trade of dollars, many Nigerians have resorted to using cryptocurrency to make foreign purchases that would otherwise be difficult due to the $100 dollar limit. We saw this during the EndSARS protests, when Feminist Co was forced to bypass bank closures and receive donations in form of cryptocurrency. As the world’s second largest crypto-trading market, Nigerians will now find it even more difficult to perform foreign transactions.
According to the Security and Exchange Commission of Nigeria (SEC), cryptocurrency is classified as digital assets, to be “treated as commodities if traded on a Recognized Investment Exchange and/or issued as an investment.” In September of last year, the SEC released a statement stating that crypto assets would be regulated the same as securities exchanges and transactions on exchanges. This action led many to believe that the government was finally on board with the cryptocurrency wave.
Following the CBN’s announcement this month, the SEC has decided to discontinue all regulation of crypto assets. However, the SEC intends to proceed with other plans to support the development of innovations within the fintech space.
The CBN and SEC have now agreed to collaborate to identify how best to regulate cryptocurrency. Kevin Amugo, Director of the Financial Policy and Regulation Department of the CBN, has stated that the intention of the ban was to allow the government to work with stakeholders to address the anonymity associated with trading cryptocurrency.
This perceived discrepancy may reflect the level of technical understanding (or lack thereof) that regulators have in Nigeria and this impact that this has on the crypto industry, and the innovation space at large. While the government claims to be evaluating opportunities and risks of crypto, there is certainly a lack of technocracy within the government. Nigerian regulators and policymakers that continue to make such drastic changes without necessary research or foresight of the industries’ future are not only doing so to the detriment of the crypto trading industry, but also the future of the innovation ecosystem at large.
Despite the widespread backlash, this policy is said to have some advantages. According to Daily Trust, Nigeria can leverage its recent attempts to enforce BVN and NIN registration, which aims to attain a nationwide identity database and, hopefully, improve data protection. By requiring traders to verify their identity prior to engaging in transactions, fraud can be reduced.
As a business owner in Nigeria, especially within the technology or startup space, there are a few things that you need to take into consideration. Firstly, it is becoming increasingly obvious that innovators must always be a few steps ahead of the government. Unfortunately, laws and regulations are a major barrier to business in Nigeria. Thus, whether it is the ability to easily shift into a new market or building novel tech solutions, it is important to develop suitable crisis management strategies to prepare for whatever Nigeria may throw at you.
At the end of January 2020, Nigeria placed a ban on all okadas, bicycles and bike-hailing platforms, which went into effect 6 days after its announcement. The government stated that this ban was implemented to improve security in Lagos and eliminate the deaths caused by motorcycle accidents. About a year later, this ban seems to have been unofficially lifted, as okada riders can be seen throughout Lagos without penalty.
Similar to the response to the Okada ban, foreign investors may become (even more) weary of doing business in Nigeria. After all, this is not the first time the government has enforced a prohibitory policy on a whim. As a startup, it may seem as though the government is creating an environment that is not conducive to innovative ideas that will actually create solutions to some of Nigeria’s most pressing issues.
Ultimately it is important for the government to work collaboratively with innovators to gain a better understanding of the ecosystem and to leverage existing technology to improve the effectiveness of the government. On Friday, February 12, 2021, Impact Hub Lagos, in partnership with Techuncode, had the opportunity to participate in the Ehingbeti Lagos Economic Summit 2021. Participants heard from panelists and engaged in dialogue about how the government can best approach the use of technology across the following areas: leadership, security, accountability, and social development. Key insights generally alluded to the fact that the government must prioritize transparency, while engaging in dialogue with key stakeholders within the technology ecosystem to improve governance.