The Biggest Consequences of the Central Bank of Nigeria Cryptocurrency Ban in 2021
The Biggest Consequences of the Central Bank of Nigeria's Cryptocurrency Ban in 2021
I am astounded at how quickly cryptocurrencies are becoming a mainstream asset class in the country of Nigeria. Nigerians have maintained their position as one of the most rapid adopters of these digital assets, and they show no signs of abating their pace.
Despite the fact that cryptocurrency is becoming increasingly popular, the debate over it continues to rage. There is continued disagreement among institutions and government agencies in the country about the implications of digital currency.
Opponents of official adoption of cryptocurrency believe that they are capable of displacing fiat currency, which could result in the demise of banks and even national central banks. This, they reasoned, would result in increased systemic volatility. It is also believed to increase financial fraud and put national security at risk, according to the opponents.
Some individuals, on the other hand, believe that a smooth transition to a coexistence of sovereign money and cryptocurrency is possible in the long run.
As a result, they believe that traditional banking will evolve and embrace blockchain technology, ushering in a wave of innovation unprecedented in the preceding three decades.
In contrast, the majority of regulators in the world believe that cryptocurrency will result in economic repercussions for their countries. The Central Bank of Nigeria is included in this group of financial institutions (CBN).
By prohibiting Nigerian banks from facilitating cryptocurrency transactions in February, the Central Bank of Nigeria (CBN) reaffirmed its anti-crypto stance. A significant impact has been had on the country by the Central Bank of Nigeria (CBN) decision in February to declare all cryptocurrency transactions illegal, as well as the subsequent directive to banks to close accounts suspected of dealing in cryptocurrencies. Some of the more notable ones are as follows:
Strigient FX transfers
One of the potential advantages of cryptocurrency and blockchain technology is the ease with which they make it possible to make cross-border payments. A large number of people are able to send money to the destinations of their choice without having to go through time-consuming procedures or pay exorbitant amounts of money in fees.
Restrictions imposed by the CBN on cryptocurrency exchanges, on the other hand, result in the return of onerous transfer requirements. Citizens are left with no choice but to rely on bank-powered foreign exchange transfers, which are both slow and prohibitively expensive, and which are far from instantaneous in nature.
In addition, there is the issue of double transfer fees, which are levied by both the recipient bank and the recipient's institution, making exchanges even more expensive and unattractive for both parties. This has had a negative impact on the country's remittances, which have been declining for several years.
The popularity of peer-to-peer trading is increasing
Despite the fact that cryptocurrency exchanges are prohibited in Nigeria by the Central Bank of Nigeria, peer-to-peer trading of these assets is permitted in the country. As predicted, peer-to-peer trading has exploded in popularity as a preferred method of exchange for many young Nigerians, and it is now the most popular method of exchange in the country.
Usefultulips reported that the volume of peer-to-peer Bitcoin transactions in the country increased by approximately 16 percent in the week after The Central Bank of Nigeria issued the order. The amount of money transferred between individuals in Nigeria increased to $7.35 million, a significant increase from the $6.35 million received prior to the ban.
Indeed, since the beginning of 2021, peer-to-peer bitcoin trades have increased to a total of $204 million, making them the most liquid market in Africa.
As a result of the activities of peer-to-peer payment platforms, many Nigerian dealers have made the switch to electronic payment methods.
Many Nigerians found these transactions more appealing, and they accounted for approximately $9.4 million in weekly P2P volume, out of the $18.8 million in total P2P volume recorded in Sub-Saharan Africa.
The likelihood of cryptocurrency fraud is increasing
The use of unregulated peer-to-peer trading platforms for cryptocurrency exchange transactions exposes a large number of people to the risk of becoming victims of identity theft and fraud.
Fraudsters use photographs and other visual aids to make it appear as though they have fulfilled their end of the bargain and are pressuring the other party to do so, as described above.
Parties who succumb to the scammers' pressure and agree to make money transfers without first verifying the legitimacy of the transfer are out of their money. In addition, they will have a difficult time resolving the situation as well.
Additional to this, these con artists are well-known for taking advantage of certain payment systems' chargeback features in order to cheat the person who was supposed to be their counterparty in a peer-to-peer transaction.
In order to cancel or reverse the initial payment he made, this fraudster will initiate a chargeback and demand payment after the completion of a peer-to-peer transaction is complete. This is especially true if the seller approves the transaction without first verifying that the funds are indeed available in his bank account or wallet.
Stifling innovations in Blockchain
Aside from that, the Central Bank of Nigeria's crackdown on cryptocurrency exchanges in the country resulted in the creation of a number of growing regulatory risks, which have stifled innovation and technology, particularly in the blockchain sector.
A more general statement could be made about how this ban has affected the country's fintech sector, which has been hindered in its ability to facilitate payments on a large scale.
In the United States, domestic restrictions suffocate Fintech and cryptocurrency trading platforms, preventing them from competing on an equal footing with their international counterparts.
In order to continue offering services, major cryptocurrency trading companies have either been forced to relocate their headquarters away from Nigeria, or they have completely excluded Nigerians from their innovative frameworks.
Spurring relocation attempts
In spite of strong opposition from the central bank and a paucity of consistent regulations regarding cryptocurrencies, individuals in the country continue to hold some of the highest proportions of such assets per capita, owing to high demand.
Nigerians continue to use virtual currencies for a variety of purposes, including risk mitigation against the country's capital constraints and international money transfers.
Because of the significant benefits that the blockchain continues to provide, cryptocurrency exchanges have been forced to expand and relocate to other countries.
They were able to meet rising consumer demand in the domestic market while also avoiding the application of Nigerian laws that had previously hampered their activities.
When the Apex body was forced to adopt a more repressive policy, which included the blocking of accounts suspected of being involved in cryptocurrency trading in the country, the public outcry was overwhelming.
Consequently, the number of P2P transaction records in the country has dropped precipitously as a result of this. The trading activity, on the other hand, has remained strong and consistent.
