A survey by Statista found that around 32 percent of people in Nigeria use cryptocurrencies and this is the highest proportion of a population in the world. In terms of trade volume, the country stands in 3rd position after the United States of American and Russia with a transaction value of more than 400 million dollars. This virtual currency is booming in Nigeria although there is a banking ban on it, traders discovered ways against government ban like the other parts of the world. As per the blockchain research firm Chainalysis, the amount of crypto received by the Nigerian crypto community has been constantly growing. The use of crypto in international trade also surged in Nigeria, people tried to use the currency to proxy the US dollar. Since the beginning of 2021, Nigerians traded 50% more crypto than they did in the same period last year. Here go the reasons Nigeria pioneering Bitcoin Remittances –
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Cost-Effective Way to Transfer Money
People found it a really easy and cheaper means to remit currency especially in developing countries like Nigeria. It has become a huge concern for the central bank of Nigeria that the bank is offering rewards not to choose cryptocurrencies over naira and to use official channels for transactions. This move came into effect after international remittance inflows dropped significantly last year and a record high crypto transaction was observed in the country. If you are to transfer money using a traditional service, you have to go to a service provider, provide the details of the receiver. They will convert the money into your destination currency and send it to the beneficiary bank. For example, if you are to send money to Nigeria from Canada, the sender will convert CAD to Naira, then send. The fee for the transaction depends on the amount you are sending. If you want to use bank wire for quick service, you have to pay more as a fee. Transferring money through cryptocurrency is much easier as you can do it entirely online.
2. Loss of Confidence in more Traditional Forms of Investment
People find it as an easy way for investment, they see digital currency as a way to get around foreign currency restrictions. Lots of restrictions are there on what traders can do and can not do with their foreign exchange. As the government doesn’t have much control over the transactions of cryptocurrencies, investors become almost independent to decide where to invest their money. The government’s attempt to prevent protests by freezing the bank accounts of the organizer gave the use of cryptocurrency a serious boost. People’s distrust in centralized financial systems and top-down economic control further accelerated the use of cryptocurrency in the country. Government policy and the declining Nigerian economy persuade people to choose cryptocurrency over shares and government bonds.
3. Devaluation of Local Currency
The house of representatives of Nigeria asked the central bank to end the devaluation of the naira against the US dollar. The apex bank adopted a multiple exchange rate policy to avoid an outright devaluation. When the value of currency declines, it makes investors less willing to hold government bonds because the depreciation actually diminishes the actual value of the investment they are holding. It also has a negative impact on private investment. Because of this, Nigerians found it better to invest in cryptocurrencies as an investment in local currency makes them lose money in terms of the US dollar while some of the digital currencies let them make 50 times more than what they have invested. People are investing more in cryptocurrencies disregarding the volatility, more and more crypto has been remitted to the country as a result.
4. Absence of US Dollar
The devaluation of the naira along with the lack of the US dollar in the country accelerated the process to use cryptocurrencies in international trade with Nigeria. A significant amount of products of the country have to be imported and traders need dollars for that. It became hard in Nigeria to obtain US dollars, it became harder as many firms have resorted to the black market where the local currency is being traded at around 20% below the official price. Cryptocurrencies serve as a proxy for the dollar in this case to keep running international trade. A large number of Chinese merchants sell various products including clothes and electronics to Nigerians and use crypto as a means of exchange. It is reported that millions of crypto are crossing the Russia-China border every day.
5. Traditional Economy Lags Because of the Pandemic
Since the pandemic hit worldwide in early 2020, even the giant economies had also fallen down. The effect on the Nigerian economy was also apparent. Amidst a little economic activity and fewer job opportunities, people made cryptocurrency a way to make money and survive. Loss of jobs led many people to invest in cryptocurrency to earn a livelihood. Moreover, some new professions also emerged as a trader, technical analyst, and crypto influencer. Also because of the shaky share market and companies hardly hit by the pandemic, people found investing in crypto a better option for them.
Despite the expert’s warning, the use of cryptocurrencies in trade and investment worldwide has been increasing. Nigeria is one of the top countries in terms of crypto usage although the regulatory bank banned this digital currency. Among the aforementioned reasons, ease of money transfer and devaluation of local currency caused the most to give a surge in the use of crypto in Nigeria.
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