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How Crypto Can Help Nigeria’s Economy?

Nigeria, Africa's leading crude oil exporter and the continent's largest and most populous country, has roughly 40% of its inhabitants living in poverty.

The COVID-19 pandemic resulted in lower output of goods and services, which had a detrimental impact on the economy and resulted in the loss of thousands of jobs.

Nigeria's unemployment rate is expected to grow to 32.5 percent this year and even higher next year.

Olumide Adesina is a certified investment trader with over a decade of experience in Nigeria.

This is where Nigeria's nascent crypto economy comes into play.

Nigerian policymakers and stakeholders must use the potential inherent in crypto to enhance such poor economic data in order to support the development of Africa's largest economy. We chatted with a number of specialists in the Nigerian crypto community to learn more about the possible benefits.

Get around the prohibition

Many of the obstacles of international trade can be overcome with the use of a crypto economy, which can assist Nigerians who do not have bank accounts. Nigeria, which has already embraced the internet, is seeing a tremendous increase in cryptocurrency transactions. The Nigerian central bank's crypto prohibition, which prohibits commercial banks and payment providers from engaging with cryptocurrency organisations, is driving a youthful, tech-savvy population to embrace cryptocurrency for the first time.

Temitope Busari, a chartered financial analyst, points out that blockchain technology eliminates the need for middlemen in transactions. “Cryptocurrency eliminates the red tape and exorbitant fees that come with bank transfers. Digital solutions for e-payments and transfers have benefited the African economy, and new companies are embracing financial technology to give enhanced banking solutions,” she tells me.

Anti-inflation

In a hyperinflationary environment, investing in cryptocurrency means saving wealth.

“The depreciating value of the naira, which has seen the local currency decline by over 100 percent since 2015, is driving Nigeria's crypto market boom,” said Anthony Okafor, an adjunct professor of finance at the University of Louisville. “Investing in cryptocurrencies is developing as a leading investment outlet, as well as a means of conserving salaries and wealth, in an economy beset by hyperinflation and a high unemployment rate.”

Crypto assets are quickly becoming an easier choice for many young Nigerians wishing to retain their wealth, according to Abiodun Keripe, managing director of Afrinvest Research. To avoid the negative effects of inflation, a substantial number of crypto fans have turned to digital assets as a store of wealth. To put things in perspective, bitcoin returned 302.8 percent in 2020, while headline inflation (Nigeria CPI) was 15.75 percent year over year in December.

A large number of Nigerians are already feeling the ill effects of the recent restriction on cryptocurrency trading, which has forced consumers to use third-party services because traditional banking systems are unable to handle cryptocurrency transactions. The number of people who have been exposed to shady entities has risen.

Despite this, according to Statista, a market data tracker, over $400 million worth of crypto assets have been traded in Nigeria this year. The ability of cryptocurrencies to prevent central banks from enforcing monetary regulations is credited with this expansion, according to market analysts.

Crypto also lubricates the economy by providing more liquidity, making it easier for Nigerians to shift money around.

“For naira holders wishing to abandon the local currency, cryptos have presented a sufficiently liquid fiat alternative,” said Uwa Osadiaye, a senior vice president at FBNQuest Merchant Bank.

Remittances

Due to the high cost of cross-border transfers, Nigerians in the diaspora are leveraging digital assets to send money back home.

Nigeria led Africa in peer-to-peer (P2P) trading volume in the first half of 2021, with Paxful accounting for 77.2 percent of that and LocalBitcoins responsible for the majority of the rest (22.8 percent ).

“Cross-border transfers have always been costly and unreliable. Only 3% of the 3000 mobile money transfer platforms can make cross-platform transfers. So far, crypto has proven to be the greatest option for such transactions. The independence that comes with it has also aided adoption,” said Kabi Hillary, the founder and CEO of LunarCRUSH/Africa, a fast-growing real-time bitcoin social media analytics firm.

When it comes to international trade, blockchain technology can help Nigerians overcome a number of challenges, particularly for those who do not have bank accounts, Busari, the financial analyst, said.

According to the World Bank, roughly 350 million adults in Sub-Saharan Africa remain unbanked. Crypto assets, on the other hand, can serve to expand financial inclusion by allowing for quick and easy transactions, which can help to boost economic growth and improve people's lives.

“With poverty, inflation, and unemployment at all-time highs, exacerbated by the pandemic breakout, cryptocurrencies have given a unique opportunity for some Africans seeking an alternate source of income and protection from economic downturns,” said Keripe of Afrinvest Research.

As traditional employment become outdated as a result of new technology, unemployed Nigerians might produce revenue using blockchain technology and cryptocurrencies. People that can produce crypto/blockchain goods for businesses, develop crypto-related products, audit smart contracts, conduct crypto forensic audits, and manage projects are in demand.

Regulation is required

However, crypto assets alone would not be sufficient to address Nigeria's economic difficulties. Better regulation is required, according to FBNQuest Merchant Bank's Osadiaye. “Transparency and crime prevention remain unanswered questions. These problems, in my opinion, are manageable, but they will necessitate regulatory involvement.

“While the approach has varied greatly between nations, I believe it might aid in the creation of a system in which the regulator has unambiguous oversight over end-to-end crypto-based transactions in Nigeria. This would allow for ongoing crypto adoption while diverting demand away from the country's foreign exchange reserves,” he said.

Still, a post-pandemic Africa needs to start developing its blockchain industry. The technology will evolve to address the specific needs of our Nigerian market, including financial inclusion.

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