The key reason Bitcoin can’t be a legal tender in Nigeria

In September 2021, El Salvador has pinned the first spot as the first country in the world to legalise cryptocurrency as a means of payment, enabling consumers to use crypto in all transactions. Back in 2009, when BTC was founded, paving a way for different other cryptocurrencies, it attracted good and bad interest from around the world.

In April 2022, the Central African Republic evolved to be the first African nation to accept Bitcoin as a legal tender.

The country’s parliament recognised Bitcoin and other forms of cryptocurrency as national tender, coming to be the second country in the world to officially legalise crypto as legal tender.

Yet, its adoption, either legally or illegally, has begun to soar, compelling international businesses to consider it as a means of payment. Lately, Emirates Airlines entered a growing list of companies to adopt BTC as a means of payment.

A statement by the World Economic Forum revealed that there were 18,142 cryptocurrencies, and 460 crypto-exchanges, with a market cap of about $1.7tn. Based on metrics, $91bn worth of cryptos were traded daily.

In Nigeria, crypto is restricted due to the February 2021 Central Bank of Nigeria ban on it. Nevertheless, Nigerians have persisted to accept it in transactions.

A Chainalysis article in 2021 disclosed that the crypto market in Nigeria and other African countries thrived by 1200 per cent in a year. It added that Africa amassed the third-fastest growing crypto economy in the world.

Another report by Chainalysis pointed out that Nigeria was the 6th dominating country in the world in terms of crypto adoption despite the CBN’s embargo on it.

In 2021, Nigerians traded at least N316.9bn cost of Bitcoin, with more than 6 million crypto trades and 16,000 trades per day on Paxful. The peer-to-peer platform indicated that Nigeria was the #1 country on its platform.

However, experts think that nations have to be careful considering the adoption of BTC and other aspects of crypto as legal tender. They noted that BTC wasn’t invented to become a legal tender.

Based on their conviction, Nigeria might one day regard BTC as a form of payment, but it would never displace the Naira. They expanded that utilizing it as Naira would contravene the constitutional purview of the CBN.

They further declared that the countries that had approved or thought of adopting crypto as a means of payment were those on the verge of financial collapse and Nigeria wasn’t necessarily one.

The Founder of Blockchain Nigeria User Group, Chimezie Chuta, said, “This will be opposite to the constitutional provision of Nigeria’s laws. Because explicitly, the CBN is the only institution authorized to issue a legal tender for the country.

“And presently, it is the Naira that has been printed, so for you to have an alternative unregulated currency to come to be a legal tender has to be legitimised by altering the constitution. That is something I do not see emerging in a long time in Nigeria.
“Bitcoin can be recognised as a currency of payment but not a legal tender. Although it might become possible for you to use BTC to make transactions that are valid in the eyes of the law, this is not something I see happening anytime soon because it is very clear that the central bank does not want the infiltration of unregulated kinds of payment instrument in Nigeria.”

According to him, BTC was recognized more as an asset than a means of payment now, and endorsing it as a legalised means of payment would be an encroachment on the purview of the CBN.

Chuta expanded, “Most countries that are adopting BTC are those that have hit the bottom like Venezuela and El Salvador.

“El Salvador didn’t even have a national currency; they were using the dollar. They could bring in BTC because they didn’t have a national currency. And in the other country, their economy was so bad that they had to allow BTC to become a national currency. Nigeria does not want to go in that route because they do not see themselves in that category yet.

“From a private perspective, one would have thought that what the CBN could have done is not necessarily legalise BTC but have reserve assets in BTC as a form of security against the continuous depreciation of the Naira. BTC has shown that it has a 200 per cent annual return since it has been in existence for a decade.

“If you compare this with the percentage value of the Naira, you would discover that it would have made some sense if some of our reserve assets are kept in a futuristic asset like BTC. That is the area I will support, but I do not think I will want Nigeria to turn BTC into a legal tender.”

