Nigeria:Evolution Of Digital Currency And Future Of Naira
- 30 July 2020 / News / 92 / ABI 1
The 21st century has witnessed a major rise in digital technology as life and living are integrated and made easier by the evolving technology. The economic system was not left out as innovative features continue to be released which resulted in birth of Bitcoin in 2008.
Bitcoin was the first attempt at a digital currency which has been the most successful and it is now being accepted by a number of major retailers. Bitcoin is a cryptocurrency and operates as a peer-to-peer network.
Notably, Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions. Basically, cryptocurrencies leverage blockchain technology to gain decentralisation, transparency and immutability.
Cryptocurrency is not merely money that exists in the digital space; it relies on a decentralised form of control, meaning that it is not regulated by banks, governments or any intermediating entity with a higher power.
Instead, ownership, security, and verification are based on a system of cryptography, which works as the medium of storing the currency and processing it. New units and transactions are created via encryption techniques which no one can change unless specific conditions are met.
Transactions are stored digitally on a public ledger known as the blockchain. The units of currency have no physical form. Instead of a central authority, networks of participants known as miners run the network in the blockchain, checking and verifying transactions with the incentive of being awarded some cryptocurrencies in return. A peer-to-peer network that verifies transactions removes the need for a financial institution or a trusted third party.
Essentially, Bitcoin was established based on the need for cryptography and a digital ledger to replace the traditional trust held with banks. Bitcoin was created by a person or group under the pseudonym of Satoshi Nakamoto, whom no one knows the true identity of to this day. What started as a paper sent to a mailing list on cryptography soon became the genesis of an ever-growing industry and the foremost cryptocurrency on the market. Other competitors also mined on a decentralised network and Litecoin was launched in 2011. After one year, Ripple was founded in 2012. However, Bitcoin remained the most popular also smart contracts were launched in the crypto ecosystem during 2015 when Ethereum was launched.
Cryptocurrencies possess unique features which include, its cryptographic nature which has an added layer of security through the way in which the coins are transacted.
Irreversible transactions feature as well as its no authorisation to join policy, allowing anyone to participate in the crypto sphere if they choose to unless a country has regulations against cryptocurrency set in place.
In 2017, there were more than 1,000 cryptocurrencies listed and in the same year, the price of one Bitcoin crossed $10,000 for the first time in its history. The price of a single Bitcoin reached $20,000 during 2017. Then, EOS offered an infrastructure based on blockchain for DApps (decentraliaed applications). Currently, more than 5,000 cryptocurrencies are circulating in the market.
Also, cryptocurrency can be considered as an investment in the emerging financial system- DeFi (decentralised finance). Decentralised finance (DeFi) is an alternative financial system. It is built on a public blockchain that offers higher accessibility as anyone can connect to this system. Moreover, transactions are publicly available which enable higher transparency across this financial system.
The parallels between the internet and crypto are stunning. Until Mosaic, the internet was publicly funded and primarily used in an academic setting. But enlightened policymakers decided to legalise commercial activity on the Internet. The breakout years of simplified usage and huge user growth are not far away. The talent is abundant, the capital is here and the conditions like economic inclusion and freedom are ripe.
On the future of cryptocurrency, several economic analysts have predicted a big change in crypto is forthcoming as institutional money enters the market. Moreover, there is the possibility that crypto will be floated on the Nasdaq, which would further add credibility to blockchain and its uses as an alternative to conventional currencies.
Some also hinted that all that crypto needs is a verified exchange-traded fund (ETF). An ETF would definitely make it easier for people to invest in Bitcoin, but there still needs to be the demand to want to invest in crypto, which might not automatically be generated with a fund.
Cryptocurrency is currently a growing ecosystem and during the past few years, the users of Bitcoin as well as its transactions, has been growing on an average rate of approximately 60 per cent per year. Likewise, private and public investors have also expanded their commitment to cryptocurrencies such as Ripple, Stellar, Ethereum, and many more cryptocurrencies across the industry.
The most important question to take into account is would governments around the world begin to make their currency deflationary in order to make it attractive? Will they ban cryptocurrencies outrightly without a clue on how to enforce this well? However, to achieve better position crypto would have to hope that governments would approach cryptocurrencies on a positive note. According to Coinbase CEO, Brain Armstrong, the digital currency may be the most effective way the world has ever seen to increase economic freedom. If this happens, the implications are profound. It could lift many countries out of poverty, improve the lives of billions of people, and accelerate the pace of innovation in the world.
