Published: December 12th, 2020
Nigeria already leads Africa in trading volumes on P2P crypto exchanges like LocalBitcoins and Paxful. Now the western African nation leads the world in crypto adoption. Numbers from Statista show it has the highest percentage of crypto users on the planet, and use of crypto for payments is surging.
Nigeria also ranks amongst the most challenging and expensive countries to move money into. It's also in the throes of economic turmoil. Crude oil prices are tumbling, the country went into recession in November, and the Nigerian Naira has suffered two recent devaluations.
Weakening local currency and a shortage of greenbacks and other foreign fiats have combined to force businesses to try Bitcoin as the best way to settle international transactions.
Even the country's High Street foreign currency exchanges have been trying to educate customers about the benefits of Bitcoin to compensate for their inability to meet demand for dollars.
It seems to be working. Big crypto exchanges like Binance have stepped into the breach. Numbers from Arcane Research show Nigerian P2P Bitcoin trading weekly volumes doubled in Q2 this year from $7 million to $14 million. New Nigerian sign-ups at crypto marketplace Paxful more than doubled over the same period last year. Bitcoin's recent surge will also have got many people's attention.
Paxful now has close to 600,000 users in Nigeria, and the ways people use crypto in the country has also expanded.
Foreign remittances are one popular reason to use Bitcoin. Nigerians working abroad sent more than USD 23 billion home in 2018. Crypto is also being used more frequently to cover school fees, pay freelancers, and invoices from foreign suppliers.
It's becoming a side hustle to supplement income as crypto trading becomes more popular. It's even been used as a workaround to fund human rights campaigns after the bank accounts of some activist groups were suspended.
Interest in cryptocurrency has grown fastest among Nigeria's young, entrepreneurially-minded GenY population, something that's also made Nigeria as Africa's top destination for VC start-up money.
But most of the country's young people face high unemployment and are often un-banked as a result. Those who can qualify for a bank account have to stay within strict spending limits. For these disadvantaged groups, stablecoins that are pegged to the dollar and easy to convert into cash, have improved their financial freedom remarkably.
A preponderance of online scams had tainted the image of cryptocurrencies in Nigeria for years, but recent political events have given Bitcoin a shot in the arm.
Reports of police brutality kicked off mass protests last year when the country's notoriously violent special anti-robbery squad (SARS) killed a teenage boy. The unit was already fending off accusations of torture, blackmail, and murder. Many of the accusers came from Nigeria's tech start-up industry.
Protests spread throughout the country in October and many activist groups found their bank accounts frozen. To keep donations coming in, they turned to Bitcoin. One group raised over $150,000 using crypto, quickly replacing 40% of their frozen funding.
The period of unrest introduced a lot of Nigerians to crypto for the first time and took Bitcoin even further into the mainstream. It revealed to many people for the first time how widespread crypto use was, particularly by young people who had no access to traditional banking, as well as by freelancers providing service to overseas clients. Crypto wasn't just a vehicle for scams and fraudulent activity; it clearly had legitimate use cases too.
After an initial surge of interest in Bitcoin back in 2014, this year several big consumer brands and advertisers have jumped on the trend.
The fallout from COVID-19, a tanking Naira, and the practical benefits of Bitcoin have all come together at once to push cryptocurrency into mass-market use in Nigeria. Does that mean Nigeria could be a model for other countries, or will crypto use start to backslide — especially if Nigerian authorities decide to crackdown?
The rapid adoption of BTC by everyday Nigerians hasn't been missed by the country's financial authorities. Nigeria's Securities and Exchange Commission recently categorised all cryptocurrencies as securities. And new regulations are likely coming soon. A draft blockchain regulatory framework was published in October this year. The question becomes, will official acceptance provide the framework for further adoption, or scare people off using crypto altogether?
The framework makes suggestions for regulatory oversight of crypto use. But some political observers believe that restrictive compliance will backfire in the current economic situation. The cash-strapped government's ability to enforce any new rules is also open to question.
Analysts have pointed to potential Blockchain adoption in the energy sector as one way the government could legitimise the technology through the country's state oil monopoly.
On the flipside, banning crypto outright would shatter many businesses and kill economic growth, due to lack of foreign currency. Why squeeze the market when options like Bitcoin are solving practical financial problems.
It's worth noting that overall crypto trading volumes in Africa are small, just two per cent of the global whole. Still, the emergence of Bitcoin and other cryptocurrencies as a financial lifeboat means Nigeria is well ahead of other regions.
As long as crypto is enabling businesses to operate, and by extension, enabling taxes to be levied, it's hard to imagine the government would act to shut it down. Bitcoin is also giving Nigeria's restive youth population its first taste of financial independence. That state would need to have a very good reason to stifle that kind of trend.