The chief of Stakeholders in the Blockchain Technology Association of Nigeria and the General Secretary of the Blockchain Industry Coordinating Committee of Nigeria, Senator Ihenyen, let out he was stunned when CAR declared openly the adoption of BTC as a legal tender.

According to him, BTC was not the antidote to financial problems faced by countries and BTC wasn’t built to displace national legal tenders.

He explained, “CAR’s adoption of bitcoin as a legal tender came as a big surprise to me. Though I understand that decentralised currencies or cryptocurrencies will increasingly have a role to play in finance and payments, adopting bitcoin as a legal tender, in my opinion, is not going to be the answer to the economic problems faced by CAR.

“Not even Satoshi Nakamoto, BTC’s inventor, expects that its electronic cash system would be adopted as the legal tender of any nation, including El Salvador. Nigeria is no exception. The primary idea of BTC is not to replace legal tenders such as the CFA, the dollar, or the Naira. Rather, it essentially enables peer-to-peer transactions in any network or ecosystem that wishes to adopt it as a means of exchange.

“In other words, BTC can operate side by side with legal tenders such as a central bank or reserve bank currencies, as well as central bank digital currencies such as the eNaira. Besides, considering the huge BTC adoption in Africa, including Nigeria, the more you attempt to stifle it or resist it, the bigger it becomes.
This is because BTC and other similar cryptocurrencies thrive in a decentralised space where there is no central authority. So, regulators must see these crypto innovations as complimentary, thus proper regulations should be put in place to address the unique risks they may bring. That’s what regulation is all about.”

According to him, the decentralised feature of cryptocurrencies, involving BTC, should make Nigeria contemplate exploring them for economic progress and international competitiveness since adoption had evolved and would only keep on growing.

Ihenyen indicated that while the adoption of BTC wasn’t an expectation, Nigeria should be evaluating how its innovators, policymakers, and regulators could function together to guarantee that the country prospered from the opportunities the crypto economy delivers
He expressed that the Securities Exchange Commission had recognised digital assets in Nigeria.

He stated that there was a necessity for a stable and sound financial system, and crypto had the preference to distort monetary policies.

He explained, “The need for a safe and sound financial system cannot be overemphasised. I believe this is why the Governor of the CBN, Godwin Emefiele, has been harping on the need for Nigeria to adopt an extremely cautious approach to BTC or cryptocurrency adoption in the country.

“As responsible leaders and players in Nigeria’s emerging blockchain industry and virtual assets sector, we understand these concerns. Cryptocurrency, if not given the attention it deserves, may be easily used in manners that distort monetary policy as well as expose the banking and financial system to money-laundering and terrorism-financing risks.

“But the question is, how Nigeria should approach these risks. Is it by banning or restricting cryptocurrencies in the country’s banking and financial system (as the CBN has done since February 2021) or is it by recognising cryptocurrency as a financial technology innovation that should be regulated? I think the answer is the latter.”

According to Ihenyen, there was a need for the country to take on a risk-based strategy as it would allow it effectively to deal with the main concerns of regulators.

He claimed that when cryptocurrencies and other virtual assets were suitably categorized, some would fall under assets such as securities, utilities and derivatives while others would fall under currency which could be utilized as a tool of exchange, store of value, or unit of account
In an article titled, ‘Crypto-assets as national currency? A step too, the IMF mentioned, “As a nationwide currency, crypto assets – involving bitcoin – attract substantial risks to macro-financial strength, financial integrity, consumer security, and the space.”
In another report, the IMF indicated that crypto currencies’ high volatility and valuation and expansion together with equity markets would promptly pose risks to economic stability in countries with rampant crypto adoption.

It is noticeable that crypto has rewritten the financial landscape of the world, and various countries are wandering or pondering the idea of digital currencies as a response. Lately, the IMF agreed to a global regulatory crypto approach.

A lot about crypto is yet to be known, hence the caution from regulators. But its vast adoption in several countries is proof of its usefulness to consumers. As more is learned about crypto, it is predicted that regulators will discover a way to allow it to grow in their financial systems.

As the experts have explained, crypto won’t displace national currencies, but the economic system must find a place for it.

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