23 October 2017

Nigeria: Cryptocurrencies - the Emerged Elephant in the Room

The world's monetary landscape is shifting, and one of the biggest factors is the dramatic rise in the value of cryptocurrencies so far in 2017. Emerging from the online cypherpunk community, and developed in the late 2000s, cryptocurrencies are digitised coins with no physical format- essentially, it's currency that exists exclusively in the online world, through a peer-to-peer payment structure based on cryptography that is entirely decentralised from any bank or government.

Ado-Ekiti

The original crypto coin- Bitcoin, developed by Satoshi Nakomoto in 2008, was created as an alternative to traditional money transactions in bank or with cash. Not beholden to any single regulatory authority, with the ability to transfer funds in seconds and at low costs, Bitcoin was (and still is) a revolutionary innovation; but unless you're a cryptographer, it isn't easy to get your head around the mechanics of how it actually works.

In effect, a transaction using Bitcoin is basically a transfer of value between two online wallets. A "blockchain", like an online account or ledger - is used to record and organise these transactions. A string of encrypted code (similar to how banks offer unique transaction PINs to customers) is used as a security measure and serves as proof of ownership. Through this blockchain, which has today been adopted by most other cryptocurrencies in the market, every transaction is registered - keeping a record of the balance in each wallet for every point in time.

This new mode of payment promises to remove all the faults within the regulated money system most people have become accustomed to. No middle men, intermediaries or 'trusted' third parties, less costly, and the blockchain advantage of coded security that may considerably reduce fraud. These features have turned cryptocurrencies into an attractive alternative.

The global sense of urgency for cryptocurrencies that has developed in 2017 is due to a surge in supply and demand. Even countries such as Russia and China, that have a conservative reputation, are rumoured to be in development stages of creating their very own national cryptocurrencies. Economic leaders are discussing them, investors are trading them, and values of the most popular digital coins in virtual circulation - including Bitcoin, Litecoin and Ethereum, have been shooting through the roof.

For the better part of the year, however, cryptocurrencies have been the wild elephant in the room that no bank or regulator in Nigeria want to really discuss, or know how to tame.

Nigeria's evolving relationship with cryptocurrencies

Compared to many Asian and Western countries, the stumbling block for cryptocurrencies in Nigeria is massive, mostly due to the confusion surrounding their regulation. Historically, Nigeria is sensitive when it comes to scam artists and people who look for any loopholes to manipulate the system. All the more reason, then, for the nation to be extra cautious when it comes to a young, new, fiscal alternative that is not controlled by any governing body.

In January 2017, the Central Bank of Nigeria (CBN) issued a circular that strictly banned all local banks from dealing with cryptocurrency transactions, due to their anonymity and the hardships that come with tracing them.

A few months down the line, the First Vice President, Chartered Institute of Bankers in Nigeria (CIBN), Dr. Uche Olowo, clarified decisions around cryptocurrencies during a meeting organised by the institute. "Interested parties view it as the highest performing and the most valuable currency in the world," Olowo said.

Despite this, cryptocurrencies are still "seen by most traditional financial players as unstable and complicated, and with doubts of its inherent value".

The conclusion of the meeting is that Bitcoin and blockchain technology is something that cannot be ignored, as the power it has for disrupting traditional monetary systems is undeniable, but it's not, at this stage, something that can be controlled. For Nigeria, this is a grave concern and the key reason why the country is at an impasse in terms of dealing with the virtual currency system.

At this same CIBN meeting, Musa Itopa-Jimoh, the Central Bank's Deputy Director, went on record to say that CBN is "not the issuing authority for bitcoin. We are just issuing caution to Nigerians since digital currencies are not under the control of the central bank."

Realising that the matter must be investigated further, a committee was set up between CBN and the Nigeria Deposit Insurance Corporation (NDIC) to analyse how the country could go about adopting Bitcoin and blockchain-based virtual systems. The committee finished its analysis, only to reiterate that the decision cannot be rushed and to claim that various sub committees are still investigating.

Most recently, the CEO of Xchangerate.oi, Peter Moradeyo, called on CBN to provide more insights and education with regards to cryptocurrencies, if they are really serious about handling them. "CBN should tell us what it is and what is not. They need to advise us appropriately so that everyone will be guided to make the right decision. They need to properly let Nigerians understand the concept of cryptocurrency trade, and see how they can help the users have the correct information."

What happens now?

With some cryptocurrencies (such as Ethereum) seeing price increases well over 3000 per cent since the beginning of the year, some forex traders are starting to consider digital coins as safe havens. The most recent Bitcoin tumble however - a $1300 drop in value between 12 and 15 September - caused by an announcement from China's leading bitcoin exchange BTCChina stating that it will stop operations on 30 September, has resurfaced talks of a bubble burst and is a stern reminder that cryptocurrencies are a volatile instrument, notwithstanding the fact that it regained 33 per cent of its losses within three days.

Nonetheless, while Nigeria may be taking time with its decision on cryptocurrencies, the positive sign is that the elephant is being acknowledged. If the interest continues to rise, the country would do well to heed Moradeyo's advice and start educating consumers about the world of cryptocurrencies.

Meanwhile, as digital coins are such a monetary phenomenon, forex brokers across the globe have begun introducing cryptocurrencies into their list of trading instruments.

The Vice President of Corporate Development and Market Research at FXTM, Jameel Ahmad, has gone on record to state that "constant technological advances in the financial industry continue to grow in line with traders' demands. As such, we are now pleased to offer cryptocurrency CFDs trading to all our clients across the world."

At the moment, more brokers will join FXTM and offer cryptocurrencies as an investment solution, but it will be up to the trader to make an informed decision on how truly safe or volatile the digital coin is.

*Grozdanovic is Senior Staff Writer at FXTM

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