Speaking with Nigerian Tribune Aderemi Ibrahim Tunde, CEO LoadNG automated systems and a crypto expert explained that the increase in adoption of Cryptocurrency is because it isn’t aligned with a particular country.
“Its a worldwide paradigm shift from the fiat currencies all over the world to a decentralised ledger known as the blockchain. People all over the world are increasingly starting to see the advantages of having a network where no kobo can be lost to chance, in an uncontrolled way yet, the most prudent of way powered by technology.
“So adoption is a worldwide thing as it is evident the generic progression of digital currencies in terms of overall market capital,” he said.
He further affirmed that Nigerians are currently the biggest users of the Cryptocurrency p2p platform – paxful in Africa, adding, that Nigerians account for a very large chunk of the digital currency community on the continent.
Aderemi also added that when it comes to embracing the technology, Africans are in the forefront of its usage, either for investment or trading purposes and Nigerians account for the largest users by country.
Speaking, on the effect the digital currency could have on the Naira and the Nigerian economy in general he said, “the end result of Cryptocurrency is converting it to spendable naira, this invariably affects the economy positively by increasing the number and amount of transactions done by accounts which results to more tax paid to the Nigerian government.
“Asides that, the blockchain technology in itself is the world’s most prudent technology at the moment. With varying utilisation in the banking industry, agriculture, logistics and supply chain, medical and a whole lot of other industries. This makes the blockchain technology a perfect tool to combat avoidable losses in various industries directly tied to the country’s economy,” he noted.
Supporting the LoadNG CEO assertion, chief accountant KiaKiaFX and crypto expert, David Osage, said “Crypptocurrency adoption has witnessed an uptick and will definitely have a positive effect on the Nigerian economy if properly adopted.
“It’ll also help save the value of Nigerian resources cause of the devastating inflationary situation of the naira. It will also help ease the process of doing business,” he added.
Additionally, reports have suggested that some of the limitations that cryptocurrencies presently face such as the fact that one’s digital fortune can be erased by a computer crash, or that a virtual vault may be ransacked by a hacker may be overcome in time through technological advances and back up setup.
Also, the increasing number of merchants who accept cryptocurrencies gives enthusiasts opportunity to carry out transactions in more places globally, which invariably is rearranging the status quo.
The future of cryptocurrency would bring about economic freedom, transforming normal fiat currencies to secondary use only and digital currency regarded as the global means of transactions.
Additionally, the global cryptocurrency market has been predicted by experts to surpass $1.4 Billion by 2027.
Meanwhile, the Central Bank of Nigeria (CBN) and the Senate have warned Nigerians against cryptocurrencies. The apex bank, in one of its warnings, stated that, “For the avoidance of doubt, dealers and investors in any kind of crypto currency in Nigeria are not protected by law. Virtual currencies are traded in exchange platforms that are unregulated, all over the world. Consumers may therefore lose their money without any legal redress in the event these exchangers collapse or close business. Members of the public are hereby warned that virtual currencies are not legal tender in Nigeria. Accordingly, we wish to caution all and sundry on the risks inherent in such activities.”
Similarly, the Senate, in 2018, called on the CBN, the Securities and Exchange Commission (SEC) as well as the Nigerian Stock Exchange (NSE) to enlighten Nigerians on the risks involved in trading in crypto currencies.
However, a 2019 report by the Chartered Institute of Bankers of Nigeria (CIBN) showed that 41 per cent of new users in bitcoins were reportedly from Nigeria, Ghana and South Africa. The use of bitcoins has continued to grow worldwide irrespective of the dangers of insecurity of funds and scams.
Anthony Idigbe, who authored the CIBN’s publication entitled “Legal issues in ecommerce”, thus advised the CBN “to consider ways of applying its regulations to the new consumer behaviours of blockchain and crypto currency as there are new infrastructure or payment gateways that allow online/offline merchants to receive other modes of payments from the regular fiat currency such as crypto currency.
“To improve recognition of credible ecommerce, the CBN can require payment gateways and merchant aggregators linked to an ecommerce site, to issue its merchants with a visible certification badge.”
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