Nigeria: Will Cryptocurrency Dominate Nigeria's Financial Market This Year?

6 February 2020
interview

Lagos — In this exclusive interview with Daily Trust, Owen Odia, the country manager (Nigeria) of Luno - a global cryptocurrency company - talks about how the global digital currency is reshaping financial systems around the world and what Nigeria stands to gain in the ongoing digital disruption necessitated by technological advancement. Excerpts:

Daily Trust: In layman language, what is cryptocurrency mining?

Owen: Cryptocurrency mining is a process performed by high-powered computers to solve complex computational maths problems (that is, so complex that they cannot be solved by hand, and indeed complicated enough to tax even incredibly powerful computers).

When this process is carried out on the Bitcoin network, it unearths new coins (similar to the process of extracting gold from the ground). In the process of solving these computational math problems, miners also contribute to making the network more trustworthy and secure.

Daily Trust: How would you assess the acceptability of Cryptocurrency as a transactional currency and financial payment system in Nigeria?

Owen: Like many other countries across the world, cryptocurrencies are still in the early stages of being established as a transactional currency in Nigeria. However, our research suggests that Nigerians are primed for cryptocurrencies.

According to our recent Future of Money report, which profiled attitudes towards money from 7,000 respondents in seven countries (including Nigeria), emerging markets are seeking alternatives from the current financial system.

55% of Nigerians (aged between 18-35) didn’t feel secure about their financial situation. They are keen for a system which makes it easier and cheaper for them to access and transfer their own money.

In a country where money is more than just a ‘nice to have’ and is vital for securing what you want from life, Nigerians spend more time understanding it, managing it, preserving it and being creative with how you maximise the use of it. For many Nigerans, if cryptocurrencies can provide a secure, legal and cheaper means of exchanging value than the existing system, it will be used or at least explored.

Daily Trust: Does cryptocurrency trading in Nigeria have the full backing and support of the Central Bank of Nigeria?

Owen: Cryptocurrency is a new and complex technology which means some stakeholders are still trying to understand how it works and how to use it.

However, the Security and Exchanges Commission (SEC) recently announced a regulatory framework for blockchain and virtual assets, including cryptocurrencies.

This will play a huge role in boosting trust within the system, which is a major barrier to mainstream adoption. There is an argument that regulation will stifle the progress of cryptocurrencies but at Luno, we believe it brings more clarity and protection.

This is why we advocate for crypto firms to take a collaborative approach with regulators, as it will lead to more transparency for them and increased protection for their consumers.

Daily Trust: What type of cryptocurrency – Bitcoin, Libra, LiteCoin, Ethereum, Zcash etc – would you advocate to be considered for full legal backing and national acceptability by relevant Nigerian regulatory agencies and why?

Owen: We believe that the future will involve multiple different currencies, with each currency serving a different purpose. Certain cryptocurrencies by their very design might cater for specific niches or needs better than others can.

For example, Ethereum might be a good way to interact with certain decentralised applications, other currencies may offer different types of speed, cost or privacy benefits, and others, like Bitcoin, might be used for large value transfers or simply remain a store of value.

Our mission is to upgrade the world to a better financial system, enabling individuals and businesses to take advantage of cryptocurrencies that enable them to achieve their goals and fulfil their dreams.

We are in a new and exciting financial era and developing economies like Nigeria are leading the large-scale adoption and application of cryptocurrencies. At Luno, we want to help individuals in these markets and put them in a position to make informed decisions about the opportunities presented by cryptocurrencies.

Daily Trust: Recalled that South Africa-based, Pan African-focused cryptocurrency payment startup, Wala, ceased operations in June 2019; its Founder, Tricia Martinez, named the continent’s poor infrastructure as one of the culprits to shutting down. Do you think Nigeria has the infrastructural backbone and assets that support blockchain technology in the country?

Owen: With electricity in Nigeria being inconsistent and expensive, most miners using grid power operate at a loss; this is simply because the cost of mining is often higher than the reward paid in bitcoin.

However, this could change in the future. If Nigeria can harness renewable energy sources, such as wind and solar, to provide cheaper and more sustainable electricity, it can become a hub for Bitcoin mining.

Daily Trust: Following the volatility experienced in cryptocurrency trading until very recently (though the market is yet to stabilise), what likely prospects do you envisage for digital currencies this year globally and in Nigeria particularly?

Owen: There is set to be a Bitcoin halving in May 2020, which is a recurring event whereby the number of Bitcoin rewarded to miners are cut by half. These halving events are programmed to take place every four years, or once every 210,000 blocks until the year 2140 when all 21 million Bitcoin are estimated to have been mined.

With these four years now almost up, this halving will see the block rewards fall from 12.5 to 6.25 Bitcoin and could see a rise in demand for cryptocurrency by further restricting supply.

From a regulation standpoint, one major development this year is the 5th Anti-Money Laundering Directive (5AMLD). For firms buying and selling crypto-assets, 5AMLD will require them to register with national financial regulators and state minimum requirements for AML processes, similar to those we see with traditional asset classes.

The specifics of how further regulations will affect the crypto space are hard to predict or define. While it’s mainly focussed on the EU, it could be replicated in other regions such as Africa, if successful.

Daily Trust: There are rumours that Twitter CEO, Jack Dorsey, has plans around Bitcoin and cryptocurrency in Africa; what do you think might be his interest? Any chance this could lead to boom and more acceptability of cryptocurrency across the continent?

Owen: The world has been demanding a better financial system for some time now and it’s exciting to see Bitcoin, and cryptocurrency being discussed at this level. Whilst Jack’s plans on the continent remain unclear, it’s another endorsement from a respected figure which can only assist adoption efforts.

Cryptocurrencies offer many opportunities to create new streams of value and productivity and it’s important to bring awareness to this.

For example, in many countries across Africa, traditional ways of exchanging value are very expensive and can be highly inefficient. As a result, doing business can be unnecessarily difficult and out of reach for many.

Cryptocurrencies like Bitcoin offer a new way to trade, as well as tangible opportunities to transform economies and deliver real change.

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