The crypto market is a global phenomenon that encompasses not only the so-called developed countries of the West, but also every single area of the world that has been permeated by the Internet. Accessibility to the Internet is the core prerequisite for the adoption of any digital currency – the lifeblood of the digital economy, which in itself relies on the blockchain – an online concept. The African continent is absolutely no different from any other, as users in countries like Nigeria have been on the path towards crypto adoption much longer than many of their peers in Asia and even the United States.
Cryptocurrency trading platforms have been on the rise in Nigeria for the last six years, largely due to the gradual and sustained depreciation of the national currency – the Naira. Having lost 209% in value over the same period, the Naira is no longer viewed as a reliable means of transacting in the country and few Nigerians believe it to be a viable store of value. With the central bank of the country powerless to stem the tide of depreciation in light of a worsening economic situation, spurred by the lockdowns of the Covid-19 pandemic, Nigerians are turning to Bitcoin and other cryptocurrencies.
Trading platforms are the main hubs of activity in Nigeria’s digital economy, attracting millions of dollars in trading volumes daily. However, the central bank of the country is not oblivious to the developments taking place in the financial sector. In May of 2022, the financial authorities, namely the capital markets regulatory authority, passed new laws that regulate the issuance, circulation and holding of digital currencies and various digital assets throughout Nigeria. The decision was not a surprise, considering that the draft law was under consideration in Nigeria’s parliament for over 20 months.
The local regulations require companies to set up trust accounts for their crypto operations and comply with all relevant Know Your Customer and Anti-Money Laundering procedures. The new law affects all VASPs, or Virtual Asset Service Providers, and puts the much needed element of regulation and legality into the digital frontier of Nigeria.
This is especially relevant in light of the fact that cryptocurrency traders in Nigeria make up over half of the population. Such dynamics put Nigeria well ahead of many developed countries like the United Kingdom, Japan and the United States in terms of crypto adoption. Nigeria is the world’s sixth most populous country, sharing the list with such giants as India and Pakistan. Such demographic dynamics, coupled with the deteriorating economic situation in the country, are pushing Nigerians to start adopting crypto trading and using digital assets for daily transacting.
Nigeria is a suffering country from an economic standpoint, a gigantic and resource-rich land where almost half of the young population remains unemployed. With the third-highest rate of unemployment in the world, standing at just above 30%, Nigeria is simply forced to adopt cryptocurrencies to somehow make up for the catastrophic lack of access to financial resources for its population. As such, crypto trading has become a means of making a living in the country.
However, apart from relying on crypto trading to make a living, Nigerians are also migrating into the digital assets market in search of new opportunities of value storage. The many crypto exchange platforms operating in the country boast prices on Bitcoin that are often higher than the global market average. The reason being the higher-than-average demand for Bitcoin and other top cryptocurrencies among Nigerians. They use such crypto market mainstays as a means of storing the value of their savings in light of national currency depreciation.
In addition to storing value, many Nigerians rely on cryptocurrencies as a means of sending remittances and receiving loans. With almost a third of the population in the country deprived of access to financial services, essentially considered as unbanked, people working abroad and even inside the country rely on cryptocurrencies as a means of sending their earnings to their families. As banks are unwilling to give loans to those without a bank account, the crypto market provides a welcome reprieve at considerably more favorable rates that can be negotiated on a peer-to-peer basis.
The central bank of Nigeria is also aware of the situation and has issued its own digital currency – the eNaira. The CBDC, or Central Bank Decentralized Currency, is intended to be more of a supplement to the existing fiat Naira and act as a way of retaining users inside the regulated and official financial system. The downside is that Nigerians are unwilling to use the new central bank asset, considering it worthless and unbacked, in stark contrast to market-backed cryptocurrencies like Bitcoin.
Cryptocurrency traders in Nigeria do not face that many difficulties in trading digital currencies, since there is no official ban on such assets inside the country. However, to trade cryptocurrencies legitimately in Nigeria, crypto traders need to adhere to a few simple rules.
Banks are prohibited from engaging in any cryptocurrency-related transactions in Nigeria, as per a law that was issued by the country’s central bank in 2021. As such, citizens inside the country have difficulty in operating major assets on the crypto market. Nigerians cannot use their debit or credit cards for operations related to cryptocurrencies, including purchases, sales and exchange. This ban paved the way for the advent of peer-to-peer trading inside the country on a massive scale.
Local exchanges have started offering extensive and even unique features for local users to make sure they can trade any kind of digital currency both safely and with a high degree of convenience. By relying on peer-to-peer trading, users engage in a two-way financial relationship between each other, setting the terms for the purchase, sale or loan of crypto assets. Fiat currencies can be used in the process as well, since the local exchanges act as intermediaries, facilitating the process of peer-to-peer trading, acting as escrow service providers and trading venues. The users transmit the conditions of their transaction to the exchange’s escrow service and the latter acts as a guarantee of transaction execution, thus providing much-needed trust to the process. Once the conditions of the transaction stipulated in the escrow smart contract have been fulfilled, the exchange transmits the funds in the escrow account to the parties and the transaction is concluded.
When selecting the best exchange to fit their needs, crypto traders in Nigeria must first browse through the available lineup of exchanges operating on the local market. The abundance may be staggering at first, but a few key factors will determine whether their trades end up successfully or their funds are lost to a hacker attack.
The first factor to consider is the security of the exchange. Since many exchanges rely blindly on the blockchain itself for security, users must examine whether there are truly decentralized solutions on the platform of choice, whether it uses non-custodial wallets, and whether there are standard 2-Factor Authentication features embedded. These measures are guarantees against unsanctioned access to their funds.
The trading fees involved are another factor, since their volume will determine just how profitable a trade will be. If the exchange charges a large amount of commissions for every trade and withdrawal, then frequent trading will result in a rather high total amount that eventually erodes the profitability of operations on the decentralized frontier.
The availability of various payment gateways is just as important, considering that credit and debit cards are not allowed for use as payment for cryptocurrency-related transactions in Nigeria. The availability of Naira on-ramps is vital, as well as the embedded exchange facilities that will allow users to convert their US Dollars or any other currency into the desired form of fiat. Payment gateways like PayPal should be connected as standard.
The volume of trade on a specific platform is a good indicator of its popularity and liquidity, ensuring that there will be sufficient amounts of funds on it even in peak periods of market activity.
Nigeria is a thriving country with one of the youngest populations in Africa and one of the most beleaguered economies. Such a state of affairs is pushing the local population to seek refuge in cryptocurrencies, entering the crypto market in search of value saving solutions. Cryptocurrency traders in Nigeria are a resourceful group and are always eager to onboard new decentralized solutions for improving their livelihoods. Luckily, local exchanges provide ample opportunities and tools for doing so.